Lessons from Ecuador’s bond default
posted by: Felix Salmon, describes in some detail the default by Ecuador, with a particular focus on the benefits for Ecuador.
Felix notes that Ecuador (and its corporations) hasn’t been able to issue debt in years, so they’re not losing access to the markets. As a dollarized country, Ecuador isn’t subject to hyperinflation. The threat of holdouts have been mitigated (namely that the holdouts attach to Ecuador’s oil revenues) because Ecuador has been buying back its debt at just-above vulture rates, or alternatively Ecuador may continue to pay the vultures with coupons.
Felix quotes, on the question of systemic effects of the Ecuadorian default:
“The world has changed,” said [Hans Humes, of Greylock Capital] — we’re now living in a world where not only Ecuador can default, but Iceland can default as well. And that’s a world where defaults by small emerging-market countries simply don’t have the systemic consequences that everybody thought they might have. I even heard Humes say something I never thought I’d hear a died-in-the-wool buy-sider like him say: “Maybe,” he said, the solution to “go back to Anne Krueger’s model” [Ed: i.e. SDRM]