Bloomberg gives President Correa Good Marks
An April 4th article on the Bloomberg Financial Website commented about the value of Ecuador bonds, and gave an interesting perspective on Ecuadorian President Raphael Correa.
Very often, we get questions about Correa. My standard answer is that to get elected, he spoke to the people in the language they wanted to hear which was populist/socialist/help the poor. It worked for him. Once in office, he is more pragmatic relative to the world economic system, and what it takes to survive in it. At the same time, he is strongly supportive of the people of Ecuador and is creating what he believes they need. He is highly popular, and he doesn’t push around very easily.
I have presented excerpts from the Bloomberg article here. If you want to read the entire article, go to this link:
April 4 (Bloomberg) — Yields on Ecuador’s dollar-denominated bonds fell below those of Venezuela as Ecuadorean President Rafael Correa reins in a budget deficit while his ally Hugo Chavez ramps up spending.
Ecuadorian dollar bonds yielded 6 basis points less than Venezuelan dollar bonds on average at 5:35 p.m. in New York, according to data compiled by JPMorgan Chase & Co. Ecuadorian bonds yielded 7.48 percentage points more than Venezuelan bonds in December 2006, when Correa pledged before taking office to default on the country’s “illegitimate” debt.
Correa, while using much of the same “21st Century Socialism” rhetoric that Chavez popularized, has done more to reassure bondholders than his Venezuelan counterpart. He backed off the default threats, boosted tax collection and cut the budget gap while Chavez increased spending three-fold over the past five years, sparking Latin America’s highest inflation rate and shortages of everything from milk to cars.
“Chavez took the baton from Fidel Castro,” said Tomasz Stadnik, who manages $2.6 billion of emerging-market debt at ABN Amro Asset in London. “Correa is a more complex character to read. He’s definitely not a revolutionary.”
“Ecuador used to be part of the tragic trio that included Venezuela and Argentina,” said Edwin Gutierrez, who manages about $5.5 billion of emerging-market debt for Aberdeen Asset Management Plc in London. “It’s one of my favorite picks. The fear of an unfriendly restructuring has faded. Ecuador is not issuing any more debt.”
A Pragmatist
Correa, a 44-year-old economist with a Ph.D. from the University of Illinois at Urbana-Champaign, won election in November 2006 by promoting his alliance with Chavez and pledging to rewrite the constitution to help bring about a “just and socialist Latin America.”
Like Chavez, he lashed out at the U.S., calling President George Bush “dimwitted,” and threatened to sever ties with the International Monetary Fund and World Bank during the campaign. Chavez has dubbed Bush the “devil” and “Mr. Danger.”
Correa, who laces his speeches with phrases in the native Quechua language, has been less radical since taking office. He scrapped pre-set spending items from the annual budget and raised income and inheritance taxes last year, steps that earned the backing of the IMF. Ecuador’s Finance Ministry forecasts the budget deficit will narrow 18 percent to $605 million this year.
Correa’s government said in January it won’t join a military alliance against the U.S. proposed by Chavez. Correa has also refused to join ALBA, a trade group Chavez formed with Bolivia, Cuba and Nicaragua as an alternative to the U.S.-led Free Trade Area of the Americas. He called ALBA “ambiguous” in September, telling the Associated Press he didn’t “even understand it.”
“Correa is a pragmatist,” said Werner Baer, an economics professor who taught Correa at the University of Illinois. “He is not as aggressive as Chavez, and his agenda is to govern and reform effectively. He is not using anti-Americanism as a tool.”
Filed under: Ecuador Politics
