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The merits of Ecuador’s approach
09 April 2020
Ecuador has put forward a plan for dealing with an unprecedented triple shock of lower oil prices, coronavirus and loss of access to financial markets. The shocks are no fault of Ecuador’s, but due to loss of access to financing the current Ecuadorian government now finds itself in the painful predicament of not having enough resources to both service debt and look after the health of Ecuadorians. While default cannot be ruled out, in Ecuador’s case there is a better way both for the country and for creditors. Investors can take steps to avoid default by engaging directly with the government and multilateral financial institutions to provide temporary liquidity relief in a market-friendly way. This would ensure that the bonds continue to perform, while at the same time help the country through an unusually severe humanitarian crisis. It is by no means possible to strike such deals with all countries, but it is possible in the case of Ecuador, because the current government has demonstrated very strong willingness to pay. The key ingredient for a deal – desire to honour obligations in full – is therefore in place.