Ecuador’s Ortiz Quits After Correa Seizes Companies

Published by Bloomberg

By Stephan Kueffner

Ecuadorean Finance Minister Fausto Ortiz resigned after the government seized two television stations and almost 200 other businesses in a dispute over debts stemming from a 1990s banking crisis.

Wilma Salgado, a 55-year-old economist and former chief of the government agency that took over the businesses early today, was named as his replacement. Ortiz worked during his year as finance minister to damp speculation sparked by President Rafael Correa that Ecuador would default on its debt. Salgado has said the obligations poor nations’ debt should be canceled.

“The orthodox wing of the government is uneasy over the government’s confrontational stance,” said Larry Birns, director of the Council on Hemispheric Affairs, a Washington research group.

Correa, an ally of Venezuelan President Hugo Chavez, may have wanted to demonstrate populist credentials as his approval ratings decline and support for a new constitution that he has championed wanes, said Patrick Esteruelas, an analyst at the Eurasia Group in New York. Correa has long had a tense relationship with the banking and media industries, he added.

“Correa is undeniably pushing a state-centered economic program that is pushing aside the private sector,” Esteruelas said. An opinion poll cited by Correa in June put support for the new constitution at 47 percent, less than the 50 percent plus one vote he needs for it to pass in a referendum.

$661 Million

Ecuador’s Deposit Guarantee Agency, or AGD, seized the businesses from the Isaias Group, which it says owes $661 million related to the 1998 failure of a bank owned by the company. The agency manages assets that passed to the state in the wake of the banking crisis that led to a collapse of the economy and the introduction of the dollar as legal tender.

Correa, 45, told reporters today that the government wants to sell the businesses, TV stations included, as soon as possible to help investors recover their savings. Bank customers received only a fraction of their deposits back when the bank collapsed.

“We took a key step to ending the nightmare of the great bank robbery that 10 years on, for the most part, has gone unpunished,” Correa said at Quito’s presidential palace. He said if the matter goes to court any recovery could be delayed.

Salgado said after being sworn in today that Ecuador would continue to repay its debt, though the country could adjust its payment policy once an audit of what Correa calls “illegitimate” debt is finished.

Estefano Isaias, brother of William and Roberto Isaias, the main shareholders of the group, said the company settled its debt to the government in full.

International Defense

“We will try to defend ourselves internationally if we can’t do this in Ecuador,” he said in an interview broadcast on Radio Quito. Ecuador is seeking the extradition of William and Roberto Isaias from the U.S.

Ecuador’s bonds fell in New York trading in the wake of Ortiz’s resignation. The yield on Ecuador’s 10 percent bonds maturing in 2030 climbed 49 basis points to 10.84 percent, according to JPMorgan. The bond’s price tumbled 4 cents to 93 cents on the dollar.

“Ortiz was quite market friendly,” said Claudia Calich, who manages $1 billion in emerging-market debt for Invesco Inc. in New York. Salgado “is believed to be less market friendly than Ortiz.”

Ortiz quit because he disagreed with the takeover, said Jose Toledo, who took over as news director at one of the seized stations and said he attended a five-hour meeting on the government’s move where Correa and Ortiz were also present.

20 Cabinet Changes

“The president told him that if he wasn’t in agreement he could leave, and he left,” Toledo said in comments broadcast by Ecuavisa television.

The former finance minister didn’t return calls to his mobile telephones seeking comment. He was Correa’s second finance minister. Correa has made changes 20 times to his cabinet during his 18-month old administration.

Salgado was a member of Ecuador’s chapter of Jubilee 2000, a non-governmental organization seeking the cancellation of debt to developing nations.

“Salgado doesn’t inspire a great deal of confidence,” Esteruelas said. “She doesn’t have the skills or the inclination to operate as effectively as Ortiz did.”

Gianfranco Bertozzi at Lehman Bros. in New York, said today’s fall in bonds offered a buying opportunity.

“This is not really a nationalization, and at the margin it may even prove warranted,” he said in an e-mail. “Noise levels may rise in Ecuador in the weeks ahead, but the risk of default will likely not.”