January 6, 2009 / 7:05 PM / 10 years ago

UPDATE 2-Ecuador seeks multilateral loans, safeguard dollar

(Recast, adds Correa’s quote, details and byline)

By Maria Eugenia Tello

GUAYAQUIL, Ecuador, Jan 6 (Reuters) - Ecuador is seeking $2.6 billion in credits from regional multilateral lenders to finance an economy reeling from a spreading global crisis, President Rafael Correa said on Tuesday.

In a meeting with a group of business leaders in the coastal city of Guayaquil, Correa said his government will also keep liquidity levels high by restricting some imports and taming public investment as crashing oil prices curtail the OPEC nation’s revenue intake.

The president said high liquidity will safeguard the country’s dollarized system amid worries lower oil prices and heavy public spending are quickly depleting dollar reserves.

“We will take measures... to prevent a balance of payment crisis that could threaten the dollarized system,” Correa told the meeting of business leaders.

Ecuador adopted the U.S. dollar as its legal currency in 2000 after a crippling financial crisis that led to massive currency devaluations. Correa, a socialist who has been a critic of the dollarized system, has denied plans to abandon the greenback that is widely popular among Ecuadoreans.

Correa said his government is working on securing $1.5 billion in credits from the Inter-American Development Bank, $600 million from the Andean Development Corporation and $480 million from the Latin American Reserve Fund.

The former economy minister is scrambling for funds to cover a fiscal deficit expected in 2009 to widen to around $1.5 billion as the global crisis cramp the country’s key exports such as bananas and shrimp.

Multilateral loans and the sale of domestic debt could help the widely-popular Correa keep the economy afloat and sustain the dollarized system before his re-election in April. Crisis-weary Ecuadoreans have toppled their last three elected presidents in part due to economic missteps.

Correa’s announcement to seek loans comes only weeks after the country defaulted on $3.8 billion in global bonds, in a move analysts say would hurt the country’s multilateral financing.

In December, Correa refused to repay the country’s three global bonds over charges the debt was acquired illegally by past governments in cahoots with bond-holders.

Analysts say the debt default and falling oil prices would greatly limit financing sources, even from friendly nations like Iran and Venezuela.

“It seems that Correa is more stretched for financing than he anticipated,” said Enrique Alvarez, head of Latin America debt strategy with IDEAglobal. “Multilaterals might not be very willing to give him the funding he wants after the default... the $2.6 billion are looking like a long-short.”

To cope with financing needs Ecuador recently issued $1.5 billion in domestic bonds, and announced it will collect hundreds of millions of dollars in unpaid taxes from foreign oil companies.

Correa added that the Andean country’s registered inflation below 9 percent in all of 2008.

Reporting by Maria Eugenia Tello, Writing by Alonso Soto; Editing by Diane Craft

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