{
  "id": "RL30348",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL30348",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 101023,
      "date": "2000-02-01",
      "retrieved": "2016-05-24T20:39:19.478941",
      "title": "Ecuador's Brady Bond Default: Background and Implications",
      "summary": "Ecuador faces its worst economic crisis since the 1930s, suffering from a deep recession,\ncollapsed\ncurrency, and failing banking system. Together, these problems led to huge fiscal deficits and\nincreased external borrowing. The fiscal shortfall took a dramatic turn on September 30, 1999 when\nEcuador decided to default on its Brady bonds, effectively cutting off Ecuador from foreign financial\nresources. This proved to be a pivotal decision, contributing to the escalating social and political\nstrife that resulted in the forced removal of a sitting president in January 2000.\n  Brady bonds (named for former U.S. Treasury Secretary Nicholas F. Brady) were one answer\nto the lingering Latin American debt crisis. They combined partial debt forgiveness with a\nrepackaging of the remaining debt into bonds that could then be traded on the securities markets. \nThis met debtor country need for a reduction of debt and debt service, and the commercial banks'\ngoal of removing this debt from their balance sheets without having to write off the entire amount. \nEcuador currently has $6 billion of Brady debt in bonds with varying provisions, some collateralized\nwith U.S. Treasury zero coupon bonds held in escrow.\n  Citing its large budget deficit, Ecuador gave notice on August 26, 1999 that in an attempt to\nrestructure its external debt, it would use the 30-day grace period provision in its Brady bond\nagreement to defer a $98 million payment that had come due. On September 30, 1999, Ecuador\nmissed a $44.5 million interest payment on a portion of its Brady bonds. One month later, Ecuador\ndefaulted on a $27 million Eurobond interest payment. The Brady bond default was a calculated\nmove to pay off the non-collateralized debt, with the expectation that investors would be amenable\nto invoking the collateral clause on the discount bonds to cover the missed interest payment, thereby\ngiving Ecuador more time to restructure its debt portfolio.\n  With no viable plan to restructure its debt portfolio, investors voted instead to invoke the\n\"acceleration\" clause, requiring full payment of the Brady discount bonds. Ecuador has been unable\nto pay these bonds in full, leaving the two groups at an impasse. For Ecuador, defaulting on its\nBrady bonds worsened its financial crisis, causing creditors to shun requests for debt rescheduling. \nThis has forced Ecuador into acute budget tightening, which may extend an already deep recession\nand exacerbate attendant social costs in this very poor country. New lending to Ecuador from either\nprivate or official lenders seems unlikely until an officially sanctioned structural adjustment plan is\nin place.\n  Although Ecuador's Brady bond default is relatively small, it does have potentially broader\nimplications for the precedent it set. The default effectively subordinated Brady debt to other\ninternational claims, raising questions in the international debt markets. In addition, Ecuador's\ninability to come to terms with either public or private international lenders escalated its financial\nhardship and the political and social turmoil that led to the ousting of a sitting president in January\n2000. It is currently unclear how Ecuador will fare under a new administration that faces the same\nfinancial impasse and continuing deep economic problems.",
      "type": "CRS Report",
      "typeId": "REPORTS",
      "active": false,
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      "topics": []
    }
  ],
  "topics": [
    "Economic Policy",
    "Foreign Affairs",
    "Industry and Trade"
  ]
}