External Debt

Ecuador's growing external debt problem was linked to the country's heavy dependence on volatile petroleum export revenues. During the 1970s, the government made optimistic forecasts concerning potential future revenues accruing as a result of oil exports, and it borrowed heavily from foreign sources to help meet development goals and to finance large public-sector deficits. In real terms, government spending grew by 9.6 percent each year during 1973-82. Interest payments on the debt quintupled between 1978 and 1982. During 1983-85, while the government implemented austerity measures as it sought to meet international debt obligations, Ecuador successfully negotiated with about 300 foreign creditor banks a multiyear refinancing package on a US$5.2-billion portion of its external debt. Although the rescheduling agreement allowed Ecuador twelve years to repay 95 percent of its debt obligations, it eased the country's burden of debt repayments only temporarily. A US$13 per barrel drop in international oil prices in 1986 created a serious revenue shortfall, forcing the government to announce in January 1987 that it would impose a three-month moratorium on payment of its foreign debt obligations.

Ecuador was exporting about 220,000 barrels of petroleum per day in the first few months of 1987. The earthquake that hit the country in March destroyed forty kilometers of the vital TransEcuadorian Pipeline that connected productive oil fields in the Oriente region with port facilities just south of Esmeraldas. Repairs to the pipeline were completed in mid-August 1987, and by September Ecuador once again was exporting about 220,000 to 230,000 barrels of oil per day. But the loss to the government of US$700 million in oil export revenue during this period was devastating and undercut the country's ability to meet its external debt obligations. Debt payments to foreign private lending institutions were not resumed until early 1988, and then only for two months.

During 1987 the country's external debt increased by about US$1 billion to US$9.6 billion. At the beginning of 1988, Ecuador faced a debt-servicing burden of US$1.45 billion and foreign-exchange reserves were nearly exhausted. The international price of Oriente crude had improved slightly during 1987 but dropped to US$12.50 per barrel in 1988. Government officials, mindful that the country would not earn enough export revenue in 1988 to cover the expected balance-of-payments deficit or to meet the country's external debtservice obligations, suspended interest payments to private banks in April 1988.

When Borja assumed the presidency in 1988, Ecuador's interest arrearages to private commercial banks amounted to almost US$1 billion. In November 1988, Ecuadorian officials began a new round of negotiations to refinance US$6.5 billion of the country's growing external debt, which by then was approaching US$11 billion. At the end of these unsuccessful negotiations, Ecuador's Monetary Board chairman, citing low oil prices and damage from the 1987 earthquake, announced that service payments would be resumed 3ef d only after the country's economic situation had improved. Foreign debt payments to commercial banks finally were resumed in April 1989, but creditor banks were doubtful that Ecuador could make payments sufficient to cover the accumulated arrears.

Meanwhile, Ecuador had not stopped making payments to multilateral lending organizations, and it secured new loans from the World Bank and the IMF. During the first half of 1989, more than US$600 million in loans, all of which was earmarked for development purposes, was received from the World Bank. The IMF provided Ecuador with US$254 million in credit during 1987-88, and an additional US$137 million standby credit agreement was reached in September 1989.

Data as of 1989