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Ecuador's Rating Raised by Moody's Investors Service
Bloomberg
March 20, 2008

By Lester Pimentel

March 20 (Bloomberg) -- Ecuador's credit rating was raised two levels by Moody's Investors Service as near record-high oil prices boost government revenue.

Moody's lifted Ecuador's rating to B3, in line with Argentina and Nicaragua, from Caa2. The rating outlook is stable, Moody's said in a statement.

Oil, Ecuador's biggest export, has surged 79 percent in the past year, swelling government coffers and helping reduce the budget deficit. President Rafael Correa has also regained investor confidence by continuing to make payments on the country's $10.4 billion of foreign debt after he threatened to default upon taking office in January 2007.

``The significant build-up of liquidity as a result of the oil windfall has eased Ecuador's chronic financing difficulties,'' Alessandra Alecci, senior analyst at Moody's in New York, said in the statement. ``Despite threatening rhetoric early last year, the government has, to the contrary, remained current on all obligations and adopted a pragmatic approach to debt management.''

Ecuador's debt securities have returned 22.5 percent in the past year, the best performer in emerging markets, JPMorgan Chase & Co. data show. The country's dollar bonds yield 6.88 percentage points more than U.S. Treasuries on average today, according to JPMorgan. They yielded as much as 10.48 percentage points more than Treasuries in January 2007.

Infrastructure Projects

The yield on Ecuador's benchmark 10 percent bonds due in 2030 climbed 2 basis points, or 0.02 percentage point, today to 10.55 percent, according to JPMorgan. The bond's price fell 0.2 cent on the dollar to 95.25 cents. Correa's elimination of oil reserve funds to boost spending on infrastructure projects such as hydroelectric dams and road repair make the country vulnerable to a decline in commodity prices, Moody's said in the statement.

``This is an issue of concern for creditworthiness, particularly given Ecuador's traditionally weak institutions,'' Alecci said in the statement.

Crude oil has dropped 9.2 percent from a record high of $111.80 reached on March 17 amid mounting concern that a U.S. economic slowdown will curb demand for commodities.