Ecuador’s Raffish Referendum Riffs
Ecuadorean President Correa notched another referendum win extending constitutional revisions with a judiciary to executive anti-crime power transfer and stripping of media ownership interests from family-run financial-industrial conglomerates. The law and order and anti-business elite moves were designed in part to restore his popularity after a brief military detention over wages and benefits challenged the regime before loyalists quashed any nascent insurrection. Democracy and press monitors claim the actions foster authoritarian tendencies, with the incumbent openly embracing neighboring Venezuela’s political-economic model. The stock exchanges in Quito and Guayaquil, which had lost MSCI frontier representation on scant trading, paused on the victory after a slight uptick through April, as momentum will likely carry over into proposed securities law changes to ensure that debt accounting for 95 percent of activity is backed by “real assets.” Corporate issuers, which sold almost $600 million in paper in Q1 at an average 8 percent yield, would be unable to continue using securitized-income structures which are about one-quarter of the segment. Last year Nestle’s local unit completed such a headline offering, and exchange executives argue a ban would “break” the market, as they also try to advance plans to transform into for-profit operations. In March the president and his cabinet also met with investors and bank underwriters to broach the possibility of re-entering external bond markets after the 2009 default on “illegitimate” obligations from an earlier exchange. The residual risk premium on 2015 instruments has brought yields almost to double-digits, although performance this year has topped EMBI members. The public GDP growth forecast is 5 percent after only half that clip in 2010 on higher private consumption. The original budget with oil at $75 per barrel saw a slight deficit despite increased spending as new hydroelectric power supply eased fuel subsidies. The current account could return to surplus with better petroleum exports and remittances, and Chinese and multilateral lending continues to ensure capital inflows.
Venezuela’s President Chavez has slapped a 95 percent windfall tax on revenues above $100 per barrel as the fiscal shortfall persists and capital flight and import demand have sent foreign reserves below the “adequate” $25 billion level. Exchange controls have been tight with only $7 billion authorized for the private sector in Q1 as sovereign and state-oil company bond placement and trading remain the main dollar channels. The Finance Ministry’s $12 billion debt program for 2011 already absorbed half that amount for PDVSA as the government courts possible US commercial sanctions for its Iran and Libya dealings. As the president gears up for a re-election bid in 2012 he has shifted an unknown reserve sum to the social spending Fonden pool and also suspended IEA auditing of monthly oil output as intentions for the Andean duo evade transparency.
