Fitch: Debt Restructuring Comments by Ecuador's Apparent President-Elect Raise Concerns.

NEW YORK -- Statements about potential debt restructuring by Rafael Correa, the apparent victor in Ecuador's presidential election yesterday, raise credit concerns, according to Fitch Ratings. 'Campaign promises to renegotiate debt by fiat or to impose a moratorium must be taken seriously,' said Morgan C. Harting, lead sovereign analyst for Ecuador. 'Our assessment of sovereign creditworthiness considers both ability to pay and willingness. Given Ecuador's poor debt service track record, willingness is a risk we have highlighted consistently. Until now, however, authorities have insisted on their commitment to honor obligations. Correa's statements mark a break from current policy. And his notion of a pre-emptive restructuring harmful to bond investors in the absence of financial duress would be unprecedented.'

Fitch maintains a 'B-' rating on Ecuador's long-term foreign currency foreign currency Issuer Default Rating (IDR), with a Negative Outlook.

'Paradoxically,' Harting notes, 'concerns about willingness have been rising as Ecuador's ability to pay has been improving.' Higher oil prices, a tax increase on oil companies, and the seizure of an important oil production concession have boosted government oil revenues by more than US$1 billion this year, or about 18% of 2005 revenues. Overall, oil-related revenues are estimated to account for about 42% of central government revenues this year. The surge in revenues has exceeded spending growth, pushing central government deposits at the Central Bank to US$1.86 billion as of end-October, an increase of US$860 million over the past year and the highest balance in recent years. This equals about 58% of total scheduled 2007 debt service, but it fully covers the estimated $1.05 billion in external bond principal and interest. Most public sector deposits are earmarked for social programs, infrastructure and contingencies, but Fitch believes that a substantial portion could be reassigned for bond debt service if needed, given the political will to do so. Oil-related government revenue is expected to rise again in 2007 relative to 2006, even assuming a significant price decline, because the 2006 tax increases and property seizures took effect mid-year.

As the apparent victor clarifies his position on pre-emptive debt restructuring, Fitch will make appropriate changes to the ratings and Outlooks. If a moratorium is announced or an exchange offer is made that would be harmful to bondholders according to Fitch's distressed debt exchange criteria, the ratings could be downgraded. In the event that the incoming president makes demonstrates his intention to continue bond debt service according to original terms and that any potential exchange would be completely voluntary, Fitch could remove the Negative Outlook in light of the improved fiscal position.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.