London – The risk of investing in Ecuador has risen after the country’s energy minister, Fausto Cordovez, reportedly said that current oil contracts with foreign companies will be reviewed, CSFB said.
‘The revision of foreign oil companies’ contracts would be a sign of the nationalist rhetoric used by Cordovez being implemented in the oil sector,’ CSFB analyst Gustavo Baltar said in a note.
The Ecuadorian Congress removed in March President Lucio Gutierrez from office after days of street protests.
According to Standard & Poor’s, Ecuador has one of the weakest and most unpredictable political and institutional environments among its 107 rated sovereign credits.
The Ecuadorian authorities unveiled yesterday a plan that would allow to invest social security funds in state-oil company Petroecuador.
The government is expected to send to Congress this week a bill modifying the earmarking rules of the Oil Stabilization Fund and will propose scrapping from the Fiscal Responsibility Law the 3.5 pct ceiling on real primary expenditure growth.
According to Goldman Sachs analysts, these developments are negative as they ‘erode the main pillars of fiscal execution and increase the budget’s vulnerability to an oil price and/or production decline’.
