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Ecuador bonds take beating after rejection of tax reform

Bonds issued by Ecuador fell multiple points on Monday after the National Assembly's rejection on Sunday of the president's tax reforms put IMF support in doubt.

By Paul Kilby

NEW YORK, Nov 18 (IFR) - Bonds issued by Ecuador fell multiple points on Monday after the National Assembly's rejection on Sunday of the president's tax reforms put IMF support in doubt.

The sovereign's 7.875% 2028s were being quoted as low as 77.40 late morning, down over seven points since Friday, while the 9.5% 2030s were over 11 points lower at 82.23, according to MarketAxess data.

The reforms, partly designed to improve collection through the increase of some taxes, were expected to bring in over US$700m next year, according to Reuters.

Rejection of the reforms comes after the government backtracked on an increase in fuel subsidies earlier in the year in the wake of violent protests.

The IMF approved a US$4.2bn extended fund facility for Ecuador earlier this year, but on the condition of reforms that would bolster growth and strengthen the country's fiscal position.

The IMF's support is seen as vital if the country wishes to maintain access to a bond market that has provided a good chunk of funding over the last few years.

"The inconvenient reality is that if Ecuador loses IMF support, then they lose market access," wrote Siobhan Morden, head of LatAm fixed-income strategy at Amherst Pierpont Securities.

Having gone to the bond markets consistently over the last few years, most recently in June, Ecuador is now facing a string of maturities over the coming years.

"The main concern is rollover/liquidity risks for the high gross financing needs of US$5-US$7bn per year and limited financing options after having approached the IMF as a lender of last resort," wrote Morden.

(Reporting By Paul Kilby Editing by Jack Doran)

((paulj.kilby@thomsonreuters.com; 646 223 4733; Reuters Messaging: paulj.kilby.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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