ECUADOR - Ecuador's public pension fund, the nation's biggest institutional investor, will limit purchases of government debt to about 30% of the $1bn set aside this year as rising oil prices trim the country's budget gap.
The Banco del Instituto Ecuatoriano de Seguridad Social, known as BIESS, prefers to invest directly in public works instead of buying the bonds, chief executive officer Efrain Vieira, said March 28 in an interview. The fund will buy about $200mof locally-traded securities this year, 10%more than last year, he said.
Ecuador's government has relied on the nation's public pension fund, loans from China and credit from multilateral lenders including the Inter-American Development Bank to finance public spending after a 2008 default on $3.2bn of foreign debt limited access to international capital markets. A surge in the price of oil, the nation's biggest export, has eased the government's "urgency" for cash, allowing the pension fund to look for investments elsewhere, Vieira said.
"The Finance Ministry doesn't have such urgency for financing and so there is less pressure to buy bonds or treasury notes," said Vieira, a 46-year-old electrical engineer. "Instead of buying bonds, we would prefer to participate in strategic projects in the public sector."
While the bank "doesn't have an obligation" to buy government debt, the decision to invest in bonds "depends on the Finance Ministry," Vieira said in an e-mail. President Rafael Correa appoints two of the bank's four-member board of directors and Vieira isn't a member of the board.
The bank prefers financing public works instead of buying government bonds because it's more profitable, Vieira said.
The yield on Ecuador's 9.375% bonds maturing in 2015, the only foreign debt the nation kept servicing after the default, rose 7 basis points 9.98 percent yesterday, according to JPMorgan Chase & Co. The bond's price fell 0.25 cent to 97.75 cents on the dollar.
Conflicts in the Middle East have led to higher oil prices this year and windfall profits for Ecuador, OPEC's smallest member, easing concerns over the nation's estimated $3.7bn budget deficit, said Walter Spurrier, director of Guayaquil- based economic research company Grupo Spurrier.
"The concerns over public finances that existed until a month ago have been thrown out for the moment," Spurrier said March 28 in a note to clients.
Ecuador's Finance Minister Patricio Rivera didn't respond to messages seeking comment.
The bank will loan about $150m this year to help companies expand factories and improve productivity, and invest $195m in private infrastructure projects, Vieira said.
The pension fund manages $6.9bn. That amount may grow to $8.2bn by year end, including new contributions from workers and profits, he said.
The fund owns a $10m stake in supermarket chain Corp. La Favorita CA, Ecuador's biggest publicly traded company by revenue, he said. The BIESS, which must invest at least 70% of its portfolio in fixed-income securities, is limited by the lack of share offerings as it seeks to increase its holdings in locally traded companies, Vieira said.
In 2010, a total of $150,000 in new shares were issued on the nation's two securities exchanges, according to the nation's market regulator.
The BIESS, the country's largest mortgage lender, will probably lower its average mortgage rate by about half a percentage point to 7.4% in January 2012 from 7.9% now, Vieira said. The bank's goal is to eventually reduce its home loan rate to 5%, he said, without giving a time frame.
The bank plans to lend $845m this year for homes and grant $550m in consumer loans, Vieira said.
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