Ecuador defaults on foreign debt

Rafael Correa said he was ready to confront international lenders

Ecuador is to default officially on billions of dollars of foreign debt it considers "illegitimate", says President Rafael Correa.

Mr Correa said he had given the order not to approve a debt interest payment due on Monday, describing the international lenders as "monsters".

The president said that some of Ecuador's $10bn debt was contracted illegally by a previous administration.

It is the first debt default by a country in Latin America since 2001.

At that time, Argentina failed to repay debt in the midst of its financial meltdown.

Restructure plan

Speaking in the city of Guayaquil, Mr Correa said "as president I couldn't allow us to keep paying a debt that was obviously immoral and illegitimate", according to the AFP news agency.

"We'll present a proposal to restructure the debt in order to resolve this problem as fast as possible," added the US-trained economist and ally of left-wing Venezuelan President Hugo Chavez.

His decision follows a government audit in November which recommended that Ecuador default on almost 40% of the $10bn foreign debt, accusing former officials and bankers of profiting irresponsibly from bond deals.

The country's foreign debt amounts to about a fifth of its Gross Domestic Product, or GDP.

In the past, Mr Correa has vowed to put money he has earmarked for spending on public programmes - ahead of paying foreign debt.

Correspondents say Ecuador's decision to effectively cut itself off from outside financing could lead to a budget shortfall, especially if the price of oil - the country's main revenue earner - continues to fall.

Oil is Ecuador's main source of income and accounts for 40% of the national budget.