Government Officials, Creditors Meet in Effort to Avert Crisis

                  By John Burgess
                  Washington Post Staff Writer

                  Ecuador was poised to bring a simmering foreign debt crisis to a head
                  today by withholding roughly $50 million in interest payments to
                  bondholders and telling them to get the money instead from an emergency
                  account in New York.

                  At the same time, the country is seeking a longer-term solution. Officials
                  from its government met yesterday with a team of creditors led by Chase
                  Manhattan Bank for the first substantive discussions about restructuring
                  Ecuador's private debt.

                  The size of Ecuador's debt troubles are small by the standards of the past
                  two years' jumbo crises in Asia, Russia and Latin America. Still,
                  international bankers are watching the country closely, out of fear that a
                  default might make it harder for developing countries to borrow.

                  "This might have an impact of increasing [interest rates on foreign bonds]
                  throughout the region," said Christopher Smith, a managing director at
                  BankBoston Corp.

                  The United States and the International Monetary Fund yesterday urged
                  Ecuador to reach a deal with its creditors to restructure its debt.

                  "On the basis of firm policy reforms by Ecuador and meaningful progress
                  towards a comprehensive agreement on appropriate terms with creditors,
                  we would be prepared to support an IMF [lending] program and a
                  rescheduling of Ecuador's debt," said a senior official at the Treasury
                  Department.

                  At issue today are interest payments on $4 billion worth of Ecuadoran
                  "Brady bonds," named after former U.S. Treasury secretary Nicholas
                  Brady. These are special financial instruments that helped clean up the
                  Latin debt crisis of the 1980s; to date, no country has defaulted on Brady
                  bonds.

                  Ecuador said in August that it wasn't going to meet its payment schedule
                  for about $95 million in interest coming due. On Sunday, President Jamil
                  Mahuad announced plans to pay about half the interest due and tell holders
                  of the other bonds to tap a collateral account the country maintains at the
                  New York Federal Reserve Bank.

                  Ecuador previously deposited between $150 million and $200 million there
                  as an emergency fund for use if it couldn't meet payments; money can be
                  paid out from that fund if a quarter of the creditors request it.

                  The IMF has been negotiating with Ecuador over its international payments
                  for months but has reached no agreement. The country is in political turmoil
                  over the debt crisis.

                  Treasury Secretary Lawrence H. Summers has said a few countries are in
                  such bad shape that they need to restructure their loans, not just get
                  short-term help to meet cash shortfalls.

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