Operaciones riesgosas con Goldman Sachs y Credit Suisse

Por ser de interés de nuestros lectores y de la ciudadanía en general, compartimos información de los prospectos de oferta pública de valores de la República del Ecuador, solo disponible (por lo pronto) en inglés. Estas operaciones son riesgosas para la economía ecuatoriana en esta coyuntura.

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GSI Loan Facility

On October 11, 2017 the Republic and Goldman Sachs International (“GSI”) entered into a U.S.$500 million 35-month loan facility (the “GSI Loan Facility”) governed by Ecuadorian law.

On October 11, 2017, the Central Bank and GSI entered into a three-year gold derivative transaction in which the Central Bank transferred to GSI an initial 300,000 ounces of gold (valued at the date of the transaction at approximately U.S.$387 million, “Gold”) (the “Gold Derivative Transaction”) and in return received a fixed rate from GSI on the value of the Gold transferred. The Gold Derivative Transaction is similar to the gold transaction that the Central Bank entered into with GSI on May 2014, which terminated at maturity in February 2017. In addition, on the same date as the Gold Derivative Transaction, the Central Bank entered into a three-year bond derivative transaction (the “Bond Derivative Transaction”) in which the Central Bank transferred to GSI U.S.$606 million nominal amount of notes issued by the Republic (the “2017 Reopened Notes”) (with a market value at the date of the transaction of U.S.$650 million) and in return received the interest amounts on the 2017 Reopened Notes (with any interest generated for any delays in such transfer from GSI to the Central Bank) in addition to a fixed rate on the value of the 2017 Reopened Notes transferred to GSI. The 2017 Reopened Notes constitute “Further Notes” (as defined in each of the respective indentures) of the following existing series of notes currently being traded in the international markets: (a) the 2022 Notes, (b) the 2023 Notes, and (c) the 2026 Notes. The issue of the 2017 Reopened Notes was authorized by the Republic’s Debt and Finance Committee under Acta Resolutiva No. 014 dated October 10, 2017. The 2017 Reopened Notes were issued on October 16, 2017 and exchanged with the Central Bank for a scheduled term of 3 years pursuant to an Acuerdo de Permuta (the “Swap Agreement”) between the Central Bank and the Ministry of Economy and Finance dated October 11, 2017 for U.S.$650 million of notes issued by the Republic in the domestic market (“Locally Issued Notes”), owned by the Central Bank at the date of the transaction. The 2017 Reopened Notes were issued on October 16, 2017 in consideration for the transfer to the Republic of the Locally Issued Notes subject to the terms of the Swap Agreement. The 2017 Reopened Notes are fully fungible with the 2022 Notes, the 2023 Notes and the 2026 Notes, respectively, and constitute general, direct, unsecured, unsubordinated and

unconditional obligations of the Republic backed by the full faith and credit of the Republic and, based on an opinion of the Ministry of Economy and Finance of the Republic, have been legally and validly issued.

Under the terms of the Bond Derivative Transaction and the Gold Derivative Transaction, upon maturity, the Central Bank is entitled to receive the return of an equivalent amount of the Gold (under the Gold Derivative Transaction) and equivalent property to the 2017 Reopened Notes (under the Bond Derivative Transaction) (the “2017 Equivalent Property”) from GSI, without payment by the Central Bank, provided that certain credit events relating to the Republic do not occur. GSI will post investment-grade securities to a custodial account at The Bank of New York Mellon as collateral for the Central Bank’s exposure to GSI. Under the Bond Derivative Transaction, GSI can sell or otherwise transfer any interest in the 2017 Reopened Notes at any time to any third party, although it will retain economic exposure to the 2017 Equivalent Property for so long as GSI has a future obligation, whether or not contingent, to deliver the 2017 Equivalent Property. Upon the occurrence of a credit event, GSI will retain the Gold and the 2017 Equivalent Property, although the Central Bank may repurchase the Gold if it pays GSI its dollar value at that point in time at market price. In the event the combined value of Gold and 2017 Equivalent Property declines and is worth less than approximately U.S.$807 million, the Central Bank must deliver an additional amount of cash, gold or U.S. treasuries (the “Additional Assets”) in order to make up the difference (with the amount of additional Gold capped at 100,000 additional ounces). Accordingly, the Republic’s gold reserves, cash and investments in U.S. treasuries (if any) could decrease in the event that the combined value of the Gold, the 2017 Equivalent Property and the Additional Assets declines or if a credit event occurs. In addition, in certain limited circumstances the excess amount of the equivalent Additional Assets will be returned to the Central Bank if the combined value of the Gold, 2017 Equivalent Property and Additional Assets increases above a certain threshold.

Under the Swap Agreement, the Central Bank is required to transfer to the Ministry of Economy and Finance the full interest amounts (together with any interest generated for any delays in such transfer by GSI to the Central Bank) that it receives under the Bond Derivative Transaction (excluding the additional fixed rate the BCE receives from GSI on the value of the 2017 Reopened Notes transferred to GSI) and is required to transfer to the Ministry of Economy and Finance 2017 Equivalent Property upon the maturity of the Swap Agreement in exchange for the return of the Locally Issued Notes. If a credit event occurs under the Bond Derivative transaction, the rights of the Central Bank under the Bond Derivative Transaction, and of the Ministry of Economy and Finance under the Swap Agreement, to receive amounts paid under the 2017 Reopened Notes will terminate, but the Ministry of Economy and Finance will continue to be required to make all payments of principal and interest in respect of the 2017 Reopened Notes to the applicable holders of the 2017 Reopened Notes, and will have certain remedies against the Central Bank.

Article 133 of the Rules to the Public Planning and Finance Code sets forth that it is incumbent on the Ministry of Economy and Finance to prepare the statements of public debt and to issue technical regulations to calculate the public debt to GDP ratio. On October 25, 2016, pursuant to Article 147, Clause 13 of the 2008 Constitution, the Government issued implementing regulations through the enactment of Decree 1218, which was in effect until October 30, 2018, when Decree 537 was published as further discussed under Public Debt—Decree 1218. Decree 1218 established that the Ministry of Economy and Finance would use the consolidation methodology set out in the IMF GFS for the preparation of statements of public debt in order to calculate the total public debt to GDP ratio, see “Public Debt—Methodology for Calculating the Public Debt to GDP Ratio.” On August 31, 2017 the Legislative Assembly of Ecuador approved the 2017 Draft Budget prepared by the Ministry of Economy and Finance in which the consolidation methodology, mandated by Decree 1218, was used to calculate the total public debt to GDP ratio.

Accordingly, the Ministry of Economy and Finance did not consider the aggregate amount of the 2017 Reopened Notes in the calculation of total public debt to GDP ceiling as described above, and accounted them as a contingent liability as stated in the Public Planning and Finance Code. According to Section 3.95 of the IMF GFS, contingencies are “conditions or situations that may affect the financial performance or position of the general government sector depending on the occurrence or nonoccurrence of one or more future events” and under Section 3.96 of the IMF GFS, the IMF GFS does “not treat any contingencies as financial assets or liabilities because they are not unconditional claims or obligations.” Under Section 7.142 of the IMF GFS, debt “consists of all liabilities that require payment or payments of interest and/or principal by the debtor to the creditor at a date or dates in the future.” It is the view of both the Ministry of Economy and Finance and the Debt and Finance Committee of the Republic that,

as of the time of issuance, the 2017 Reopened Notes were to be treated as contingencies under the IMF GFS and in the Public Planning and Finance Code because they formed part of a series of transactions which contemplated that any interest amounts on the 2017 Reopened Notes would be returned to the Central Bank as provided in the Bond Derivative Transaction and through the Swap Agreement to the Republic, GSI agreed to retain economic exposure to the 2017 Equivalent Property and, unless a credit event occurs, GSI is required to return 2017 Equivalent Property to the Central Bank upon maturity (and the Central Bank to the Ministry of Economy and Finance under the Swap Agreement). According to the Ministry of Economy and Finance, as of the time of issuance, the 2017 Reopened Notes (as part of the Bond Derivative Transaction) were contingencies and not “debt”” to be accounted in the consolidated statement of public debt which would count towards the calculation of the total public debt to GDP ceiling. For similar reasons, the Ministry of Economy and Finance excluded the Reopened Notes from certain other unconsolidated measures which reflected the amount of its indebtedness owed to the Central Bank and other governmental agencies. These views were affirmed by the amendment to Article 123 of the Public Planning and Finance Code pursuant to the Organic Law for Productive Development, whereby the issuance of notes that are linked to duly documented payment obligations are expressly considered contingent liabilities and therefore not included in the calculation of total public debt to GDP ratio.

As of the date of the Bond Derivative transaction, there was no precedent in Ecuador for similar transactions being treated as a contingency, such as the 2017 Reopened Notes in the context of the Bond Derivative Transaction, as the IMF GFS guidelines had been recently implemented and adopted through Decree 1218. The treatment of the 2017 Reopened Notes as a contingency may be subject to a subsequent Presidential decree implementing other methodologies or different interpretation of the IMF GFS guidelines; however, the amendment to Article 123 of the Public Planning and Finance Code provides legal certainty to this position. If the 2017 Reopened Notes were not treated as contingencies but instead included in the calculation of the public debt to GDP ratio, as of the close of August 2017, the public debt to GDP ratio would have increased by approximately 0.6% to 30.4% following the consolidation methodology. The Organic Law for Productive Development, which became effective on August 21, 2018, provides that for the period from 2018 to 2021 and until the public debt reaches a level below the public debt ceiling of 40% of GDP, such public debt ceiling will not apply. According to the Ministry of Economy and Finance, as of the close of March 2019, it is estimated that the Republic’s total public debt to GDP ratio under the aggregation methodology will be approximately 45.3%. For a description of the risks of any action by the Government in relation to the 40% public debt to GDP limit, see “Risk Factors—Risk Factors relating to Ecuador—The Republic may incur additional debt beyond what investors may have anticipated as a result of a change in methodology in calculating the public debt to GDP ratio for the purpose of complying with a 40% limit under Ecuadorian law, which could materially adversely affect the interests of Noteholders” and “Risk Factors— The Office of the Comptroller General has issued a report with conclusions from its audit to the Republic’s internal and external debt” in this Offering Circular.

Following the publication of the CGR Audit Report, the Office of the Comptroller General announced that other additional audits would be conducted. There is an ongoing examination of the GSI Loan Facility, the Gold Derivative Transaction and the Bond Derivative Transaction. As of the date of this Offering Circular, the Office of the Comptroller General has not published any audit report on the GSI Loan Facility, the Gold Derivative Transaction and the Bond Derivative Transaction.

GSI Repo Transaction

On August 28, 2018 the Republic and GSI entered into a master repurchase agreement governed by English law which is based upon the standard Global Master Repurchase Agreement (“GMRA”) published by the International Securities Market Association and also includes a negotiated annex (“Annex”) dated as of August 28, 2018 (the GMRA and Annex collectively, the “GSI-Ecuador GMRA”).

Pursuant to a Confirmation dated as of August 28, 2018 (the “August 2018 Repo Confirmation”, collectively with the GSI-Ecuador GMRA, the “August 2018 GSI-Ecuador Repurchase Agreement”), the Republic sold and transferred (such sale, transfer and repurchase pursuant to the terms of the August 2018 GSI-Ecuador Repurchase Agreement, the “August 2018 GSI-Ecuador Repurchase Transaction”) to GSI U.S.$1,201,616,000 nominal amount of additional notes (the “August 2018 Additional Notes”) (with a market value at the date of the

transaction of U.S.$1,250,000,000) and in return received from GSI a purchase price of U.S.$500,000,000 (the “Purchase Price”), the value of the Republic’s residual interest in the August 2018 GSI-Ecuador Repurchase Transaction and the interest amounts three business days prior to the date on which they are paid by the Republic on the August 2018 Additional Notes. The Republic is also required to pay to GSI, on a quarterly basis, a price differential on the purchase price based upon Libor plus a spread. Either GSI or the Republic may request that any of the August 2018 Additional Notes be substituted for other identified securities issued by the Republic (a “Repo Substitution”), subject to certain conditions (including the consent of both GSI and the Republic) as described in more detail below. The August 2018 Additional Notes constitute “Further Notes” (as defined in each of the respective Indentures) of the following existing series of notes currently being traded in the international markets: (a) the 2020 Notes; and (b) the 2022 Notes. The issue of the August 2018 Additional Notes and the execution of the 2018 GSI-Ecuador Repurchase Agreement were authorized by the Republic’s Debt and Finance Committee under Acta Resolutiva No. 003 dated August 25, 2018. The August 2018 Additional Notes were issued on August 31, 2018 in consideration for the transfer to the Republic of the Purchase Price, the ongoing payment to the Republic of the interest amounts on the August 2018 Additional Notes and the value of the Republic’s residual interest in the August 2018 GSI-Ecuador Repurchase Transaction, subject to the terms of the August 2018 GSI-Ecuador Repurchase Agreement. The two series of August 2018 Additional Notes are fully fungible with the 2020 Notes and the 2022 Notes, respectively, and constitute general, direct, unsecured, unsubordinated and unconditional obligations of the Republic backed by the full faith and credit of the Republic and, based on an opinion of the Ministry of Economy and Finance of the Republic, have been legally and validly issued.

On October 10, 2018, the August 2018 GSI-Ecuador Repurchase Transaction was amended and restated (the “October 2018 Amendment”, and such transaction as amended and restated, the “Amended August 2018 GSI- Ecuador Repurchase Transaction”). The October 2018 Amendment effected a decrease by 135bps of the price differential spread payable by the Republic under the Amended August 2018 GSI-Ecuador Repurchase Transaction (as compared to the price differential spread payable by the Republic under the August 2018 GSI-Ecuador Repurchase Transaction). In exchange for such decrease in the spread, Ecuador has agreed to repay the Purchase Price in EUR based upon the EUR/USD exchange rate as of the date of the October 2018 Amendment, although the Purchase Price was disbursed in USD. Although the Purchase Price is to be repaid in EUR post amendment, the price differential is to continue to be paid in USD and the price differential spread is not necessarily the same had the Purchase Price been initially disbursed in EUR. The all-in cost in USD terms to the Republic of the Amended August 2018 GSI-Ecuador Repurchase Transaction is comprised of the price differential payments thereunder and the realized forward price of the EUR/USD exchange rate at the amortization dates, which may cause the all-in cost in USD terms to the Republic to be materially higher or lower than the cost of the August 2018 GSI-Ecuador Repurchase Transaction prior to it being amended. Accordingly, if the EUR has appreciated to the USD at the amortization dates when compared to the date that the August 2018 GSI-Ecuador Repurchase Transaction was amended, the USD all-in cost to the Republic of the Amended August 2018 GSI-Ecuador Repurchase Transaction may be higher than the USD all-in cost prior to it being amended.

Under the terms of the Amended August 2018 GSI-Ecuador Repurchase Agreement, upon certain scheduled amortization dates, the Republic is required to pay amounts in installments in EUR to GSI which in aggregate equal the EUR equivalent of the amount originally paid as the Purchase Price. For these purposes, the EUR/USD exchange rate used is the exchange rate as of the date of the October 2018 Amendment. The Republic is also required to pay to GSI, on a quarterly basis, a price differential on the Purchase Price based upon Libor plus a spread (such amount being payable in USD and, together with the aforementioned installment amounts, being the “Repurchase Price”). Upon the scheduled repurchase date, being 48 months from the commencement of the August 2018 GSI-Ecuador Repurchase Transaction, GSI is required to sell and transfer to the Republic equivalent property to both (a) the May 2019 Additional 2023 Notes and (b) the remaining August 2018 Additional Notes (the “Remaining August 2018 Additional Notes”) that were not substituted out in accordance with the October 2018 Amendment (together, the “2018 Equivalent Property”) against payment by the Republic of the final installment of the Repurchase Price, provided that certain events of default relating to the Republic have not occurred. In addition, the Republic may be required to repurchase 2018 Equivalent Property and pay the remaining Repurchase Price (to the extent not already paid) to GSI prior to the scheduled repurchase date if certain termination events occur. Under the Amended August 2018 GSI-Ecuador Repurchase Transaction, GSI can sell or otherwise transfer any interest in the 2018 Equivalent Property at any time to any third party, although GSI is required to retain economic exposure to

the 2018 Equivalent Property for so long as GSI has a future obligation, whether or not contingent, to deliver the 2018 Equivalent Property. Upon the occurrence of an event of default, if GSI elects to sell 2018 Equivalent Property to a third party in order to determine the amounts due between the parties under the Amended August 2018 GSI-Ecuador Repurchase Transaction, the Republic will have the right to submit a bid to purchase such 2018 Equivalent Property and GSI will be obliged to accept such bid if such bid is the highest bid received, subject to the terms of the Amended August 2018 GSI-Ecuador Repurchase Agreement.

In the event that the value of the May 2019 Additional 2023 Notes and/or the Remaining August 2018 Additional Notes declines and is worth less than certain thresholds then, within two business days of the delivery of a notice from GSI to the Republic, an additional amount (an “Additional Amount”) in either EUR or USD (at the option of the Republic) must be paid by the Republic to GSI (subject to any such Additional Amount being at least 2% of the remaining Repurchase Price). Accordingly, the Republic may be required to pay Additional Amounts prior to the scheduled amortization dates and scheduled repurchase date when the value of the May 2019 Additional 2023 Notes and/or the Remaining August 2018 Additional Notes declines, even where no event of default or termination event has occurred. In addition, under certain circumstances and at certain times, the Republic may request that GSI return to the Republic an amount of the May 2019 Additional 2023 Notes and/or the Remaining August 2018 Additional Notes, either in cash or by transfer of the corresponding excess securities, if the value of the May 2019 Additional 2023 Notes and/or the Remaining August 2018 Additional Notes increases above certain thresholds or following certain scheduled amortization dates. Any Additional Amounts paid by the Republic to GSI will reduce the Repurchase Price, and any cash amounts returned by GSI to the Republic will increase the Repurchase Price.

Under the Amended August 2018 GSI-Ecuador Repurchase Agreement, GSI is required to transfer to the Republic an amount equivalent to all interest amounts to be paid by the Republic on the May 2019 Additional 2023 Notes and the Remaining August 2018 Additional Notes three business days prior to the date on which such interest amounts are to be paid by the Republic. GSI is also required to transfer to the Republic the 2018 Equivalent Property upon payment of the Repurchase Price in full. If an event of default occurs under the Amended August 2018 GSI- Ecuador Repurchase Agreement, the rights of the Republic to receive an amount equivalent to all interest amounts that are to be paid by the Republic on the May 2019 Additional 2023 Notes and the Remaining August 2018 Additional Notes may terminate, but the Republic will continue to be required to make all payments of principal and interest in respect of the May 2019 Additional 2023 Notes and the Remaining August 2018 Additional Notes to the applicable holders thereof.

As was the case with the August 2018 GSI-Ecuador Repurchase Transaction, at any time during the term of the Amended August 2018 GSI-Ecuador Repurchase Transaction, either GSI or the Republic may request that any 2018 Equivalent Property be substituted for other identified Equivalent Securities issued by the Republic, subject to certain conditions, including that the market value of the other Equivalent Securities to be substituted in is equivalent to the market value of the 2018 Equivalent Property that are being substituted out. Any substitution of 2018 Equivalent Property for such new identified Equivalent Securities will be subject to the consent of both GSI and the Republic, each in their sole discretion other than any substitution request made by GSI to exchange 2018 Equivalent Property for Equivalent Securities issued prior to the date of the August 2018 GSI-Ecuador Repurchase Agreement.

In accordance with the substitution provisions set out in the amended and restated August 2018 GSI- Ecuador Repurchase Agreement (as amended and restated, the “Amended August 2018 GSI-Ecuador Repurchase Agreement”) and pursuant to a notice of substitution dated May 23, 2019, on May 29, 2019: (a) U.S.$701,616,000 nominal amount of the August 2018 Additional Notes (comprised solely of 2020 Notes), which had a market value at the date of the notice of substitution of approximately U.S.$733.67 million (the “Substituted August 2018 Additional Notes”) were returned to the Republic by GSI; and (b) U.S.$688,268,000 nominal amount of May 2019 Additional Notes (with a market value at the date of the notice of substitution of approximately U.S.$733.67 million) were transferred to GSI by the Republic. On May 29, 2019, the Republic cancelled the Substituted August 2018 Additional Notes pursuant to the terms of the 2020 Notes Indenture.

The execution of the documentation for the October 2018 Amendment and the issue of the May 2019 Additional 2023 Notes were authorized by the Republic’s Debt and Finance Committee under Acta Resolutiva No. 010 dated October 10, 2018, and Acta Resolutiva No. 010-2019, dated May 21, 2019. The May 2019 Additional 2023 Notes were issued on May 29, 2019 in consideration for the transfer to the Republic of the Substituted August 2018 Additional Notes and the ongoing payment to the Republic of the interest amounts on the May 2019 Additional 2023 Notes, subject to the terms of the Amended August 2018 GSI-Ecuador Repurchase Agreement. The May 2019 Additional 2023 Notes are fully fungible with the 2023 Notes, and constitute general, direct, unsecured, unsubordinated and unconditional obligations of the Republic backed by the full faith and credit of the Republic and, based on an opinion of the Ministry of Economy and Finance of the Republic, have been legally and validly issued.

Pursuant to the amendment of Article 123 of the Public Planning and Finance Code by the Organic Law for Productive Development, which expressly provides that notes issued in connection with repurchase transactions are “contingent liabilities” (pasivos contingentes) and are not taken into account as public debt until they are no longer contingent, the Ministry of Economy and Finance has not considered the aggregate amount of the May 2019 Additional 2023 Notes or the Remaining August 2018 Additional Notes in the calculation of the total public debt to GDP ceiling. See “Public Debt-Organic Law for Productive Development, Investment, Employment and Fiscal Stability.” Were the May 2019 Additional 2023 Notes and the Remaining August 2018 Additional Notes no longer considered to be contingent, such as upon the occurrence of an event of default, the entire outstanding face amount of the May 2019 Additional 2023 Notes and the Remaining August 2018 Additional Notes may be considered in the calculation of the total public debt to GDP ceiling. If the entire face amount of the May 2019 Additional 2023 Notes and the Remaining August 2018 Additional Notes at issuance is taken into account in calculating the debt to GDP ratio, the aggregate debt to GDP ratio would be approximately 50.22%, under the New Methodology using the debt to GDP ratio information as of April 30, 2019 (which does not consider the Purchase Price, as defined above).

On May 31, 2019, the Republic, GSI and ICBC Standard Bank Plc entered into an agreement pursuant to which a portion of GSI’s interest in the Amended August 2018 GSI-Ecuador Repurchase Agreement was transferred to ICBC Standard Bank Plc.

CS Repo Transaction

On October 29, 2018 the Republic and Credit Suisse AG, London Branch (“CS”) entered into a master repurchase agreement governed by English law which is based upon the standard Global Master Repurchase Agreement (“GMRA”) published by the International Securities Market Association and also includes a negotiated annex (an “Annex”) dated as of October 29, 2018 (the GMRA and Annex collectively, the “CS-Ecuador GMRA”).

Pursuant to a Confirmation dated as of October 29, 2018 (the “October 2018 Repo Confirmation”, collectively with the CS-Ecuador GMRA, the “October 2018 CS-Ecuador Repurchase Agreement”), the Republic sold and transferred (such sale, transfer and repurchase pursuant to the terms of the October 2018 CS Ecuador Repurchase Agreement, the “October 2018 CS-Ecuador Repurchase Transaction”) to CS U.S.$1,187,028,000 nominal amount of reopened 2022 Notes (the “CS Reopened Notes ”) (with an aggregate market value at the date of the transaction of U.S.$1,249,999,835.40) and in return received from CS a purchase price of EUR439,251,515.42 (the “Purchase Price”, which the Republic and CS agreed would be settled in US dollars by the payment by CS of U.S.$500,000,000 to the Republic), the value of the Republic’s residual interest in the October 2018 CS-Ecuador Repurchase Transaction and the interest amounts three business days prior to the date on which they are paid by the Republic on the CS Reopened Notes. The Republic is also required to pay to CS, on a quarterly basis, a price differential based upon LIBOR plus a spread. The CS Reopened Notes constitute Further Notes (as defined in the Indenture for the 2022 Notes) of the existing series of 2022 Notes currently being traded in the international markets. The issue of the CS Reopened Notes and the execution of the 2018 CS-Ecuador Repurchase Agreement were authorized by the Republic’s Debt and Finance Committee under Acta Resolutiva No. 011 dated October 24, 2018. The CS Reopened Notes were issued on October 31, 2018 in consideration for the transfer to the Republic of the Purchase Price, the ongoing payment to the Republic of the interest amounts on the CS Reopened Notes and the value of the Republic’s residual interest in the October 2018 CS-Ecuador Repurchase Transaction, subject to the terms of the October 2018 CS-Ecuador Repurchase Agreement. The CS Reopened Notes are fully fungible with the

2022 Notes and constitute general, direct, unsecured, unsubordinated and unconditional obligations of the Republic backed by the full faith and credit of the Republic and, based on an opinion of the Ministry of Economy and Finance of the Republic, have been legally and validly issued.

Under the terms of the October 2018 CS-Ecuador Repurchase Agreement, upon certain scheduled dates, the Republic is required to pay amounts to CS (Scheduled Additional Amounts) which reduce the Purchase Price (and therefore reduce the repurchase price payable by the Republic on the repurchase date (the “Repurchase Price”)) and which in aggregate equal the original Purchase Price. The Republic is also required to pay to CS, on a quarterly basis, a price differential based upon LIBOR plus a spread. CS is in turn required to pay to the Republic, on a quarterly basis, interest amounts on all Scheduled Additional Amounts based upon LIBOR plus a spread. Upon the scheduled repurchase date, being 54 months from the commencement of the October 2018 CS-Ecuador Repurchase Transaction, CS is required to sell and transfer to the Republic equivalent property to the CS Reopened Notes (the “CS Equivalent Property”) against payment by the Republic of the final Scheduled Additional Amount. In addition, the Republic may be required to repurchase CS Equivalent Property and pay the Repurchase Price (to the extent not already paid) to CS prior to the scheduled repurchase date if certain events of default or termination events occur. Under the October 2018 CS-Ecuador Repurchase Transaction, CS can sell or otherwise transfer any interest in the CS Reopened Notes at any time to any third party, although CS is required to retain economic exposure to the CS Equivalent Property for so long as CS has a future obligation, whether or not contingent, to deliver the CS Equivalent Property. Upon the occurrence of an event of default, if CS elects to sell CS Equivalent Property to a third party in order to determine the amounts due between the parties under the October 2018 CS-Ecuador Repurchase Transaction, the Republic will have the right to submit a bid to purchase such CS Equivalent Property and CS will be obliged to accept such bid if such bid is the highest bid received, subject to the terms of the October 2018 CS-Ecuador Repurchase Agreement. Given that certain obligations are denominated in EUR under the October 2018 CS-Ecuador Repurchase Agreement, the all-in cost to the Republic of the agreement may be higher or lower than if all payments were denominated in USD. Furthermore, the Republic may elect under the terms of the agreement to make payments in EUR or USD.

In the event that the value of the CS Equivalent Property declines and is worth less than certain thresholds then, within two business days of the delivery of a notice from CS to the Republic, an additional amount (an “Additional Amount”) must be paid by the Republic to CS (subject to any such Additional Amount being at least 2% of the remaining Purchase Price). Accordingly, the Republic may be required to pay Additional Amounts prior to the scheduled repurchase date when the value of the CS Reopened Notes decline, even where no event of default or termination event has occurred. In addition, under certain circumstances and at certain times, the Republic may request that CS return additional amounts if the value of CS Equivalent Property increases above certain thresholds. Any Additional Amounts paid by the Republic to CS shall reduce the Repurchase Price, and any additional amounts returned by CS to the Republic shall increase the Repurchase Price.

Under the October 2018 CS-Ecuador Repurchase Transaction, CS is required to transfer to the Republic an amount equivalent to all interest amounts to be paid by the Republic on the CS Reopened Notes three business days prior to the date on which such interest amounts are to be paid by the Republic. CS is also required to transfer to the Republic the CS Equivalent Property upon final payment of the Repurchase Price in full. If an event of default occurs under the October 2018 CS-Ecuador Repurchase Transaction, the rights of the Republic to receive an amount equivalent to all interest amounts that are to be paid by the Republic on the CS Reopened Notes will terminate, but the Republic will continue to be required to make all payments of principal and interest in respect of the CS Reopened Notes to the applicable holders of the CS Reopened Notes.

At any time during the term of the October 2018 CS-Ecuador Repurchase Agreement, either CS or the Republic may request (and in specific cases may be obliged to agree) that the CS Reopened Notes be substituted for other identified Equivalent Securities issued by the Republic, subject to certain conditions, including that the market value of the other Equivalent Securities to be substituted is equivalent to the market value of the CS Reopened Notes that are being substituted. The Republic may therefore issue new notes or re-open existing notes at any time for the purpose of a substitution described in this paragraph.

Pursuant to the amendment of Article 123 of the Public Planning and Finance Code by the Organic Law for Development, Investment, Employment and Fiscal Stability, which expressly provides that notes issued in connection with repurchase transactions are contingent liabilities (pasivos contingentes) and are not taken into account as public debt until they are no longer contingent, the Ministry of Economy and Finance has not considered the aggregate amount of the CS Reopened Notes in the calculation of the total public debt to GDP ceiling, see “Public Debt—Organic Law for Development, Investment, Employment and Fiscal Stability”. Were the CS Reopened Notes no longer considered to be contingent, such as upon the occurrence of event of default, the entire outstanding face amount of the CS Reopened Notes may be considered in the calculation of the total public debt to GDP ceiling. If the entire face amount of the CS Reopened Notes at issuance is taken into account in calculating the debt to GDP ratio, the aggregate debt to GDP ratio would be approximately 51.27%, under the New Methodology using the debt to GDP ratio information as of April 30, 2019.