June 21, 2021

Ecuador publishes letter with IMF that includes reforms and adjustments to fuels

Ecuador publishes letter with IMF that includes reforms and adjustments to fuels



The Government of Ecuador published on Thursday the letter it signed with the International Monetary Fund (IMF) for a debt program for 4,210 million dollars and that includes the application of tax and labor reforms, as well as a new review of subsidies to the fuels, among others.

The letter signed by the Economy Minister, Richard Martinez, and the Central Bank of Ecuador manager, Verónica Ártola, is addressed to the IMF director, Christine Lagarde, and is dated March 1.

The letter also contains annexes and a matrix on "previous actions and structural goals", in a text of 18 pages that this Thursday were disseminated by the Ministry of Economy.

On March 11, the Executive Board of the IMF endorsed the technical agreement of financial assistance to Ecuador, which allowed an immediate disbursement of 652 million dollars.

"Ecuador is in a historic transition to modernize the economy and strengthen economic growth and employment generation for future generations," says the letter and believes that the transition program will place special importance on the care "for the most vulnerable citizens " from the country.

It also notes that the Government's social and macroeconomic program, called the "Prosperity Plan", has been updated, prepared in accordance with the National Development Plan and the United Nations Sustainable Development Goals.

Ensures that the program seeks to "rebuild and strengthen the institutional foundations of dollarization," the monetary model adopted by the country in 2000, the generation of employment, "protect the poor and vulnerable and" ensure a climate of transparency and good government".

The Ecuadorian Executive, according to the text, is committed to "restore prudence in fiscal policy, strengthen the institutional framework of the Central Bank, increase the soundness of the financial system and support the generation of employment based on greater competitiveness and growth."

And already in the annexes to the letter, the Government is committed to a readjustment of the wage bill of the public sector, the optimization of the fuel subsidy system, a reform of the tax system and a reduction in public spending.

Also to make concessions of public companies to "private partners" to "monetize state assets", in a transparent way and in order to reach the maximum benefit for the State, and without diminishing the coverage of services to the population.

It also seeks to simplify the tax system through a reform that includes the possibility of gradually eliminating the "distortionary taxes related to the volume of business and transfers abroad."

"Ecuador requires an urgent labor reform" that adapts "to the conditions of the market and society, carefully removing the current restrictions that result in fewer opportunities for people who do not have a job," the executive said in the document.

The Ecuadorian Government has highlighted this agreement with the Fund, because the assistance program also opens the support of other multilateral organizations to the so-called "Prosperity Plan".

Other loans from the Development Bank of Latin America-CAF will be added to the IMF's contribution, for 1,800 million dollars; the World Bank, for 1,744 million, and the Inter-American Development Bank (IDB), 1,717 million.

Also, the European Investment Bank, with 380 million dollars; the Latin American Reserve Fund (FLAR), with 280 million, and the French Development Agency, with an additional 150 million, for a total of 10,279 million.

The publication of the letter of intent with the IMF comes at a time when some opposition political groups and unions have claimed for the reforms suggested by this agreement on labor and economic issues and that the Executive has assured that they were necessary "with or without "The agreement, given the difficult situation that the Ecuadorian economy is going through, according to the Government.

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