March 5, 2021

The Ecuadorian economy, between the need for reforms and social unrest

The injection of capital that Ecuador is receiving from international entities to alleviate its lack of liquidity, more than 10,000 million dollars, has opened a bitter debate about the price of these agreements at the social level, although it seems that the alternatives were not too encouraging .

The Ecuadorian public finances accumulate a debt of almost 56,000 million dollars, according to the latest data from the Ministry of Finance, and the need to repay loans and debt when the country is in full stagnation made it necessary to seek foreign aid.

"The agreements were essential," assured Ecuadorian Finance Minister Pablo Better, for whom that debt is "unmanageable in the current circumstances" of the country.

The Ecuadorian economy is mired in stagnation and, according to an IMF report released this week, the real growth forecast for 2019 will be -0.5 percent, and by 2020 it will barely reach 0.2.

A situation that comes from the extreme dependence of the country on its oil exports, the debt left by the previous president Rafael Correa (2007-2017), the fiscal deficit and other regional factors that have held back development.

"It is one of the reasons why the agreement with the IMF is so important, we must reduce the burden of annual payments in the general budget of the State", abounds the economic expert, who was president of the IMF's Board of Governors and of the World Bank and former Chairman of the Board of the Central Bank of Ecuador.

With the support of the US, a country that Ecuador has approached since Moreno came to power in May 2017, its Finance Minister, Richard Martinez, went to international organizations in search of more affordable financing and assistance for programs developmental.

In March, several of them extended a gradual line of credit for 10,200 million dollars, a gift that for many union and social leaders was poisoned by the package of reforms required by these organizations, including tax, labor and tax.

The citizen platform "Va por ti Ecuador" even denounced on Thursday that the agreement with the IMF, worth 4,200 million dollars, is "unconstitutional" and he labeled it as "mocking the Ecuadorian people" and a "coarse word game" to violate the country's Constitution.

In statements to Efe, Jorge Benavides, professor of constitutional law at the Universidad Andina Simón Bolívar, said that the legal form given to this agreement, that of an administrative act with general effects, implies that it would affect Ecuadorian society.

And that being an agreement in which the Government is committed to making reforms, "there is a possibility that, in the future, some of these reforms may contravene the laws of Ecuador."

Other groups and experts have been warning for months about an impact of the measures suggested by the IMF against the middle class and popular sectors.

Among them is the reduction of public spending and the size of the State Administration in order to balance the fiscal deficit.

"What matters to Martínez is the deficit, the unnecessary expense," says Better about the required measures, which he believes are essential for Ecuador to balance within three years.

And he believes that "the bureaucracy" would have to "reduce 100,000 jobs", equivalent to "15% of public services" of the entire state and local apparatus.

"That is difficult and can not be done at once," he warns of the need to do it gradually so as not to cause "people who leave unemployment to politically generate a movement that returns to the past decade", in reference to the previous regime of Correa.

But he considers it essential to carry out these reforms because "if there are no changes in that sense, the assistance program will be interrupted".

Other fears include that a labor reform, which the government defends as necessary to increase competitiveness and productivity, harms working conditions.

On June 28, in an 80-page document, the IMF Board gave Moreno a boost by verifying that it had met the goals set for the second disbursement of $ 251 million (its reserves were technical), although Better believes that, despite his "good intentions", maybe Moreno "does not have all the tools he needs to make the reform".

The political division in the country is very high and Moreno will have difficulty in passing through the Assembly all the required reforms.

Better highlights in that sense that "if there are reforms you can get out of the impasse", that if Ecuador "complies with the agreement with the Fund things will look very positive", but warns that Moreno "has to handle himself very carefully" in his call Prosperity Plan, as the set of structural reforms in progress is known to reactivate the economy.

(tagsToTranslate) Ecuadorian economy (t) (t) need (t) reforms (t) restlessness

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