February 28, 2021

The IMF backs Ecuadorian restructuring in the first quarter review

The International Monetary Fund (IMF) has given a boost to the restructuring measures initiated in recent months by the Government of Lenin Moreno, in a report of its mission for this country released today in Quito.

The Prosperity Plan, as the set of ongoing structural reforms is known, is progressing according to plan and is in general "on track", the IMF emphasizes, which has granted Ecuador a line of credit for more than 4,000 million dollars, in gradual transfers, as long as the objectives are met.

The document, of 80 pages, follows a meeting in Washington on Friday of the Board of the entity in which the second disbursement of 250 million dollars was granted to the country, after verifying the fulfillment of conditions in the second term.

"All of the quantitative targets for March, minus one, were achieved," the report points out in reference to a technical failure related to the renewal of a loan to the Government by the Central Bank, which is already being addressed by the authorities.

In that sense, the policies implemented are paying off, with an improvement in the fiscal situation and international reserves, as well as a reduction in external "financing costs," the document says.

And it highlights that "the macroeconomic perspectives for the next three years remain practically unchanged since the financial support was granted to Ecuador".

Last March, a group of financial entities, including the IMF, the World Bank and the IDB, extended to the Andean country a line of credit worth 10.2 billion dollars to allow it to take off in times of economic stagnation.

The objective is to provide financing to reduce the public deficit -which exceeds 55,000 million dollars- and to encourage a reactivation of the economy, giving new wings to the private sector and the gestation of new development engines.

A money that for former Finance Minister Pablo Better was crucial to face the situation of "stagnation" that the country is experiencing "with a growth of less than 1%" annually.

"I am glad that the IMF has given Ecuador a boost," said the former minister between 1991 and 1992, who recalled that the program reached "has no goals but rather directions in which the economy should go."

With the goal set in 2022, the restructuring package includes labor and public management aspects, in a joint effort to improve the transparency of state accounts and aim for greater competitiveness.

"If there are reforms, the Government may be on track to overcome the stagnation, because that (development) does not come overnight. If the agreement with the Fund is fulfilled, things will look very positive," Better says.

But he warns of the risk of social unrest and "things go back to the last decade" if unemployment grows disproportionately as a result of fiscal readjustments.

With a debt of around 56,000 million dollars -according to the new methodology applied by the Ministry of Finance- the loans reached must direct Ecuador towards growth, taking into account the need for social assistance for the less favored.

The main achievements highlighted in the report are in that sense an increase and reconstitution of the international reserves to 2.388 million dollars, support of the dollarization assumed by the country in 2000 after a financial collapse; and the reduction of the non-oil primary deficit.

The IMF has also ratified the strengthening and recovery of national taxation and the advance of structural reforms at the tax, labor, public finance levels and a new regulatory vision for the Central Bank.

"They will help boost economic growth and create new jobs in the medium term, it is even expected that the Ecuadorian economy will grow," the document highlights.

For this year, the IMF forecasts a real growth of the Ecuadorian economy of -0.5 percent, and for 2020 of just 0.2.

Acknowledging its reserves, the IMF also asks to keep under surveillance the fluctuations of loans / deposits in the private banking sector, having registered too fast growth in the former compared to a much more contained in the latter, although for now it does not give much less the alarm voice.

Better points out in all these senses that the future of the plan will depend on the structural reforms proposed by the Government, and mentions among them, as crucial, the labor, the tax and the return of autonomy to the Central Bank.

(tagsToTranslate) FMI (t) supports (t) restructuring (t) Ecuadorian (t) quarter

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