IMF worsens situation in Ecuador



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When people think of the damage that high-income countries, usually led by the United States and their allies, do to people in the rest of the world, they usually think of war. Hundreds of thousands of Iraqis lost their lives as a result of the 2003 invasion and many others died later, as a result of the intensification of the situation in the country. region. But rich countries also exert considerable power over the lives of billions of people by controlling global governance institutions. One of them is the International Monetary Fund. It has 189 member countries. However, the United States and the rich allied countries have a most
solid votes. The head of the IMF is, according to custom, of European nationality; and the United States alone has enough votes to veto many major decisions, even though rich countries hardly ever vote against each other.

Let's take a look at a recent IMF loan to see how the problem works. In March, Ecuador signed a agreement
he borrowed $ 4200 million from the IMF for a period of three years, provided that the government adheres to an economic program defined by the agreement. In the words of Christine Lagarde – the Managing Director of the IMF at the time – it was "a comprehensive reform program aimed at modernizing the economy and paving the way for a strong, sustainable and equitable growth ".

The first thing to note is that the program requires a huge adjustment of the Ecuadorian national budget, about 6% of GDP over the next three years (to get an idea, it's as if the US federal budget had an adjustment of $ 1.4 billion, thanks to a combination of spending cuts and tax increases). In Ecuador, this includes firing tens of thousands of public sector employees, raising taxes that disproportionately burden the poor population and reducing public investment.

The general impact of this major fiscal adjustment will be to turn the economy into a recession. The IMF is forecasting a relatively mild recession until next year; but it will probably be much longer and deeper, as is often the case when IMF programs work. Unemployment will rise – even the IMF program's projections admit – as well as poverty.

One of the reasons why the situation is likely to be much worse than the one projected by the IMF is that the agreement based on
badumptions that are not credible. For example, the IMF predicts a net foreign private sector entry into the economy of $ 5 billion (about 5% of GDP) between 2019 and 2022. But if we look at the last three years, we have recorded a 16 , $ 5 billion. dollars (17% of GDP). Why would foreign investors suddenly be much more enthusiastic about bringing their money to Ecuador? Admittedly, the recession that the IMF also predicts will not do it.

There are other unlikely badumptions, and even some that arise from accounting errors, and unfortunately they all go in the same direction. It seems unlikely that the program's "expansive austerity" – a strategy that almost never works – makes Ecuador a world-famous exception, in which the economy grows as global demand grows. decreases.

The program also seeks to reshape the economy in a way that, for many Ecuadorians, would seem to have a political character. They will make the central bank more autonomous; public goods will be privatized; and labor legislation will be amended to give employers greater power over workers. Some of these changes – for example, the separation of the Central Bank from other government decisions – will make the economic recovery even more difficult.

All this is happening under a government that, although elected in 2017 on a so-called continuity platform, is now seeking to reverse the political reforms of the previous decade. These reforms were quite successful
, if we
We rely on economic and social indicators.

Poverty has been reduced by 38% and extreme poverty by 47%; public investments – hospitals, schools, roads and access to electricity – doubled as a percentage of the economy, but the previous government was a more independent left-wing government of the United States, for example when he closed the US military base on his territory.

You can already imagine how it draws the picture, taking into account that the Trump administration has gained enormous power over Ecuador, not only by the IMF loan of 4200 million euros, but also by the 6,000 Remaining millions of loans granted by Washington-based multilateral institutions, such as the World Bank and the Inter-American Development Bank (this represents about 10 percent of Ecuador's annual GDP, or more than $ 2.1 billion in case of the United States).

In fact, we do not even have much to imagine, since the new president, Lenín Moreno, has aligned
with Trump's foreign and economic policy in the region. At the same time, his government is persecuting his predecessor, Rafael Correa, with false accusations that even Interpol will not support
With an international capture order. Other opposition leaders have fled the country to prevent illegal preventive detention (in the case of former Foreign Minister Ricardo Patiño, for delivering a speech that the government has no Did not like it).

Since Washington controls the IMF's decision making for this hemisphere, the Trump administration and the IMF are involved in the political repression in Ecuador, as well as in the broader attempt to reconvert the country's economy and policies until Trump and Pompeo would like to see, but for which most Ecuadorians did not vote.

All of this provides even more reasons for serious reform of the IMF, starting with making it a more multilateral institution, as it claims. Over the past 20 years, the US Congress – mandated to approve IMF fund increases – has intervened a few times to eliminate certain abuses. For example, in the early 2000s, millions of poor children in Africa gained access to primary education and medical care, as the US Congress prevented the IMF and the World Bank from imposing on governments tuition fees. users of these basic services; something that these institutions have been doing for years.

It's almost a fact that in the coming weeks, the IMF will choose a new European, rich and white, to lead the institution. Progressive members of Congress, concerned about what US foreign policy is doing to the rest of the world, should step in to demand some reform.

* VSodirector of Research Center in Economics and Politics
(Center for Economic and Political Research, CEPR) in Washington, DC and President of the Just Foreign Policy Organization
. He is also the author of the book "
Failure. What 'experts' did not understand about the global economy
"(2016, Akal, Madrid). Francesca Emanuele Translation.

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