New agreement between Ecuador and the IMF is “the best option”, but it poses a political challenge for Guillermo Lasso

Ecuador today concluded an agreement with the International Monetary Fund (IMF) which will allow you to make adjustments to consolidate your public finances, affected by the economic crisis and the effects of the pandemic. The agreement comes as part of the second and third reviews of the Extended Service Program (SAF), which the country has had with this body since September 2020.

In the coming days, Ecuador expects a disbursement of $ 800 million from the multilateral organization and as part of the financing of the general state budget this year. The agreement was reached within the IMF’s Extended Service (SAF) and will last 27 months. The FAS was created to help countries with serious balance of payments problems due to structural deficiencies, slow growth, or severely weakened balance of payments situation.

In SAF, repayment periods are longer because “structural reforms aimed at correcting stubborn deficiencies often take time to implement and bear fruit”, explains the IMF on its official website. To access these disbursements, Ecuador – as well as any country wishing to obtain these funds – has undertaken to apply policies aimed at overcoming economic and structural problems.

In September 2020, it approved a 27-month agreement under the IMF’s Extended Facility (SAF), for an amount equivalent to $ 6,500 million. At this moment, The IMF said the deal was aimed at “protecting lives and livelihoods after the COVID-19 pandemic and continuing to support Ecuador’s efforts to stabilize the economy.”

So that the country can receive disbursements, The IMF, through a technical team, assessed the achievement of the macroeconomic objectives to which Ecuador had committed. In April 2021, the IMF was to disburse $ 400 million for the country. The delivery of funds has been subject to technical review and dollarization defense law approval. However, the country was slow to comply with the above and the IMF delayed the delivery of the money. However, in June of this year it was already announced that Ecuador expected to receive $ 800 million in September.

With the news of the agreement reached, the Minister of Finance, Simon Cueva He said there would be a Greater emphasis on reducing public spending and will require, to a lesser extent, an effort on the part of those who have the most to raise revenue, as well as continued efforts to fight tax evasion.

Since 2019, the Andean country has faced serious budgetary problems, which have also increased with the pandemic. According to official figures, Ecuador ended 2020 with a 7.8% contraction of GDP, and this year, growth of just 2.5% is expected.

The economist and editor-in-chief of Weekly analysis, Alberto Acosta Burneo I’m speaking with Infobae and explained that “the best available source and on softer terms ”for Ecuador to find financing is the International Monetary Fund and multilateral credit institutions. For Acosta Burneo, this achievement of the Lasso government shows that “there are clear signs that this government finally wants to put the budgetary accounts in order”.

Acosta Burneo, referring to the economic crisis the country is going through, He recalled that the current financial situation is not only a product of the pandemic but that “the budget crisis was born in the manna” because the government of former president Rafael Correa, which had the best oil prices, increased public spending without considering that these oil revenues were not permanent. “This is the origin of the 2014 budget crisis. To date, we are in an adjustment process, which involves social, economic and political costs. It has been more than five years of fiscal adjustment and it is essential that Ecuador accelerates this adjustment process ”.

Although for the Ministry of Finance, the economic outlook has improved. Acosta Burneo reiterates that “we must take into account the fact that the financing need for the government this year exceeds 8,000 million dollars, since we still have a state dependent on financing”. In addition, the economist indicates that although the details of the Agreement are not yet known, the press release points out that the tax effort will be greater in this new agreement, unlike the previous agreement where it was expected that the greater weight of the adjustment would come from the side of the new taxes.

According to information published by the IMF, The Ecuadorian authorities are committed to improving public financial management, increasing transparency in the management of public resources and advancing the anti-corruption program to build confidence in public institutions and revive private sector activity. In addition, the authorities should “reform their public-private partnership framework, their capital and labor markets, and improve the business environment to catalyze domestic private investment and attract foreign direct investment.”

Regarding the above, the political scientist and constitutional expert, Gabriel Hidalgo Andradeexplained to Infobae that he “Ecuador has pledged to give something the government cannot guarantee”. The expert evokes the fact that the policies of public finance management, improvement of transparency and the fight against corruption must be implemented through laws and reforms to the National Assembly, as the National Assembly is called. Congress.

However, The ruling party does not have a majority in the Legislative Assembly, so for any reform or law the government will have to negotiate with other banks. Hidalgo points out that the Lasso government does not have “a broad agreement within the legislature to work for a profound reform within a general framework of laws to stimulate work, finances, investment, and these are precisely the areas in which the center-left sectors and the populist left want to shut themselves up in order to generate a crisis that will cause the government to fail ”. For the political scientist, the only way out for Lasso is that in the popular consultation he questions the promulgation of these laws with the approval of the popular vote.

The agreement with the IMF sets fiscal targets, social protection, strengthening public finances and economic recovery, however, details of how the funds will be distributed are not yet known.

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