Finance Minister Simón Cueva announced Monday he hopes to reach a new agreement with the International Monetary Fund by August and says the first IMF loan disbursement should come in September.
According to Cueva, the negotiations are necessary due to several unresolved issues between the government of Lenin Moreno and the IMF. “These were not serious disputes but they need to be resolved before the first payments can be made,” he said. “The position on the new government is similar to that of the outgoing one in most respects but because of the change we need to update the agreement.”
He added that the IMF has signaled its approval of the Lasso government’s plans to reduce restrictions on commerce and increase foreign trade. “A key objective is to increase foreign investment and we must create a more open market for this to happen,” Cueva says.
The IMF presented a list of recommendations to the Moreno government including a phase-out of fuel subsidies, an increase in the VAT tax from 12 percent to 14 percent, and new legislation targeting corruption. President Guillermo Lasso has rejected an increase in the VAT, as did Moreno, but says he believes the other recommendations are justified.
Because of the impact of the Covid-19 pandemic and other factors, Cueva says Ecuador will need at least $5.5 billion before the end of the year to cover operating expenses. “The economy was in poor condition before Covid and the situation is worse now,” he says. “We are making changes we believe will bolster the economy as we recover from the pandemic but we understand this will be a long road and we will need assistance along the way.”
Prior to receiving new IMF loans, the government expects low-interest funding from other sources, including the Latin American Reserve Fund and South American Development Bank. In addition, Cueva says the government expects to issue treasury certificates to the private market in July or August and is encouraging Ecuadorian banks to invest in a series of development bond issues. “Our risk rating has improved impressively since the new government took office and this means significant savings in all our bond payments,” he says.
Lasso says his goal it to reach a balanced budget by the end of this first four years in office but says the country must work with the IMF and the international credit markets in the meantime. “We have dug ourselves a deep financial hole and will need help getting out of it,” he says.