Ecuador will receive $652 million this week from the International Monetary Fund (IMF), the first installment of a $4.2 billion dollar package negotiated last month. In total, the IMF arranged $10.3 billion in loans from seven multilateral lenders, including the World Bank.
“The Ecuadorian authorities are implementing a broad program of reforms with the objective of modernizing the economy and paving the way for solid, sustained and equitable growth,” said Christine Lagarde, IMF Director, following Monday’s official approval of the loan package by the IMF board of directors.
According to Ecuador Minister of Finance Richard Martinez, the first loans will be used to cover arrears to local governments and contractors. “We will catch up on these obligations first as part of the process of putting the economy on a firm footing,” he said. Terms of the first loans are flexible, Martinez added, allowing the government to apply funds where they are needed most.
A source at Ecuador’s Central Bank said that some debts to municipal and provincial governments are as much as five months old while those to private contractors, in some cases, are eight months behind.
Lagarde praised the government of President Lenin Moreno, saying the “Prosperity Plan” presented in the loan application satisfies most IMF requirements. “We agree with the proposals to optimize the use of funds as well as the requirement to protect Ecuador’s most vulnerable populations,” she said. “We are focusing on reducing the debt-to-GDP ratio, revising labor laws, reducing fuel subsidies, improving the investment climate and making adjustments to the taxing structure for the purpose of prioritizing capital expenditure on goods and services.”
Critics of the loan package continue to ask for details and say terms of the loans have not been fully disclosed. “Some new information was revealed by Lagarde but we are still awaiting full disclosure,” says Carlos Miller, an economics professor at the University of Guayaquil. “Many of items must be approved by the National Assembly, especially those relating to taxes and labor contracts, and are yet to be revealed. Other issues, such as pressure to continue to reduce fuel supports could present a political problem for the government.”
Miller said that some requirements, such as the reduction of the five percent tax on funds sent out of the country can be ordered directly by Moreno’s office.
According to Martinez, the IMF loans come with a three percent interest rate and a 10-year repayment term with a four-year grace period.