Following an IMF directive, Moreno moves to restrict the use of Central Bank reserves, angering Arauz

Ecuador’s government has introduced a bill to the National Assembly that would bar the country’s central bank from using its international reserves to finance public spending, a change recommended by the International Monetary Fund (IMF).

President Lenin Moreno

The South American country last year reached a $6.5 billion deal with the IMF, sorely needed cash for the oil-producing country whose public coffers were suffering the dual whammy of a sharp drop in crude prices and the economic slowdown due to the coronavirus pandemic.

President Lenin Moreno, who leaves office on May 24, has criticized the BCE’s lack of independence, noting that the bank loaned the central government money to finance spending under former President Rafael Correa.

“The objective of this proposal … is to give the BCE technical autonomy to avoid political and irresponsible use that seeks to use international reserves to finance the state’s spending,” the economy ministry said in a statement on Monday.

Seeking to push through reforms before Moreno leaves office, the government sent the bill to the single legislature National Assembly as an “urgent” proposal. That process means that if the assembly, where Moreno does not hold a majority, does not vote on the bill within 30 days it automatically becomes law.

Correa, a leftist, has defended the current relationship between the central bank and the government, noting that the BCE’s role is different than those of other countries’ central banks since Ecuador’s economy is dollarized.

Correa protege Andres Arauz, who faces an April runoff in the presidential election, reacted agrily to Moreno’s legislation. “If this becomes law it will be a straight-jacket to the next president’s plan to reform and rebuild the economy,” he said. “I reject it absolutely and question its timing, coming during the campaign where I am proposing changes that require Central Bank funding.”

Among Arauz’s campaign promises is to give $1,000 to one million poor Ecuadorians, money he says he will take from the Central Bank.

“We request that the current Assembly and the next one remain firm and alert about the proposed law and reject it,” Arauz said, expressing his opposition to what he called the “Central Bank privatization law.”

About a quarter of the National Assembly members support Correa and Arauz but they will need to form alliances with other parties to block Moreno’s request.
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Credit: Reuters