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How the IMF hurts countries it claims to help

By Mark Weisbrot

When people think of the damage that wealthy countries – typically led by the US and its allies – cause to people in the rest of the world, they probably think of warfare. Hundreds of thousands of Iraqis died from the 2003 invasion, and then many more as the region became inflamed.

But rich countries also have considerable power over the lives of billions of people through their control over institutions of global governance. One of these is the International Monetary Fund. It has 189 member countries, but the US and its rich-country allies have a solid majority of the votes. The head of the IMF is by custom a European, and the US has enough votes to veto many major decisions by itself – although the rich countries almost never vote against each other.

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To see what the problem looks like, consider a recent IMF loan. In March, Ecuador signed an agreement to borrow $4.2 billion from the IMF over three years, provided that the government would adhere to a certain economic program spelled out in the arrangement. In the words of Christine Lagarde – then the IMF chief – this was “a comprehensive reform program aimed at modernizing the economy and paving the way for strong, sustained, and equitable growth”.

But is it? The program calls for an enormous tightening of the country’s national budget – about 6% of GDP over the next three years. (For comparison, imagine tightening the US federal budget by $1.4 trillion, through some combination of cutting spending and raising taxes). In Ecuador, this will include firing tens of thousands of public sector employees, raising taxes that fall disproportionately on poor people, and making cuts to public investment.

Police arrest a protester last week in Quito following the elimination of gasoline subsidies.

The overall impact of this large fiscal tightening will be to push the economy into recession. The IMF’s projections are for a relatively mild recession until next year, but it will likely be much deeper and longer – as often happens with IMF programs. Unemployment will rise – even the IMF program projections acknowledge that – and so will poverty.

One reason that it will likely turn out much worse than the IMF projects is that the program relies on assumptions that are not believable. For example, the IMF projects that there will be a net foreign private sector inflow into the economy of $5.4 billion (about 5% of GDP) for 2019–2022. But if we look at the last three years, there was an outflow of $16.5 billion (17% of GDP). What would make foreign investors suddenly so much more excited about bringing their money to Ecuador? Certainly not the recession that even the IMF is projecting.

There are other implausible assumptions and even some that result from accounting errors, and sadly they all go in the same direction. It seems that the program’s “expansionary austerity” – something that almost never happens – is unlikely to make Ecuador into a world-famous exception, where the economy grows as aggregate demand is slashed.

The program also seeks to reshape the economy in ways that, to many Ecuadorians, would appear to be political. The central bank will be made more autonomous; public assets will be privatized; and labor law will be changed in ways that give employers more unbridled power over workers. Some of these changes – for example, the separation of the central bank from other government decision-making – will make economic recovery even more difficult.

All this is taking place under a government – elected in 2017 on a platform of continuity – that seeks to reverse a prior decade of political reforms. These reforms were, by measures of economic and social indicators, successful. Poverty was reduced by 38% and extreme poverty by 47%; public investment – including hospitals, schools, roads, and electricity – more than doubled as a percent of the economy. But the prior government was a leftwing government that was more independent of the US (by, for example, closing down the US military base there).

One can imagine what this looks like, as the Trump administration now gains enormous power in Ecuador not only through the $4.2 billion  IMF loan, but also $6 billion from related Washington-based multilateral institutions such as the World Bank and Inter-American Development Bank. (This totals about 10% of Ecuador’s annual GDP – equivalent to more than $2.1 trillion in the US.)

Actually, we don’t have to imagine much, since the current president, Lenín Moreno, has aligned himself with Trump’s foreign and economic policy in the region. At the same time, his government is persecuting his presidential predecessor, Rafael Correa, with false charges filed last year that even Interpol won’t honor with an international warrant. Other opposition leaders have fled the country to avoid illegal pre-trial detention – in the case of former foreign minister Ricardo Patiño, for making a speech that the government did not like.

Since Washington controls IMF decision-making for this hemisphere, the Trump administration and the fund are implicated in the political repression as well as the broader attempt to reconvert Ecuador into the kind of economy and politics that Trump and Pompeo would like to see, but most Ecuadorians clearly did not vote for.

All this provides even more reasons why there needs to be serious reform at the IMF, starting with making it more of a multilateral institution, as it pretends to be. In the past 20 years, the US Congress – which has to approve funding increases for the IMF – has on rare occasions intervened to eliminate some abuses. In the early 2000s, for example, millions of poor children in Africa gained access to primary education and health care because the US Congress made it impossible for the IMF and World Bank to require their governments to charge user fees for these basic needs – as these institutions had been doing for years.

In the coming weeks, the IMF will almost certainly choose a new, affluent white European to head the institution. Progressive members of Congress, who care about what US foreign policy does to the rest of the world, should weigh in with some demands for reform.

Mark Weisbrot is the co-director of the Center for Economic and Policy Research in Washington and the president of Just Foreign Policy. He is also the author of Failed: What the ‘Experts’ Got Wrong About the Global Economy.

166 thoughts on “How the IMF hurts countries it claims to help

  1. We went through all this 10 months ago…a detailed mirror to the article above. In this borrowing, IMF=USA I cannot imagine any agreement between Trump/Pence and Ecuador can ever work out for Ecuador. The shame of giving up Assange and a military base in the Galapagos are only the tip of the iceberg we cannot fully see as yet.

    1. How many American troops are stationed in the Galapagos? You are so informed in your statements, enlighten us with your wisdom.

      1. The base isn’t open yet. So? The land has been granted, the construction is beginning. Does the fact that no troops are there yet mean we can’t discuss it?

    2. You are truly, without a doubt, awake and aware ….always look forward to your comments! Definitely one of the more “enlightened” ones on here!

      1. You are being sarcastic aren’t you? Opinionated is the appropiate word for GT. Not factual.

          1. The only time I am sad is when I consider how misled you are. Your thoughts are worldly, not truthful.

  2. Become your own central bank- buy Au,Ag, and Pb. Helpful hint: right now, go to your local bank here, and take out $2-3K. You will need it in the next 2 or 3 weeks. Things are brewing in the U.S. that will dwarf the scenario in Ecuador. There will be no miracles, anywhere on earth; prepare yourselves accordingly.

    1. Not being argumentative…. just curious, Exactly, from your point of view, “(What) things are brewing in the U.S.”? Also, how do you propose people “buy” AU, AG, and PB??? Stocks of miners / producers? In their physical form? ETF’s? Precious metals mutual funds?

        1. You should have sought out “PB” hats, as Hiram suggests…. Lead (PB) will go a long way for you when the economy collapses.

          1. Due to the weight, my neck would hurt. My advice, take any lead you invest in and put in your pencil.

      1. You’re kidding right? You must not have read many of Abel, John G., Tommy H. or now, Hiram Fong’s posts. He never posts anything based on fact, never posts links to back up his conspiracy theories and never answers follow up questions. Best to just ignore him.

        1. He and all the people you named are the same guy. He changes his account after a sufficient number of people have blocked him because he feels the world really needs to read his message.

        2. Yes, I was kidding, I was trying to reel him in, since he insists on dispensing broad investment advice, without a statement of his credentials, or the particulars of his advice

    2. People who have not researched on alternative media have no opening in their thinking for anything out of the brainwashing of the mass media, which is owned by criminals. Laws now permit the mass media to propaganize (i.e. LIE) and many fall for the lies. I agree with Hiram Fong that things are brewing behind the scenes not only in the US but globally. Since late 2014 (see the global intel agencies and militaries have united in taking down, legally and with evidence, criminals who sought global fascist control. The legal arrests are reaching the higher echelons of power, perhaps including the criminals in these world banks and central banks, which are criminal organizations. Ridicule is a mind control tool they use, and another tool to get people to look the other way is calling truth that is leaking out ‘conspiracy theories’ So I suggest instead of ridiculing althernative thinking, or looking the other way when someone ridicules or claims something is a conspiracy theory, I suggest to use the web to investigate for yourself. Check out what ‘the other side’ is saying. Part of the fascist control is to ‘divide and conquer’ the people, get them to fight among themselves, and then offer a ‘solution’ of fewer rights and more misery.

      1. If any of that is true, why are you making yourself a target for intelligence agencies by publicly outing yourself as a detractor? It seems you’ll be the first one they go after when the next phase goes down.

        1. I believe that the rogues in the intel agencies are being, or have been, as much as possible, removed. There are good people in intel agencies and militaries.

          1. I would like to agree with you….. but I fear that the “Deep State” still exists….. with interests focused on their self-perpetuation, not national interests.

            1. True, they still exist, but are losing power. In 2014, they controlled about 80% of global corporations, and slowly, their web of control is being taken apart. I am hopeful for a full takedown soon, but it is a big world. Lots of them to arrest. Evidence to collect.

      2. This is why I bought the tin foil hats. They would have been good foil but with petrol going up, my budget is screwed

  3. Reducing government employment is a good thing, if something can’t be produced at least breakeven in the private sector, it means that its not really wanted. Keep down the size of the government and the size of the tax bills. Keeping the IMF and those NGO (no good organizations) spy and control orgs out of the country would be a good thing.

    1. So if the private sector cannot at least break even delivering healthcare and education to the poor, it means it’s not really wanted? Does that go for policing the streets as well?

    2. Hear, hear! However, the IMF is “here” only because Ecuador reached out, now the government, after agreeing to “conditions” that they should have instituted themselves, are using the IMF as the scapegoat for public outrage (which they knew was coming)…. clever engineering, but not ground breakingly original.

  4. Curious how Ecuador is being victimized for putting itself in a position with it’s own back up against the wall…. and then, because of its own irresponsible behavior, having to solicit a loan from the IMF as a life saver. Ecuador get’s the loan, then starts complaining about provisions put in place to help guarantee repayment (which won’t happen). On top of that… once the IMF and other monies start flowing, since the citizenry objects to the sensical reforms put in place, the Ecuadorian government turns around and issues even more Federal debt at high interest rates….. most of which will not be paid (interest and principal)….. One would have thought that the IMF, World Bank, and IADB would have had the foresight to prohibit the further issuance of debt as a requirement of the loans.

    It is interesting how, once again, the U.S., Trump, and now Pompeo (according to this article) are responsible for the consequences of Ecuador not being able to get its arms around the situation, and be more fiscally responsible.

    1. Ecuador needs to “be more fiscally responsible?” More fiscally responsible than who? The US? Don’t make me laugh.

      Until Moreno came on the scene Ecuador’s debt-to-GDP was one of the lowest in the developed world. What has all of Moreno’s debt bought? No one seems to be able to answer that question.

      Correction: Thanks to Karl Matthias Baumgart’s careful fact-checking (and my admitted lack of same), I confess the erroneous statement re debt-to-GDP ratios contained in the second paragraph above. Ecuador’s debt-to-GDP ratio at the conclusion of Correa’s administration ranked somewhere around #80 out of 186 nations (depending on whose figures you use) and therefore was not actually “one of the lowest in the developed world.”

      I still stand by my scorn for the United States’ fiscal profligacy and still would like to see a true, honest, detailed accounting of Ecuador’s fiscal position over the past few years. My thanks to Mr Baumgart for his due diligence and his polite, intelligent comments.

      1. Hey…believe what you want to believe. The whole thing boils down to cash flow and the ability service debt, both of which, Ecuador ranks among the lowest in the world (as reflected by prevailing Federal borrowing interest rates.. the higher you go… the higher the risk in the eyes of investors). My suggestion is, that if you really believe what you are saying…. you should liquidate any and all holdings that you have in the U.S., and load up on Ecuadorian investments, including Federal Debt.

        I suggest you don’t allow your hatred for the U.S. to cloud your thinking, or venture into discussions on topics you know so little about.

        1. I suggest you don’t allow your hatred for the U.S. to cloud your thinking, or venture into discussions on topics you know so little about.

          1. Who says I hate the US? I love its people but can’t stand its lying politicians, its faux-for-show politics or its endless global bullying and warmongering.
          2. I’ll put my knowledge of economic and fiscal policy up against yours any day.

          The whole thing boils down to cash flow and the ability service debt

          Exactly my point about the US debt. The US currently enjoys the privilege of owning the world’s reserve currency and being able to continually print endless piles of funny money with which to “service” its insane level of debt.

          That privilege is slowly eroding and will one day come crashing down around all our heads. I don’t want to be invested in anything dollar-denominated when that day arrives.

          But hey, believe what you want to believe.

          1. But hey…. I will (believe what I want to believe)… I don’t think you even know that you made my point: the ABILITY to service debt, which the US has, and Ecuador doesn’t, and hasn’t (had) for years. And, no, you really don’t want to stack up your financial credentials up against mine….. just sayin’

            And when it all collapses, which it will, you and I could very well be gone, but if you survive me I HOPE that you are heavily invested in all investments non-dollar denominated. You yourself, referred to the world’s reserve currency, and whether that situation remains in place, or it is replaced by a market basket, when the whole thing starts to unravel, ALL currencies will implode… if you knew as much about economics as you imply, you would have known that.

            1. I’ll be happy to stack my credentials against yours anytime. Yes, obviously the US has the “ability” to service its debt with funny money…until it doesn’t. Did I argue otherwise?

              Furthermore, where did I say that the ultimate collapse of the dollar would not likely be catastrophic on a global basis?

              Wanna try knocking down any more strawmen?

              1. Not worth my time…having a conversation with you….particularly since this is a public forum. You go ahead and view the world the way you want to. I bow to your superior knowledge and keen insight into all things economic and financial.

              2. Ok, I will bite. Could you two give me your education regarding this area. Do either of you have an MBA, a PhD in economics etc?

                1. Yes….. I do (both Finance and Marketing), as well as a CAS in Finance, and 40 years practical experience in corporate and international finance

                  1. I replied and listed my doctorate, post-doctorate and life experience credentials. You and disqus_ndGwsa93fX both obviously read them and edited your comments accordingly.

                    This exchange could have remained on a much higher plane had it been left at your comment “Not worth my time…”

                    1. You didn’t list what you had a PhD in and I have never seen a post-doctoral degree, just post-docs. Your PhD could be in Nuclear Physics or Sociology, big difference

                  2. Fed up replied and must have deleted. He has a PhD degree, he didn’t say what in. And a post-doc degree. WTH is a post-doc degree.

                    1. Good for him… I had a dozen of those types apply, when their academic worlds folded. Let’s just say that, we couldn’t get past their arrogance, and their inability to take direction. I’ll be charitable and simply say that their esoteric, theoretical views “didn’t fit our corporate culture”

        2. Two wrongs don’t make a right. Both the US and Ecuador are headed for disaster unless they can find ways to balance their national budgets. You can’t continue to spend what you don’t take in in taxes, no matter how pressing the social needs are. But there is an alternative, for leaders with guts: once again, repudiate the National Debt. Moreno could start by cutting the Chinese loan payments in half, since the power plant they built is seriously defective and is only able to run at half power. And while they are at it, nationalize the power plant and end the the crooked deal that Correa made to sell oil to the Chinese. After Ecuador has repudiated foreign debt, no lenders will ever lend to them again, and politicians will no longer be able to take the easy way out by making crooked deals with foreign powers, and the nation will be finally be forced to live within its means. At that point, the people may rise up and attack the real problem: Wealth Inequality.

          1. No country (or household for that matter) balances their budget.

            And for the record, the power plant is running at 100% of it’s projected power and has since the beginning. You’ve been duped by a narrative aimed at privatizing billions of dollars in public assets at pennies on the dollar.

        1. I am reluctant to post personal contact information here but would be pleased to communicate with you. If you have any suggestions as to how to facilitate that please let me know or if you are okay with posting your own contact information here I will be happy to get back to you.

          1. I am just as reluctant as you but we could try to get in touch through the CHL editor, he has my contact information.

            1. Are you talking about David, Jonathan, Robert or someone else? Please give whichever individual the green light to release your contact information to me and let me know specifically who you are referencing. After that I’ll check in with them to get your information and get in touch with you privately.

              1. I just dropped an email to Jonathan with whom I left my personal email to share it with you, thanks.

                1. I spoke with Jonathan Thursday afternoon and also sent him an email asking him to forward your contact information to me as well as reiterating that you had also sent him an email authorizing this. He said he would take care of it when he returned to the office which–as I understood–would be within the hour.

                  As of this writing I still haven’t received anything from him. If/when I do, I will certainly get back to you.

                  Update Friday 11Oct at 19h00– Still nothing from Jonathan. Have you spoken with him at all?

                  1. I spoke with Michael Soares whom I know personally and was told to get in touch with Jonathan which I did by email (I do not have his telephone number) on Thursday afternoon.

    2. Ecuador’s debt in 2017 was 29% of GDP, one of the lowest in the western world. Ecuador didn’t need a loan from the IMF. The IMF needed somewhere to part billions in idle capital and they found a willing sellout in Lenin Moreno to take it for them.

      1. Above presidents in all countries are evil fascists who wanted global control. They may have forced this loan and conditions on Moreno with threats. Those bad actors are now in the crosshairs of the intel agencies and militaries, and hopefully will be out of power sooner rather than later.

      2. Since no source for your 29% has been forthcoming from your end, I´ll provide mine:
        IMF Country Report Ecuador No. 19/210, page 2: the debt/GDP ratio at the end of 2016, the last full year Correa held office, was 43.2%. It stood at 44.6 in 2017.

        1. Yeah, Googled your country report. File Not Found. Is that why you never post links?

          Keep dazzling ’em with BS, Karl.

          1. Don´t blame and abuse ME for YOUR inaptidude to do research. Entering “country report imf 19/210” in Google it´s the 3rd search result popping up. Besides, some of the sources I cite are embedded pdfs with no direct link.

            1. It doesn’t matter if it’s a PDF. If it’s on the web, you can link to it.

              Yet strangely you never do.

                1. So you can claim it isn’t true after the source doesn’t return your emails like you did last time?

                  Let me know if you ever figure out how to copy/paste a link.

                    1. My goodness, Mr Faulkner! Could it be that you are not able to copy/paste “IMF Country Report No. 19/210” into any given search engine? But to advance the subject:

                      Now I´m truly looking forward to learn who invented the debt/GDP figure you cited.

                      Oh, and while we´re at it, I´ll refresh your memory about the alleged 4 billion $ tax break for big companies: you were not able to provide a single reference for that claim other than the interview with an assembly-woman who voted against that law without having read it (I did) because the law explicitly RULES OUT any tax break. By the time she gave that interview, the facility the law did offer (“Remisión del 100% intereses, multas,costas procesales por coactivas y demás recargos derivados de saldos de obligaciones.”) had already expired as it was limited to 90 days. So she not only lied to the public for political gain, she did so in very bad faith and you are guilty of spreading that misinformation without checking it.

                    2. Oh look, you really can link to a pdf. Congratulations for learning something new.

                      Of course your 80-page report in no way supports your assertion at the end of 2016 was 43% of GDP (what, you thought I wouldn’t read it?). As it clearly states on page 30/80 of the pdf, it was $28.122 billion, which is exactly what I’ve been saying.

                      In other words, your attempt to dazzle with BS, followed by your attempt to flood the conversation with extraneous data, has failed. You’re a BS artist, Karl. Anyone who has bothered to follow this conversation can now see clearly that you’re a liar. I’m curious. You said you work here when asked. What exactly do they ask you to do? I imagine there’s quite a market for BS artists in this current government. Is that why you’re so concerned with Moreno’s impending ouster?

                      As for the tax forgiveness, here’s an article from 3 days ago. Would you say that the effects of the law could be fully appreciated by then?


                      This is the part where you tell us all that you emailed the author and they didn’t reply so the article is BS.

                      You have been a complete waste of time. Time to move on. It’s going to look like I’m ignoring you, but that’s only because I can’t be bothered with your BS anymore.

                    3. Anybody who has bothered to follow this conversation now knows that Mr Faulkner is not able to distinguish between 29 % and 28 billion. That you even highlight your mistake in bold print is hilarious. In light of this, I will happily overlook the abuse you hurl at me but since you stated in an unrelated post that you are 100% responsible for your words (or something to that extent) maybe it´s time for an apology.

                      The 43.2% I stated is on page 2 (!) of the IMF report, so I guess you didn’t even make it to that page, yet claim to have read it.

                      As for “tax forgiveness” (again, wrong terminology), I stand by everything I have written on the subject. The fact that Ms Salgado risks her professional reputation with a flawed piece like this is astonishing. As for the assembly-women, I wrote to her (politely, but in no uncertain terms, and with the credentials of the public institution I´ve been working for since 2014) that she lied. In Correa´s time she would have sued me, but she won´t now because she knows she’d make a fool out of herself, just like you did.

                    4. You didn’t bother to get into the details of the IMF report. You found a figure you liked and repeated it hoping that nobody would take the time to follow-up on your spin. Your bluff has been called. What can I say? I’m a nerd. Digesting data is what I do.

                      I spelled it out. It’s there for anyone to see (though it’s not as if anyone is reading this thread two weeks after the article was published). You can try to claim long division is a lie, that your words are so important that professionals with actual credentials care enough about you to want to sue you, but you and I both know you’re bluffing. The debt was 29% of GDP, not 43.2% as you claimed. If it were, the Constitution would have barred Moreno from borrowing any more money and we wouldn’t be having this conversation in the first place.

                      As for tax forgiveness, why don´t you email Ms. Salgado and ask her where she got the figures that she´s “risking her professional reputation” on? When she doesn’t reply, you can once again cite that as proof that the article was a lie. I have to admit, that was a bold play. You know what would have been more convincing? If he had actually replied to your email. You should have just made it up like you’ve made up everything else you write.

                      And seriously, Karl. If this thread has proven anything it’s that you’re nobody and nobody cares about what you publish enough to pay the court fees.

                    5. You won´t get off the hook with your prose. So digesting data is what you do? I suggest you learn to read reports and laws before you even get to the digesting part. WHY DIDN´T YOU BOTHER TO READ AT LEAST ONE OF THE MANY SUMMARIES OF THE LAW IN QUESTION? There are 3-slide summaries available on the web although it should have been a piece of cake for you to read the law itself since you claim to have read the 80-page IMF report.

                      One by one:

                      1) WHAT ON EARTH are you´re “reading”? On page number 2 (= slide 6 of the pdf) it states that “public sector debt as % of GDP” stood at 43.2% in 2016. For those who do not understand what that means, footnote 1 defines what “public debt” is (“balance of advanced oil sales” is part of it). So, again, and for the umptieth time, where does it say the the rate was 29%? All you´ve come up with so far is an absolute figure of 28 BILLION, which in your last post you changed back again to 29%. Gettin´ confused by your own line of argument? Just let that Zhumir be, Dr!

                      2) The law permits the government to exceed the 40% threshold (whether that´s good or not is a different issue). It appears you completely missed that, how is that possible, Mr. self-declared nerd? (Disposición Transitoria Décima Séptima de la Ley para el Fomento Productivo, Atracción de Inversiones, Generación de Empleo y Estabilidad y Equilibrio Fiscal, 2018)

                      3) Ms Salgado, unlike you, provided the sources of her article which I´d rather not comment on. Interestingly, she doesn´t appear to have read the law either because she gets tangled up in her own numbers and uses the conjunctive instead of a matter-of-fact tense. Nowhere in her piece it actually says that big companies DID take advantage of the incentive scheme which is strange because by now we know who really did:

                      Who I am and what I publish is not decided by ideologists. Apart from the differences we have maintained on nearly every subject I have shied away from personal comments but will say now that most of your contributions are just embarrassing for someone with your alleged background, education and biography. Since you are easily bored, however, you will not have made it to this paragraph, I guess.

                    6. Yes on page 2 it says bla bla bla. They know the lazy won’t get beyond page 2 so they put in there what they want to sell. That figure includes internal debt between one government entity and another which, as I’ve clearly explained in the past, is not debt because when the debt is cancelled, one entity loses an asset and the other gains the same asset. However, when you actually get into the details of the report, it states clearly that external debt was $28 billion. That’s the only debt that is really debt. With a GDP just shy of $100 billion, that makes the debt 29% of GDP LIKE I’VE BEEN SAYING ALL ALONG. If you want to argue against the validity of long division, I suggest you take it up with a mathematician (or in your case, maybe a philosopher).

                      I’m not going to argue the rest of your points anymore. We’ve gone over them several times and your final copout is ALWAYS that the source I cite didn’t cite a source. Well guess what, neither do any of yours. I’m not sure if that’s your cognitive dissonance convincing you to make such a silly argument or you’re just running out of ways to BS. Like you so often cite, I don’t know anything about you nor do I care to, but you strike me as someone with a postgraduate degree. Did your thesis advisors let you get away with such childish arguments? Is this what you do for a living, dazzle politicians with BS? And now you’re resorting to parsing grammar. Wow, Karl. That’s lame even for you.

                      I imagine you’ll feel compelled to write and even longer response, but keep in mind that neither myself nor anyone else will read it. This thread has gone on for far too long and absolutely nothing was accomplished (other than outing Karl Baumgart as a fraud). Getting the last word is clearly very important to your ego, so I’m going to let you get it lest your head explode. However, you’d do well to remember in the future that the best way to get out of a hole is to stop digging.

                    7. I knew you´d try to wiggle our way out of this nonsense somehow but it´s really funny how long an equally nonsensical text you create to justify it.

                      Congratulations on establishing your own definition of what a debt / GDP ratio actually includes! According to Faulkner, it is only EXTERNAL DEBT / GDP. No need to discuss further as you live in your own world of settled science.

                      PS: External debt / debt in 2016 was, by the way, 36.6% (slides 6+39/80) and not 29%. You appear to have a reading problem, too.
                      In addition, I see that you do not understand the difference between intra-government debt and domestic debt, either.

  5. It is difficult to predict the future for Ecuaduar but we all hope it is bright. If Trump is truly backing this specific IMF with Ecuaduar, we are blessed and it will be awesome

  6. So many here suffer from selective myopia. The natives were much better off under the Inca emperors than the horrid abuse and exploitation they were brutally forced to endure for 500 years under the Spain and American business. The story is the same in most of South America, Central America and Cuba was very bad and, if we look at Puerto Rico, it hasn’t stopped. Under American values, it never will. Money, money, money….first. Humans second.

    Correa took the same gamble most oil producing places did. He bet that the price of oil would remain high. He did not foresee what the US subprime fiasco would do and no reasonable person thought that the US/UK would indulge in widespread fracking (which is as smart as burying garbage in your basement and figuring that it assures you a happy future upstairs).

    He borrowed, lost the gamble, but it was well-worth it. The only significant quote in the article is ” Poverty was reduced by 38% and extreme poverty by 47%”. He pulled more people out of squalid poverty than the United Nations has ever seen for any country since they begun taking such stats. Everything else pales in importance.

    1. Fracking was studied and known about for decades. It was obvious to see it would become common place, and is a great technologic advancement. And your second to last statement in incorrect

  7. I told my brother in the states about this. He thought Biden should send his son down to be on the board that comes up with a solution to this crisis.

  8. This author conveniently omits that Moreno plans to lower taxes on goods therefore making it more affordable to buy tv computers, autos, phones etc therefore stimulating the economy

    The author fails to mention that it will be easier for employers to employ part time and temporary work by eliminating some of the stringent rules placed on employers. I can name you several people that stopped hiring cooks and cleaners because of Correas new socialist labor laws

    And as for government workers losing their jobs, most of them are just killing time at work and Ecuador tax payer has to pay for their cushy lifestyle.

    1. “…
      Ecuador tax payer has to pay for their cushy lifestyle.” Have you got any stats on that? My partner works in the public sector and does not have a cushy lifestyle. Far from it. Indeed, if you bothered to look at Moreno’s speech he is cutting public secto holiday by 50% if passed by the assembly. Go back to your cushy gringo lifestyle. yank.

          1. Another moniker you might consider for JF is Discussion Moderator since he currently has 21 of the 96 posts to this thread. We are so blessed to have his “expertise” on all subjects shared in this forum.

    2. How often do you buy a computer, auto or phone? And how does making imported goods cheaper stimulate the Ecuadorian economy?

      Most of the government workers losing their jobs were teachers and healthcare workers. You really think those people are just “killing time”. You really think those jobs provide a “cushy lifestyle” or did you just make that up to feel better about tens of thousands of people being forced onto the streets?

      1. Lowering import taxes is the same as increasing consumer wealth at the expense of the government; increasing import taxes is the inverse

          1. Certainly doesn’t help stimulate the economy to tax the consumer as their is less money in the consumer’s pocket with which to drive gdp growth.

            Consumer spending is 67% of GDP in the US, followed by business investment and Govt expenditures then exports minus imports.

            Ask Trump how raising tariffs is working out in growing the US GDP lately.

              1. Gross domestic product (GDP) or (Y) is the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production.

                GDP is also equal to the sum of (C) personal consumption expenditures, (I) gross private domestic investment, (G) government consumption expenditures and (X-M) net exports of goods and services

                1. Thanks for the Economics 101 introductory glossary. I’m sure some people here needed it, but you still didn’t answer the question.

                  1. I did answer the question – consumer spending is lower with high import tariffs. I didn’t think I needed to spell out something so obvious but apparently some people don’t understand basic economics

                    1. Sending huge amounts of money to other countries in exchange for consumer goods does not stimulate the economy. If it did, Venezuela would have the highest standard of living in Latin America. While eliminating trade barriers would be a windfall for importers (who keep their money offshore anyway), it would be a disaster for Ecuador, ultimately seizing up the economy and destroying dollarization. Consumer spending is not “lower” when import tariffs are higher. Consumer spending on IMPORTED goods is lower. The money still gets spent, only instead it gets spent on domestic production WHICH STIMULATES THE ECONOMY.

                      You keep claiming things are so “obvious” but it’s obvious you haven’t really thought this through.

                      Now tell me more about basic economics, professor.

                    2. …you are a physician, no offense meant.

                      As for the topic (specifically: eliminating trade barriers and the “disaster” it would cause), and that´s just ONE study of many: “Descubrimos una fuerte asociación entre apertura y crecimiento en el grupo de países en desarrollo y en el de los desarrollados. En el grupo de países en desarrollo, las economías abiertas crecieron 4.49% al año, en tanto que las economías cerradas, 0.69%. En el grupo de economías desarrolladas, las abiertas crecieron al año 2.29%, y las cerradas, 0.74%.” (Sachs y Warner, “Economic Reform and the Process of Global Integration”, p.35-36).

                      And further: “Un análisis exhaustivo de 61 estudios publicados entre 1967 y 2009 concluyó: ‘La evidencia macroeconómica aporta un solido sustento a los significativos efectos positivos del comercio en producción y crecimiento.’ ” (Singh, “Does International Trade Cause Economic Growth?” as cited in Charles W. L. Hill “Negocios Internacionales”, Mc Graw Hill, Mexico, 2015).

                      Now show me your stuff, doctor.

                    3. Everything you just said is complete gibberish. Not worth wasting time and destroying each nonsensical, illogical made-up, assertion made above. When you can’t comprehend the difference between loan collateral and sales revenue it shows you don’t know the first thing about basic economics

                    4. The guy who thinks putting up collateral is the same as giving something away thinks I’m the one who doesn’t comprehend the difference between loan collateral and sales revenue. To drive home the point that he’s completely clueless, he’s still trying to sell the point that importing a bunch of stuff from outside the country stimulates the domestic economy.

                      Before the internet, I just assumed that most people had a reasonable level of intelligence. Here’s a tip, Frank. You only think it’s complete gibberish because you don’t understand simple basic principles.

  9. The author is so left wing biased it is unbelievable. I’m surprised such a highly educated person would spew such misinformation just to lure in some that are not aware of what is actually going on and hope to convert people to the left. That is all this author is trying to do is convert people to the left because he knows darn well that he deliberately missed out key information that will eventually help Ecuador

    1. You calling someone so biased it’s unbelievable is the height of irony.

      Calling someone a leftist in no way disproves their argument. To do that, you have to present actual facts. What you are using is called the ad hominem fallacy, something you would have learned about in grade school had you not been robbed of an education.

      1. Jason, Time and again I have pointed out that most Americans use the leftist-commie-liberal label merely for anyone who disagrees with them. For us, it is a matter of proper translation of what they really mean. Do you remember in primary school the words you’d use when you were angry at another classmate? Same stuff. Forgive them. They are victims of decades of Cold War propaganda and brain-washing.

    2. “I’m surprised such a highly educated person would spew such misinformation just to lure in some that are not aware of what is actually going on and hope to convert people to the left”…………..Welcome to the world of mainstream left controlled propaganda. It surprises me more how many people fall for it; but controlled media is now part of our daily lives and we have to develop new forms of communication. Many people, like myself, have more interest in the comments lol

    3. From my read of the article, the author seems to believe that the accumulated deficits in Ecuador and the current annual budget deficit are in some way the responsibility of collections of peoples and/or sovereigns outside of Ecuador. Ecuador is responsible for Ecuador’s economic shortcomings, not other people in other countries. If the loan terms are perceived to be harsh, and this is just a thought, don’t put the nation into a position of needing a bail out loan by spending more than the nation’s income.

      1. Ecuador’s debt was one of the lowest in the western world until Moreno started taking out all these IMF loans. Ecuador never needed any bailout. There isn’t a single economist making the case that we did.

        1. Correa pledged 94% of Ecuadorian oil production to China through 2024 to pay back Chinese loans that => Moreno (?) took out after Correa left office – did Moreno jump into a time machine and go back in time and take out those loans during Correa’s administration?

          1. How did PetroEcuador make $11 billion in sales revenue last year if they’re only selling 6% of their oil?

            1. Sales to China must be included in the figure. Are you in denial that China lent billions to Ecuador predicated on shipments of oil as payment?

              It’s a simple concept called a collateralized loan. When an individual or entity doesn’t have liquid funds to repay a debt the lender takes hard collateral like oil in exchange for cash. Ecuador has pledged over 90% of their future oil production to repay the billions the Chinese loaned them.

              It’s not a shocking concept. Resource rich countries that don’t generate enough tax revenue from individuals and corporations do this all the time, why is it so hard for you to comprehend this?

              1. They are SALES. It makes no difference if the sales are to China, Taiwan or Madagascar, they’re still oil sales. The oil is only there as collateral in the event Ecuador became unable to pay. If this were about paying back with $9 billion worth of oil, the debt would have been cancelled in the first year with money left over. Why are you so determined to die on this hill?

  10. the IMF ruins countries. read tony perkins books on the subject. ” Confessions of an Economic Hitman” is a must read for any country making the mistake of tking out loans from the IMF. the IMF is now ecuador’s governing body and not the elected officials of ecuador. if not for our 3 cats, we’d be looking to move out of ecuador now, a place we’ve called home now for over 7 years…sad state of affairs

    1. 3 cats are keeping you in a country that you think is on the road to ruination?!! lol ! Well, things can’t be that bad – I guess I’ll try to stick it out for a while.

      1. would if i could, but cat food in cuenca is very expensive, especially the wet cat food my cats prefer. trouble is the purina felix brand is disappearing from storershelves ( super maxi stopped carrying it for some reason and super mega tienda only carries the felix brand my cats won’t eat ), esecially the tuna my cats love…

  11. Just think where Ecuador would be if it was printing its own currency like before 2000. I think the name for that is called Venezuela. Except Venezuela will eventually recover due to their massive natural resources. You can only sell so many roses and bananas.

    1. Don’t worry, Moreno’s plan is designed to destroy dollarization. The one thing the IMF hates about the whole state of affairs is that they couldn’t just simply devalue the currency, thereby giving everyone an across-the-board pay cut while simultaneously wiping out their savings. It’s the only thing keeping Ecuador afloat so it’s next on the hit list.

  12. My goodness gracious, folks, no need for all the drama. The IMF is wonderful and is here to help Ecuador, after having been raped by China. Be of strong spirit, everything is going to be wonderful. Please pull your heads out of the sand.

  13. This is an excellent article and appreciate the clarity. We came to Ecuador because we liked the fairness of Government, the peaceful environment and the low poverty rate. The IMF is only for the top 1% and the Multi-national corporations. They say they are for helping the poor and some people believe them, but they want to take away all of the social programs that help them. They have sold their soul to the devil here and we are afraid now to buy property or keep money in the bank. You can see what they can do in Venezuela when they infiltrate.

  14. Why do you suppose Mark Weisbrot would choose to have his socialist supporting business in Washington D.C. rather than Cuba or Venezuela? Could it be that he wants others to enjoy that form of government, but, not himself? I would wager that he receives a hefty compensation from his own organization.
    It would be a good idea for the U.S. to stop funding the 17% of the IMF money and let other nations take on the support of failing economies worldwide. Ecuador was not forced to take IMF money. They could have gone to China for more high interest loans. That would be a win-win for both countries.

    1. The US government doesn’t fund the IMF. US banks do, and they make very good returns on that money. Oh, and for the record, the interest rate on the loans Ecuador received from China are over a full percentage point lower than the total of the IMF loans. But hey, thanks for contributing your opinion on yet another subject you know absolutely nothing about.

      1. Once again you bloviate on a subject you know nothing about while accusing others. The U.S. money is supplied by the U.S. Treasury, not U.S. banks. The Treasury Secretary calls it an “investment” by taxpayers. Do you always feel the need to share your remarks on every post, even when you don’t know anything on the subject? Just Sayin! If Ecuador could borrow at lower rates from China, why didn’t they do that?

  15. Imagine the IMF loaning $4.2 Billion to EC, no strings attached. No reform requirements. How do you think that would that work out? Great for politicians, but not for the people.

    1. You don’t have to imagine. You can just look at the scoreboard. China loaned $7.5 billion and the only strings attached was interest. Ecuador enjoyed the longest economic expansion in its history, the GDP doubled in only a decade, record low unemployment and the largest middle class in the nation’s history.

      Oh, and for the record, it’s not $4.2 billion. It’s now up to $17 billion. That’s over twice what Correa borrowed in 10 years and we still have no idea what it’s being spent on.

  16. Promise economic salvation to the masses, borrow tons of foreign money by issuing sovereign bonds paying high interest rates, build schools, improve roads, repress the free press, oil price goes down, leave country with millions if not billions stashed in off shore accounts, blame the people who loaned you the money and repeat every 4 years.

    Formula for success in most underdeveloped countries where virtually no one has a clue how public finance works.

    When any country borrows money that can not be paid back from realistic growth assumptions in full and when due is screwing their children and grandchildren because the debt burden falls on them while the current generation reaps the short term benefits.

    Happens in third world, Europe, US, China. Russia.

    No one wants to own up to their financial responsibility period – self proclaimed conservatives, liberals, socialists, communists, it doesn’t matter the label.

    It’s called “human nature” and passing the buck. Don’t waste your time blaming any specific political philosophy it’s the fault of everyone – we avoid the hard stuff and do what’s expedient – human beings are generally really bad at basic finance period except when it’s an inheritance then everybody suddenly becomes Warren Buffet for 5 minutes and then blows it all on crap about 10 minutes later.

    Teach the kids about compounding interest from age 4 and let’s see what happens – it’s the greatest poverty avoidance program ever created!

    1. When any country borrows money that can not be paid back from realistic growth assumptions in full and when due is screwing their children and grandchildren because the debt burden falls on them while the current generation reaps the short term benefits.

      Standing ovation directed your way

    2. Except nothing in Ecuador’s balance sheets suggest that these loans were even necessary. The people didn’t vote for this plan, it’s being forced on them.

      1. If Ecuador has such an excess of capital (implied from your comment) then why borrow any money?

        I thought 94% of all Ecuadorian petroleum production is owed to the Chinese until 2024 to repay Chinese loans – why would Ecuador (Correa at the time of these Chinese loans) mortgage all their physical assets to the Chinese if they had such a healthy balance sheet?

        1. How you ask Jason to give an intelligent response. He is much better at saying stupid stuff and being rude. He reminds me of a dog I once had

        2. I never implied Ecuador has “excess” capital.

          And if you though 94% percent of all Ecuadorian petroleum production is owed to the Chinese until 2024, you were duped.

          1. Reuters article 2013,

            Contracts, company presentations, and crude loading schedules show how China has come to dominate trading of Ecuador’s 360,000 bpd of oil exports since its biggest listed oil company, PetroChina, first offered PetroEcuador $1 billion in financing in mid-2009.

            By April of 2010, Chinese firms were receiving around a third of Ecuador’s export oil. A year later the volumes had nearly doubled. By mid-2013, Chinese state-controlled firms were allocated 83 percent of Ecuador’s oil exports.

            When the latest loan deal was made public, in August (2013), it brought the amount of financing that China has pledged to Ecuador during Correa’s presidency to nearly $9 billion – equivalent to 11 percent of Ecuador’s gross domestic product.

            1. Selling oil to China does not mean the oil is “owed”. If that’s the case, the vast majority of Ecuador’s flowers are sold to the EU and Ecuador has received loans from EU banks. Does that mean those flowers are “owed”? Will Ecuador not receive payment for those flowers?

              The entire argument is silly. China loaned money to Ecuador, Ecuador is paying it back with money from oil sales. Who would Ecuador be selling it to if not China? PetroEcuador had $11.6 billion in sales revenue last year, up from $9.5 the year before. If China were in fact getting all of Ecuador’s oil production, that $9 billion would have been paid off in a year even when revenue bottomed out at $9.5 billion in 2015.

              1. It’s a collaterized loan – look it up. I explained it to you in the reply of an early comment above. These are not sales to China they are mandated shipments to repay the billions in loans. Ecuador doesn’t have the ability to sell those barrels to the highest bidder they have to ship them to China on a regular basis to repay the billions in loans – China contractually mandated this before providing the loans. It’s a simple concept Jason

                1. Putting up collateral isn’t equivalent to “owing” the oil. Indeed it is a simple concept, one you’re trying desperately to spin to the point of being meaningless. The oil is sold and the money is used to pay the loan. The only thing that is “mandated” is that China gets a guaranteed delivery. Your attempt to characterize it as oil being owed is disingenuous.

            1. After so many years in Ecuador your mind should be good enough to understand that El Comercio is a political actor trying to pass itself off as a newspaper.

              1. …just comment on the facts, that will suffice.

                If I have a choice between the articles published in El Comercio and your esteemed view, I´ll chose the paper any day. If you doubt or reject the reports published therein you will either have to prove them wrong by facts or convince me with your own research on the matter, in this case the provisions of the pre-sale agreements. You label Mr Doyle as “duped” for stating the numbers and time frames above while, in reality, the implications for Ecuador are even worse in the sense that the country is bound by these agreemens through 2026 and not just 2024. Not sure who is really duped here.

                In all of our exchanges over the last few months I have never seen a source for what you sell as facts but I´ll keep on waiting patiently.

                During all the Correa years I do not remember having seen a single report in El Comercio corrected for factual errors upon intervention of the government other than harassing the paper for being “mercantilist” and/or failing to provide a contrasting view. The former is truly ironic in light of the trade policies he followed and the latter a disturbing concept of what “free press” means. For the “contrasting view”, we had El Telégrafo, one of the true masterpieces of investigative journalism in Ecuador. It vividly reminded me of the papers we had in East Germany and some of its reporting was so outright absurd that I kept a copy or two because a few years down the road people will say that never happened.

                1. You tell me to just comment on the facts then post 500 words of nothing but “what you remember”. And you still can’t fathom why you bore me.

                  If you want to stand by Frank’s assertion that Ecuador must fork over 94% of its oil production for 10 years to pay a $9 billion loan, feel free to die on that hill with him. Apparently East Germany had a different version of simple arithmetic.

                  1. Some died on the hill of correismo years ago, and so did their clear thinking, decency and respect.

  17. I have seen this play out in various African countries … you are quite right to be concerned.

  18. Brilliantly done, but its not just the IMF and the buffoons who prob were promised swiss bank accounts to do this INSANITY. OK, so shut the door to incoming venezuelan refugees if youre gonna then require the Ec people to absorb them as they loose jobs, loose incoming and elect a socialist govt to level the non playable playing field. Typical foolishness. The people should riot, they didnt ask for this!…and Cuenca and EC as a destination for Expats? Income from foreign investments? GONE with the politicians who voted it in and clearly got good $$ for doing so.

  19. Reality check….who went to who for the IMF loan? And, who agreed to the terms? Has anyone considered that we are getting an over- reaction to the elimination of fuel subsidies, much of which can be passed on to customers, in anticipation of additional austerity initiatives, like an increase in the IVA, cuts in University expenditures, the sale of Federal assets, etc…..??? More to come…….

  20. Reuters article 2013,

    Contracts, company presentations, and crude loading schedules show how China has come to dominate trading of Ecuador’s 360,000 bpd of oil exports since its biggest listed oil company, PetroChina, first offered PetroEcuador $1 billion in financing in mid-2009.

    By April of 2010, Chinese firms were receiving around a third of Ecuador’s export oil. A year later the volumes had nearly doubled. By mid-2013, Chinese state-controlled firms were allocated 83 percent of Ecuador’s oil exports.

    When the latest loan deal was made public, in August (2013), it brought the amount of financing that China has pledged to Ecuador during Correa’s presidency to nearly $9 billion – equivalent to 11 percent of Ecuador’s gross domestic product.

  21. Well, everybody is free to think of the IMF policies whatever they wish and in fact, a lot of criticism has been heaped upon them over the years, some justified, some not. I do, however, question the impartiality of Mr Weisbrot and his club, a think-tank that has been categorized as left-leaning and supportive/apologetic of Messrs Chavez and Maduro according to the sources cited in its description on Wikipedia. The article does appear very one-sided and contains a number of factual errors. Be that as it may, Ecuador was one of the founding members of the IMF back in 1945 and as a lender of LAST resort countries know what to expect when they turn to it. If financial and economic policy is conducted in a sensible manner, no country should/would have to seek financial assistance there. Those who criticize Ecuador for seeking help will have to come up with a better idea to get short-term cash – certainly not China or the bond markets with interest ranging from 7-9 percent (the rate the Fund charges is considerably lower), unless you argue – as some here do – that the country was not in need of any money when Correa left. The debt/GDP ratio at the end of 2016, Correa´s last full year in office, was 43.2% and not 29%, as is alleged (see, for example, IMF Country Report No. 19/210, page 2). The IMF concludes that, for a country the size of Ecuador a debt ratio of max. 30% appears manageable, so one would think that its debt by 2016 had already become unmanageable and it certainly is not now.

    1. A Clear thinker….. but Debt to GDP is only one metric (which so many uninformed on this site keep trowing out). The key metric is “What do the Buyers of debt think is a reasonable rate of return, to justify their purchase”….. 8-9%…. when you can go to Europe, Japan, and get a negative return???? Heck, you can go to the U.S., and get at 1.6% return, with a 100% certainty that you will be paid back, with interest, in the world’s reserve currency.

      Hats off to you, Mr Baumgart, to see through the haze of the arguments of all the hacks on this site. I could list them, but we all know who they are.

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