The 27-month agreement signed by the Ecuadorian Government with the International Monetary Fund (IMF) in September 2020, and which culminates in a disbursement of $700 million in this month of December 2022, is about to be successfully closed. The Minister of Economy and Finance, Pablo Arosemena, and various analysts agree that the Ecuador will be able to comply with the agreement.
Closing the agreement with the IMF would represent a historic milestone because “It would be the first time in decades that we were able to reach an agreement with said multilateral organization,” said these days Arosemena. But it will also mean an endorsement for Ecuador in the face of international markets and a demonstration that the country has managed to have an economy, dictated by President Guillermo Lasso, of a fiscal nature with a social focus. In previous governments, despite having agreed to agreements, in the end they did not carry out the commitments and the agreements were terminated but due to non-compliance.
For Alberto Acosta Burneo, editor of Análisis Semanal, It is a reality that the agreement with the IMF will be closed, since the evaluation corresponds to August and the country has met the quantitative goals, although not the qualitative ones, such as the Petroecuador audits or maintaining clearer accounts with the Ecuadorian Institute Social Security (IESS). In any case, he considers that for the IMF this will not be a factor that prevents the closure.
However, he thinks that it is a challenge for the country to lose support from the IMF in 2023, since it represented a guarantee of Ecuador’s commitment to fiscal sustainability. He explains that currently Ecuador It does have better fiscal indicators, there has been a gradual process of correction, but the house is by no means in order. It exposes, however, that the fiscal order cannot be achieved from one year to the next, but that it is a process.
believes that the country surely he will continue looking for a mechanism to demonstrate that he is committed to order in public finances. In this sense, Acosta Burneo refers that the intentions of the Government to seek a new agreement with the Monetary Fund have already been known, but that it would be without financing., because currently Ecuador no longer has a quota for a new debt with that multilateral. In any case, he says that he could opt for an emergency program, which could provide him with perhaps $1.3 billion, but whose requirement is precisely to have an agreement with the IMF without financing. This relationship with the IMF guarantees the country’s commitment to sustainability. This is something very important for 2023, when political pressures for more spending could be generated. However, he comments that concern about the future of the country is present, especially since in 2025 there will be a change of government that could probably give way to another, more irresponsible spending policy.
Meanwhile, Jaime Carrera, executive secretary of the Fiscal Policy Observatory, also believes that the agreement will be completed positively. He specifies that Ecuador will end the year with a fiscal deficit of between $2.2 billion and $2.5 billion, which is what was planned with the IMF. However, he clarifies that the situation of the Ecuadorian economy is not entirely good. It is that the funds of the public box are low. Give just one example: to pay the tenths, the treasury needs the disbursement of the fund. He warns that next year is going to be an extremely critical year, as the deficit is going to be much higher. This is because the income that is expected will not be obtained, the expense increases and the financing needs are almost impossible to meet.
Carrera agrees with Acosta that there is uncertainty about the fiscal sustainability of 2023, especially with the threat of the repeal of the tax law and the ungovernability that exists in the country. Regarding the law, Carrera clarifies that the president has the veto letter, but in December of next year the Assembly will probably gather 100 votes and repeal it. Added to this panorama is the uncertainty of what will happen in 2025 when it comes time to choose between political tendencies, surely of the indigenous sector or correistas. This would also lead to a declaration of non-payment of the debt in 2026. “It is a very complex reality of the country.”
In May 2018, the former Minister of Economy Richard Martínez, during the government of Lenín Moreno, began negotiations with the IMF for a financial deal. However, this did not prosper. Then, with the arrival of the pandemic, there was a new attempt that was carried out in parallel with the renegotiation of the external debt of the bond market. so, in August 2020 the debt agreement was reached and almost in parallel the agreement with the IMF what would represent financing by $6.5 billion in 27 months. Most of these resources were received by the Moreno government in 2020 ($4 billion). (YO)
Source: Eluniverso
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