What are the six major commitments that were fulfilled during the 27 months that the agreement with the IMF lasted?

Six major commitments that Ecuador made, through two governments, with the International Monetary Fund were fulfilled in the 27 months that the financing agreement lasted and that allowed to inject into the Ecuadorian economy some $6.500 million, only from the IMF, without counting on other credits from the World Bank (WB), Inter-American Development Bank (IDB), Development Bank of Latin America (CAF), among others. The IMF Executive Board concluded the sixth and final review of the 27-month Extended IMF Facility (SAF) in favor of Ecuador and congratulated the country as this is its first successful completion in two decades.

The commitments went through the fight against corruption, social assistance for the most vulnerable sectors, generating foundations for dollarization to continue and for the independence of the Central Bank; as well as a tax reform, the fulfillment of several quantitative goals. Finally, a reform to reduce or eliminate fuel subsidies, which at first was half fulfilled, but which the social sectors ended up knocking down.

The best conditions of the IMF loans (low rates and long terms) have a kind of conditioning and that is that in general public finances are put in order, so that once the IMF financing stops arriving, a country can continue forward by their own means.

For him Former Minister of Economy and Finance Mauricio Pozo, the approval of the financing program is due to the efforts of two governments (Lenín Moreno’s and Guillermo Lasso’s) and that of four ministers (Richard Martínez, Mauricio Pozo, Simón Cueva and Pablo Arosemena). This speaks to him, he says, that he can maintain perseverance and continuity in economic policy.

Although there were breaches: Point by point, several requirements agreed with the IMF were being met:

1. In December 2020, the Assembly approved the anti-corruption law, whose main objective wasto create new criminal offenses to penalize corruption in public procurement.
2. In April 2021, and despite the political moment of friction before the presidential election, the Moreno government achieved approval in the Assembly of the Dollarization Defense Law. The main arguments of this sector were that the regulations were essential to give technical independence to the Central Bank, in order to manage monetary policy without pressure from the treasury, especially populist governments. This recomposed the four ECB balance systems and two boards were created, one monetary and one financial.
3. In November 2021, the Economic Development Law, who did not obtain favorable votes from the Assembly, but entered through the ministry of law. This had the goal of generating some $1.9 billion in two years, as the government has said. These revenues help to reduce the fiscal deficit and with permanent income.
4. The purpose of the program was to support Ecuador’s economic recovery after the pandemic, gguarantee fiscal and debt sustainability. Thus, several fiscal goals were met. Growth will end at 2.7%, according to ECB calculations; but in the initial agreement of September 2020 it was established that it would be 1.3%. The accumulation of international reserves as of December 9 was $7,482 million and registered a peak of $9,016 million in July 2022. The figure shows that there was a recovery of reserves, especially if one takes into account that in March 2020 came in at just $1.99 billion. The goal of the agreement was that in 2022 it would close with some $8,930 million and by 2023 it would reach $10,814 million. Ecuador is expected to close this year with a primary surplus. The GDP Debt indicator (public debt and other obligations of the non-financial public sector and the IESS) is at 53.21% as of October 2022. However, the aggregate debt and other liabilities exceeds 70%. The goals set out in the agreement indicate that the debt is reduced to 56.4% in 2025. On the quantitative issue, one can also mention the construction of more transparent data, both in the figures of the GAD, as in that of the public debt.
5. A fifth important item on the program was the greater social assistance coverage, with bonds from the Government to the most vulnerable. The Government managed to strengthen the network. According to their data, before the pandemic, three out of ten vulnerable households received social bonds. now, they are eight out of ten families access this benefit. Social spending of $15.2 billion is expected for next year.
6. The sixth point had to do with a fuel subsidy reform that represent a very important expense to the Government. This year more than $4 billion would be paid. The government of Lenín Moreno successfully managed to implement a gang system that the price of fuels was gradually increasing. However, in October 2021, the government of Guillermo Lasso was forced to freeze prices after the indigenous revolts. At this time, a mechanism is being discussed to target said subsidies and withdraw them from those who do not need them.

Jaime Carrera, executive secretary of the Fiscal Policy Observatory, recalled that in the case of Ecuador, the country had to go to the IMF in 2019 because its economy was already very affected and was going to end up with a 6% deficit. Under these conditions, an agreement was signed for approximately $10,250 million, however, this did not prosper because it was detected that there were inconsistencies in various figures, especially those of the decentralized autonomous governments.

With a deficit of 6%, without savings funds (which had been spent during the correato), the country did not grow. We must not forget that in October 2019 there was an indigenous revolt and it was seen that the country was not going to be able to pay the debt. With the COVID pandemic, the problems deepened. After the breach of the first agreement, a new agreement was designed that, for Carrera, could be fulfilled due to several factors: the pandemic facilitated the agreement because there was a fairly flexible attitude from the IMF; the rising price of crude oil and the renegotiation of bonds allowed the deficit to go down; the geopolitical issue has helped

Regarding the management of the Ecuadorian governments, Carrera highlights that vaccination helped to reactivate the economy and that the approval of the tax law (Economic Development Law) also helped to reduce the fiscal deficit. In addition, it was possible to review the figures of the GAD, for greater transparency.

So much Carrera as Pozo agreed that Ecuador stopped complying with several issues: to the one of the fuels the audits to Petroecuador adhere to him; greater clarity in social security figures; it also failed to significantly reduce spending. In this sense, the IMF itself has said that fuel subsidy reform would reduce considerable subsidy spending and generate significant savings, while better cash flow management would help address the accumulation of domestic payment arrears.

“It would be important to complete the financial audits of the national oil company and the social security fund to obtain a clearer picture of the public sector balance sheet and the associated risks of contingent liabilities,” IMF spokesmen have said.

Chamber of Energy, concerned about Petroecuador audits

The public hydrocarbons company, EP Petroecuador, made a call for international audits of its own financial statements. However, the process did not prosper and it was declared void. On the subject, the Ecuadorian Energy Chamber (CEDE) was concerned this December 15 about the failed contest for the hiring of an international auditing company to update the financial statements of Petroecuador, whose most recent update was in 2018.

This audit was part of the commitments assumed by the Government with the IMF and that would be carried out with a non-reimbursable loan with the Inter-American Development Bank (IDB). In this sense, the members of the Chamber indicated that they did not agree with the institutional pronouncement of Petroecuador that national companies that can carry out the work will be hired.

According to the Chamber, it would be preferable to contract international audits, due to the credibility they generate with corporate counterparts worldwide that are considering participating in different associative projects with the state company. They explained that in order to carry out forms of association such as public-private alliance or delegated management, financial structuring processes are needed to make projects bankable. This is also necessary, taking into account that it is intended to go towards the formation of a public limited company that can be listed on the stock market.

In this way, Hassan Becdach, president of the Board of Directors of the Chamber, recommended adjusting the specifications in accordance with the suggestions of the four international auditors who expressed their interest in participating, in order not to delay the respective contracting.