The two finalist candidates for President of the Republic: Luisa González, of the Civil Revolution, and Daniel Noboa Azín, of the ADN (National Democratic Action), have focused on international reserves – which do not belong to the government, but to third parties – as part of the source of funding for his management.

A few days ago, González told the international press the following: “I will bring 2.5 billion dollars to inject into the national economy, money that creates nothing, is saved without earning a cent to guarantee the payment of the debt holders. , who are people connected to the banks, to the government.”

Meanwhile, Noboa said on a radio station in Guayaquil on September 12: “We have to use $1,500 from the reserve, we will have to use it for the El Niño phenomenon.” The candidate also talked about renegotiating the debt repayment.

About these monetary positions of the two final presidential candidates in the conversation held this Wednesday, September 13, the publication Weekly analysis.

Its editor, Alberto Acosta Burneo, claimed that Noboa’s latest statements were a surprise, since the issue of taking the reserve and renegotiating the debt was not included in his work plan that he presented during the candidate registration before the National Electoral Council (CNE). .

And that surprised the international markets, which recorded a significant drop in the prices of debt bonds, he added.

In the case of González, Acosta explained that she is proposing the issuance of “Ecuadors.” It is accounting money that is born from the expansion of the central bank’s balance sheet. It also proposes a digital currency from the same entity and, ultimately, the use of those $2.5 billion in reserves.

In the government of the leader of his movement, Rafael Correa, the figure for the expansion of the central bank’s balance sheet has already been used, and about 9,000 million dollars have been issued in said balance sheet.

Acosta recalled that Andrés Arauz, the candidate for vice president of the Civil Revolution, explained before the start of the campaign how they managed to expand the ECB’s balance sheet.

“Since 2009, the Central Bank of Ecuador has started giving loans to the government, even though we are dollarized,” he explained in some media.

Acosta assured that this left them “completely amazed” because they did not understand how this was done in dollarization if it is assumed that the law “forbids the Central Bank from creating money out of nothing”. Despite knowing that dollars could not be created, he said it was possible to “create dollars in the ECB’s accounting record and make them move in the national economy . . .”

According to experts, this kind of monetary operation, which is part of short-term policy, can be attractive, but in the end it can produce worrying consequences.

On the one hand, the primary emission of money in dollarization can stimulate the economy in the short term, but with money other than the dollar. That’s when a feeling of greater economic activity is felt. But, on the other hand, the Central Bank loses real dollars, which would lead to an illiquidity crisis and an infection of the financial system. Finally comes the risk to the dollarization system.

Acosta Burneo recalled that the expansion of the balance sheet at the time of Correato reached 9,000 million dollars. On the other hand, he said, the government of Guillermo Lasso, with a more prudent policy, paid about 2.5 billion dollars to the central bank in two years of government. On that subject, Walter Spurrier, director weekly analysis, He reminded that the sacrifice made by Lasso in payment to the ECB is exactly the amount that Luisa González is talking about and that her government would take if she won. It would be, as he said, the financing of education, health and other urgent issues.

Meanwhile, Acosta also reminded that “what the two candidates are proposing is illegal,” which is prohibited by law. And if they want to, they will have to change the law or perhaps use other “creative” ways to achieve liquidity. Among them is a mechanism recently used by Lasso’s government that allows private banks to buy bonds with part of the reserve requirement.

What are reserves used for?

Cordes’ analysis reminded us what international reserves are for and their importance. This economic research institution explained that reserves have two goals:

Reservations have been on the decline in recent months. In March 2023 it was 9000 million dollars and now it is at 6912 million dollars. The decline is explained by two factors: the collapse of oil exports, a lower volume of production and a negative balance of external financing.