Jaime Carrera, executive secretary of the Observatory for Fiscal Policy (OPF), gives an estimate of how the Government will close the year and financing options for 2024. This, given that there are deep liquidity problems and accumulated debts of almost 5000 million dollars. The Ministry of Economy has already announced that it has paid the thirteenth and these days it has to honor the December salaries, but for Carrera, the salary payment could be moved to January. At the same time, protests from unpaid suppliers have been felt in recent weeks. In his opinion, reaching such a complex point has to do with how flexible the International Monetary Fund (IMF) was towards Ecuador, since it financed deficits, but the government in power did not respect structural reforms. For Carrera, the only way out at the moment is to reduce the deficit with more taxes, fewer subsidies and less government spending: “That’s the way out.” “There is nothing else to do,” he says.

How will the government be able to face the payment challenges in the last days of 2023, with such scarce cash?

What the Government will do is accumulate outstanding liabilities. In the last presentation of Minister Juan Carlos Vega Malo, he clearly indicated that debts of 5000 million dollars are accumulating. With some taxes, it can be seen that they started paying the tithe. They will have to end up issuing bonds. Perhaps the financial system can support this operation and, in essence, there is no other way out. It will be worse next year.

The minister talked about issuing Cete, who could accept them?

With Cetes (Treasury Certificates) what they would do is tip over of those who have, they would rather try to force social security to invest by issuing internal bonds, but I don’t know how many more bonds they can buy, since they don’t have the space. You can also use balances with liquidity contracts or repeat operations such as retrieving balances from the National Finance Corporation (CFN). It is indeed a desperate question, but there is no other way out.

Is there a part of the suppliers who are protesting about their wages, how to satisfy them?

In fact, they will accumulate debts to suppliers, to the Ecuadorian Social Security Institute (IESS), to municipalities and prefectures. I believe that part of the December salaries in the public sector will be paid in January.

But what happened, how did we get into this very complex situation if it was seen that in 2022 the indicators were good, the IMF recipe failed?

The problem is that the IMF was extremely flexible towards Ecuador. The Fund financed the deficits, but Ecuador did not carry out adequate structural reforms. Let’s remember that the initial agreements included an increase in value added tax (VAT) and a reduction in the state wage fund. But Ecuador did none of that: the IMF was extremely flexible, the government of (Guillermo) Lasso managed to reduce the deficit, but they did not implement structural reform. They did this because oil revenues increased, because of the price, and they also profited from debt restructuring. However, current consumption continued to grow. The same Constitutional Court imposed higher salaries for teachers. Laso preferred to abolish the fuel subsidy and even cancel the income tax reform. The state did not make any structural reforms.

How do you view the Government’s latest announcements that next year it will reduce the deficit by about one billion dollars and sell monetary gold?

This will be a bad message to economic sectors and markets. This will by no means pass public accounts. Mostly, the gold will be sold to pay salaries. There will be fewer reserves: the deficit will not be reduced, but the deficit will be financed. As for the $1 billion reduction, no details are given, but rather a very general announcement. It is very difficult to reduce this because the money goes to salaries and bonuses. Shrinking a billion-dollar public bureaucracy is something no one has been able to do, unless they want to liquidate casual contracts and temporary appointments. We know that there are 150,000 people in this category. But 80% is in education, health, armed forces, police, judiciary. Many ministers have come to office convinced of what needs to be done, but then they don’t do it. Neither Simón Cueva nor Pablo Arosemena could do it. In the case of Daniel Noboa’s government, it is not known whether he will do so. The situation is very delicate.

Regarding the re-profiling of the debt of the Ministry of Finance at the central bank, is it recommended?

The very fact that the bond debt that had to be paid to the Central Bank of Ecuador was deferred for up to 20 years with an interest rate of 1.3% is a bad message. Any action in this sense is deepening the problem. The way out is to reduce the deficit with more taxes and less subsidies and less government spending. There is nothing more to do.

You say that next year will be worse. For example, in terms of financing, what can you expect?

Sources are very limited. Multilateral loans are an option but they have limitations, bonds with IESS also have little space, it is possible to go to the financial system for bonds. The IMF could reach an agreement on the payment of its amortization. Furthermore, it will be necessary to do tip over internal debt, continue to accumulate outstanding liabilities towards the IESS, etc. The basic thing is to reduce the deficit and reduce the country’s risk. will also have to be done tip over Cetesa and continue with liquidity agreements for the use of cash balances of companies and entities. Meeting financial needs of more than USD 10 billion will be almost impossible without structural reforms to reduce the deficit in a credible and sustainable manner.