New IMF Loans Require Austerity Programs in Ecuador

RIO DE JANEIRO, BRAZIL – The Ecuadorian government and International Monetary Fund (IMF) officials have agreed on further loans to the Andean country. This was announced in Washington by Ceyda Oner, chairperson of the IMF mission in Ecuador. According to the agreement, Ecuador will receive a total of US$6.5 billion (R$32.5 billion) over a period of 27 months.

Of this amount, US$4 billion is to be transferred before the end of the year, with another US$1.5 billion in 2021 and another US$1 billion in 2022. Although the Monetary Fund’s Executive Board still needs to approve the package, this is considered a technicality and, according to IMF Director Kristalina Georgieva, should be granted by the end of September.

The aim is “to help the Ecuadorian authorities to stabilize the economy and to protect the lives and livelihoods of Ecuadorians,” the IMF said in a press release.

Ecuador’s economy was already struggling before the pandemic began, particularly due to low oil prices and severe earthquakes in 2016 and 2019. The Covid-19 pandemic further exacerbated this situation. In its press release, the IMF projected an 11 percent decline in Ecuador’s 2020 GDP compared with the preceding year.

In March 2019, the government of President Lenín Moreno was granted a US$4.2 billion loan and another US$643 million in May this year from the Monetary Fund. The conditions for this were some austerity measures, which led to mass protests in October 2019 and again in June 2020. The Monetary Fund made the payment of aid conditional on labor market reforms and massive savings in the public sector.

Amid the coronavirus pandemic, these ,easures are now being stepped up considerably. For instance, crisis-related expenditures are to be reduced next year and the government is to “take measures to improve public finances”. These include a reduction in current government costs, i.e. salaries and benefits, and a comprehensive tax reform, as well as investments. More detailed information has not yet been released.

According to unofficial sources, the government has committed itself to raising VAT by four percentage points and reducing public spending by a further US$4 billion.

However, President Moreno celebrated the agreement on Twitter as “great news for Ecuador”.

Sharp criticism came from an international group of economists and social scientists, among others. Commenting for The Guardian British newspaper, they criticized the IMF’s actions in Ecuador to date.

Under the heading “Austerity is killing Ecuador,” they point out that, under pressure from the Monetary Fund, over 3,600 public healthcare workers, among other staff, were dismissed in 2019. This would certainly have contributed to the high number of deaths per capita in relation to the novel SARS-CoV-2 virus compared to other countries.

Despite the Covid-19 pandemic, the government continues to focus on paying off its international loans rather than investing in public services for the country’s population, the report says.