IMF approves disbursement of 2 billion USD for Ecuador

Ecuadorian President Lenín Moreno says the funds will be used for “social protection and economic reactivation”, however, the deal calls for a lower minimum wage, higher sales taxes, labor reform, and limited public investment

December 22, 2020 by Tanya Wadhwa
From an anti-IMF protest in Ecuador in October 2019. Photo: Notibomba

The Executive Board of the International Monetary Fund (IMF), on December 21, completed the first review of the agreement on the Extended Fund Facility (EFF) for Ecuador and decided to immediately disburse 2 billion USD to Ecuador with the stated aim of helping the country in its economic recovery.

This disbursement is the second disbursement of 2 billion USD to Ecuador in less than 3 months, which is part of a total loan of 6.5 billion USD that the IMF promised to deliver until December 2022. The first disbursement, also of 2 billion USD, occurred on October 2, 2020 two days after the financial institution approved the EFF arrangement with the Ecuadorian government, on September 30.

This payment is made after the National Assembly approved the Anti-Corruption Law on December 15, which contains reforms to the Comprehensive Organic Criminal Code, one of the requirements that the IMF presented to make the disbursement.

Ecuadorian President Lenín Moreno, in a tweet, explained that the review of the agreement and the approval of the second disbursement was due to the “orderly management” of the national economy. Moreno also explained that the loan repayment period is 10 years, with a grace period of 4 years and an interest rate of 2.9%.

Moreno said the funds would be used for “social protection and economic reactivation.” However, the monetary deal calls for a lower minimum wage, higher sales taxes, labor reform, and limited public investment.

This is the second loan approved by the IMF to Ecuador, during Moreno’s administration. The first loan of 4.2 billion USD was approved in April 2019. In the aftermath, Moreno’s government imposed strong austerity measures, which triggered a wave of protests in October last year that forced him to withdraw the neoliberal reforms.

What Moreno is calling as “orderly management of public funds”, is nothing but a series of harsh neoliberal economic measures implemented by his government throughout this year, which have been protested by people from diverse sectors. During the first half of this year, the Ecuadorian national government implemented a number of austerity measures using the COVID-19 pandemic as a pretext to promote the IMF’s agenda in the country.

On May 19, Moreno announced a budget cut of 4 billion USD in public sectors, “to avoid the collapse of the economy” in response to the crisis caused by the pandemic. He announced the closure of at least 10 public companies, reduction in the working hours and salaries of various public sector employees, closure of its diplomatic missions in four countries, among other measures. On May 3, Moreno announced a budget cut of around 100 million USD in public education to alleviate the economic crisis aggravated by the spread of the coronavirus in the country. Before that, on March 10, when the spread of the coronavirus was under control, Moreno announced a budget cut of 1.4 billion USD, a 0.75% increase in companies’ income tax, elimination of four regulatory and control agencies, three public institutes, three state companies, four technical secretariats and a public media company, among several other measures.

Additionally, his policy of prioritizing the payment of foreign debt rather than spending on healthcare amid the pandemic, received widespread condemnation from citizens as well as social movements and human rights organizations.

Due to the mismanagement of the economic and health crisis caused by COVID-19, according to a survey conducted by the Latin American Strategic Center for Geopolitics (CELAG) in the month of July, over 83% of the population disapproved of Moreno’s administration.

Likewise, a study by the pollster Profiles de Opinion carried out in the month of November revealed that the majority of Ecuadorians do not believe in the word of the president, Lenín Moreno, or consider that his management has been bad or very bad.

Similarly, a recent opinion poll on voting intentions published by the CELAG last week, on December 17, Andrés Arauz of the progressive Union for Hope (UNES) alliance, led by former president Rafael Correa, is the preferred candidate in the general elections set to be held on February 7, 2021. Arauz is leading with 36.5% of the votes.

Moreno, who was Correa’s vice president from 2007 to 2013 and promised to continue with his  progressive and anti-imperialist policies in the 2017 presidential election, after being elected betrayed Correa’s legacy. Moreno drastically shifted his political stance, distancing himself from Correa’s left-wing politics and pushing forth neoliberal policies domestically and aligning Ecuador’s foreign policy with US interests.

The upcoming elections are quite significant for the economic, political and social stability in the country, which has deteriorated under Moreno’s rule.

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