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The International Monetary Fund wanted Ecuador to reach an agreement with its sovereign debt creditors before lending it more money and, at the same time, the international lenders demanded a new program between the IMF and the South American country to complete the renegotiation. The cycle closed this Friday, on the verge of ending the term. The Government of Lenín Moreno will access 6.5 billion dollars in financing from the Fund through a program that will last 27 months, which will require it to make adjustments to public spending and a tax reform and which will allow it to seal the restructuring of its foreign debt. The Executive and the multilateral announced the pact after two weeks of polishing the last details.
"The new agreement complements a successful debt swap of $ 17.4 billion in global bonds between the authorities and their bondholders, and is expected to catalyze additional bilateral and multilateral financial support," concludes the IMF statement. to know the result of a “frank and constructive dialogue”. Unlike on previous occasions, the Ecuadorian authorities stuck to that announcement and to a message on Twitter from President Moreno to confirm the step taken, without offering further details. Next Tuesday, September 1, the deadline - which had been extended from August 15 - to complete the negotiations and consolidate the exchange of the foreign debt that suffocated Ecuador for new bonds with a five-year grace period, a deduction concluded. of 1,500 million dollars and a reduction of interest rates.
In exchange for the credit, the Fund awaits Ecuador's determination to “reduce crisis-related spending next year and implement a fiscal reform package that includes a moderation of current and capital spending, a smart and comprehensive tax reform, and better governance of public spending, while the coverage of social protection continues to expand ”. A tight end of the year 2020 is forecast, a decrease of 11% in GDP and an increase in the fiscal deficit due to the economic impact of the stoppage caused by the covid-19 pandemic and the drag on low oil prices. But the rescue program aims to help the Andean nation "stabilize" its economy and "prepare the ground for recovery."
In confirming the agreement, neither the IMF nor Ecuador have specified the details of the goals set for the adjustment of spending, investment, or what the required tax reform will consist of. In his concise presidential message, Lenín Moreno thanked the negotiating team and Kristalina Georgieva, general director of the Fund, with a view to continuing to work together. The Finance Ministry only specified that the interest rate is 2.9%, the payment term is 10 years with a four-year grace period.
The Ecuadorian government had been in talks with the multilateral to renew access to financing since the previous rescue program was officially suspended in May 2020. A year and a half earlier, in March 2019, a loan of 4.2 billion euros had been agreed. dollars, coupled with 6,000 million dollars more from other multilaterals such as the Inter-American Development Bank or the World Bank, which was then headed by Georgieva herself. That agreement broke 10 years of distance between the IMF and an Ecuador governed by former President Rafael Correa. The country, on the other hand, began to fall into default due to its difficulties in closing the gap between income and expenses, the level of indebtedness and the internal political blockade that stopped the fiscal reforms planned. This new pact, however, will have to deal with the change of government that will come next year from a presidential election in which Lenín Moreno will not participate and the ruling party does not have a clear candidate.
