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Editor's Note: Jhon Cisnero is a Venezuelan economist and works in financial advice at Kapital Consultores. He is Professor of Financial Accounting at the Universidad Católica Andrés Bello, as well as a columnist for Forbes, Investing.com and UCVEconoticias. The opinions expressed in this column are exclusive to the author.
(CNN Spanish) - Ecuador will access a loan from the International Monetary Fund (IMF) and there have been statements against it. What are these adjustments? Will these economic initiatives have a high political cost?
The economic measures presented. And later removed by President Lenín Moreno, they moved the foundations of Ecuadorian society causing protests in the nation. This series of adjustment policies were part of a credit agreement reached with the International Monetary Fund (IMF) for more than 4,000 million dollars, which entered into force this year. What has impacted part of society is that the IMF normally grants loans to countries with serious economic problems in exchange for following a series of guidelines or adjustments. Ecuador has maintained good economic growth, however, it has been slowing down. Does the country require this credit to continue growing?
Ecuador's debt currently does not reach 50%, this is one of the reasons why some consider that credit by the international organization is not necessary, in addition they associate this type of agreements with large debts and measures that are not normally very pleased But what do they consist of?
One of the actions that most impacted was the increase in the price of gasoline along with the elimination of the fuel subsidy, which resulted in a safe way in the increase in the price of transport and goods, and then, as an effect dominoes will cause inflation. In the words of the president, the intention was to allocate this money to the health, education, housing and social security sectors. Another measure that caused much concern and controversy was the reduction of vacations from 30 to 15 days for public sector workers and the reduction of tariffs for the purchase of equipment, machinery and raw materials, both industrial and agricultural; It is obvious that the actions being implemented are not popular. Normally, the adjustment plans promoted by the IMF are not at all pleasant and that is the reason why in many occasions this type of strategy has put an end to various governments.
Leverage to grow is not bad, now, it should be considered that the return on investment must be high enough to meet the obligations acquired. Although the measures that had been announced are not very pleasant, if things are done well Ecuador could have more wealth and prosperity in the future, although with a high level of indebtedness.
The IMF representative for the Western Hemisphere, Alejandro Werner, and the head of the mission for Ecuador, Anna Ivanova, said the reform plan is made up of four fundamental pillars. The first seeks to boost competitiveness and job creation; the second, to protect the poorest with budgetary increases in social spending; the third, favor fiscal sustainability to make it more efficient; and the fourth, to look for the stability of the Ecuadorian central bank.
The Minister of Economy and Finance of Ecuador, Richard Martínez, said at the time that economic measures will continue to be implemented "because it is the right thing to do," he also said that "public companies will be required to reduce spending by $ 100 million. and in the case of social security, 50 million dollars ”. Layoffs are another possibility that is within the schedule of adjustments.
Although reducing expenses is not the only thing the Ecuadorian government is looking for, boosting revenues is of great importance and that is why it decided to leave the Organization of Petroleum Exporting Countries (OPEC).
Implementing economic policies correctly is usually not liked by anyone. Organizations such as the United Nations Organization helped mediate the conflict by encouraging dialogue. Freedom of expression is a right, but I think it is, provided that it does not become violence or vandalism to the point that the seat of government of Quito had to move to Guayaquil for security reasons. Although this strategy is not bad, it could have a significant political cost in the short term.
International Monetary Fund Lenin Moreno