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Lack Of Fiscal Reforms Delays IMF Loan To Ecuador

Financial Times

24 November 2000


THE AMERICAS: Lack of reforms delays loan to Ecuador
Financial Times; Nov 24, 2000


The International Monetary Fund will not release any more cash from a Dollars 304m standby loan accord until Ecuador pushes through already agreed fiscal and financial reforms.

Sources close to the government's economic team say the fund is dissatisfied with President Gustavo Noboa's failure to submit tax reforms to the country's legislators, decide how to reduce subsidies on cooking gas and raise fuel prices.

The fund is also awaiting the capitalisation of a bank liquidity fund and the liberalisation of interest rates to improve credit flow and strengthen the banking sector.

More than 70 per cent of banking assets were taken into state hands last year, as the economy shrank 7.3 per cent, and the local currency, the sucre, was devalued 200 per cent before being phased out in favour of the US dollar.

"It's not just a question of raising value-added tax. The IMF wants some action on these fiscal and financial measures that were agreed last time," said the same source.

Ecuador needs a successful second IMF review to access a disbursement of Dollars 49m, which would be the third it has received since signing the accord in April. The standby also cleared the way for Dollars 1.7bn in other multilateral lending.

A conclusion of a fund review of Ecuador's compliance with the programme is "on hold" and fund representatives "see no point in travelling to Ecuador" while key issues outlined during an August review were outstanding, he said.

"Until we overcome this impasse the fund is not coming back," he added.

The Andean nation's record with the IMF is poor, but sources said Washington was cautiously optimistic about avoiding a formal programme suspension.

High prices for oil, Ecuador's main export, have brought a fiscal windfall of Dollars 1bn this year and damped enthusiasm for tax increases.

Luis Yturralde, the country's economics minister, has said that tax increases are unnecessary but conceded that the decision rests with Mr Noboa, who on Wednesday night said he would submit a tax bill to Congress in December.

"It's not possible to reactivate the economy and strengthen the banks without the IMF accord," said Mr Noboa.

It is understood that Mr Noboa's determination to stick with the IMF programme was reinforced by advice received from regional leaders at last weekend's Ibero-American summit in Panama.

Separately, Ecuador's banking committee was expected to agree the liberalisation of interest rates this week, removing the need for banks to make provisions for loans above 18 per cent, which acts as a cap - and allowing them to charge commissions.

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