Source:
IFIs Latin American Monitor
Wed Aug 03 2005
The International Monetary Fund denies Ecuador the certification requested by the World Bank. Therefore, the latter is not granting Ecuador the $100 million dollar credit the country was awaiting to refinance its budget. However, Economy Minister Rafael Correa undermines the decision and confidently seeks new financing sources.
According to Alberto Ramos, Goldman Sachs analyst, the Fund’s “appalling” message does not come as a surprise. “The mess does not lie at what has been said but rather at what has been done. So long as the Fund does not notice an structural reform policy, it will be hard to convince it and for the time being Ecuador has nothing to offer in this sense”.
Wall Street keeps closely looking at Ecuador and has no reason for reducing skepticism. Apart from the Minister’s confrontation attitude, the actual facts are hindering an agreement with multilateral institutions, which express their annoyance about recent events, states Alberto Ramos. “The elimination of FEIREP, the changes in the fiscal responsibility policy and the withdrawal of reserve funds leave the country vulnerable to possible reductions of oil prices and other internal and external factors”.
The reason stated by the World Bank for not granting the credit, after having approved it three months before, and having then subjected it to IMF certification, is the rechannelling of FEIREP. In this respect, the Economy Minister seems to be convinced and is not willing to take a step back.
At a press conference, Correa replied to the credit institution strengthening his position, “Thanks World Bank, keep your one hundred million, we do not need them, we continue to be a sovereign country and let the Ecuadoran people money be used for the development of this country”. According to Correa, the budget is financed by credits to be granted by the IADB and the Andean Development Corporation.
Before the press, Minister Correa announced new financing sources, which are intended to replace those resources expected to be granted by the World Bank. As it was announced, Venezuela confirmed some $300 million in bonds and maybe even $500. The IADB will lend $200 million, while conversations over financing were begun with China.
The support of the new IADB president, Luis Alberto Moreno, to Ecuador seems to have bore its first “fruits”. According to Correa, the institution decided to grant the loan in exchange for the fulfilment of social goals which would lead the country to reduce its alarming poverty rates – measures that match the discourse of the present government.
The IADB’s decision is regarded as a “victory”, taking into account that since President Alfredo Palace took office and a change was made in the direction of the economic policy, multilateral credit institutions (IADB, World Bank and IMF) seem reluctant to fund Minister Correa’s plans. In this sense, this “softening” of the IADB is very likely linked to the fact that the new IADB president received Ecuador’s support to be elected to the post.
In the IMF’s opinion, the optimism of Minister Correa in view of the negotiations with Venezuela is exaggerated, “the IMF is not against it, although it has mentioned that it is not a good deal for any of the two countries”, say spokespeople of the institution. With regards to a favourable outcome in conversations with China, the IMF “ironically” maintains that “China will not do it for free. In case it does it, it will ask to participate in the oil business and let us see if Ecuador goes back on conditions”.
For the time being, the IMF and Minister Correa are engaged in a hand-wrestle with no clear way out. The pressure exerted by the institution is becoming increasingly stronger.
Source: Diario El Comercio and Hoy (Ecuador)
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