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The balance between amounts granted and amounts paid turns out to be in favour of multilateral credit institutions in many Latin American countries. To maintain credit lines available could be a highly expensive resource for fragile economies. Ecuador and Paraguay are two countries facing a similar situation.

Both countries are very poor and the debt burden and International Monetary Fund’s pressures are felt by each one of their governments. The management of available resources is seriously affected by payment of interests to credit institutions and the conditions they impose in order to continue being money sources when budgets turn out to be insufficient.

Ecuador

According to 2005 official figures, between January and November the country was granted 259.6 million dollars and paid back to its creditors the amount of 1.54 billion.

The three credit institutions Ecuador is dependent on are: the International Monetary Fund (IMF), the World Bank (WB), the Inter-American Development Bank (IADB) and the Andean Development Corporation (CAF).

According to the Sub-secretariat of Public Credit, although these three institutions granted no loans to Ecuador in 2005, they were paid the overall amount of 498.9 million dollars by way of amortizations and interests payments for credits granted in previous years.

The CAF is the only institution that disbursed credits in the amount of 130 million dollars in 2005. Most part of resources granted has been allocated to specific projects and a small portion is of “free availability”.

On the other hand, the Central Bank has announced a decrease in Ecuador’s external debt. According to the Central Bank, the debt fell by 125 million dollars last November and stands now at 10.21 billion dollars.

At the present time, the Ecuadorian debt accounts for 30.8 per cent of the Gross Domestic Product (GDP) against a 31.2 per cent reported in October 2005. Ecuador’s public debt service will absorb this year the amount of 2.85 billion dollars or 33.3 per cent of the budget, which represents one of the heaviest financial burdens faced by the country.

According to the official discourse, this reduction is the result of the application of a strong fiscal policy, which has allowed to maintain payments to multilateral institutions on track as well as to decrease the country’s financing needs. Meanwhile, public social spending is always the one to bear the consequences.

Paraguay

The difference between that which the Paraguayan state paid to its international creditors and that which it was granted by way of disbursements from the same institutions amounted to 124 million dollars.

During 2005, the state paid a total amount of 231 million dollars among capital and interests by way of public external debt. Meanwhile, during the same period, the country was granted disbursements from said institutions that only amounted to 107 million.

The difference is still greater if internal debt payments – particularly of Treasury bonds – are taken into account.

The non-use of credits available to the Paraguayan state is punished by international institutions with the so-called commitment fee, a kind of fine that has represented an annual bleeding of approximately 2 million dollars.

The expected situation for 2006 is similar to the one presented in 2005. According to the outlined schedule, in 2006 the Treasury should be paying a total amount of 40 million dollars by way of bond redemption. The amount of 254 million dollars in public external debt should be added to this, together with a further amount of 17.8 million of contingent liability.

In the next months, the government and the IMF should reach a decision with regards to the new agreement. Pressures exerted by the Fund are increasingly stronger, requesting reforms, privatizations and a tight control of public spending.

Source: Diario El Universo (Ecuador) and ABC Color (Paraguay)

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