The IMF's austerity drive comes for the Central Bank of Ecuador

In this sense, the IMF ratified that Ecuador’s government must revive the reforms to the Monetary and Financial Code that were rejected by the National Assembly in November 2019 in the context of massive popular mobilizations that opposed the government’s anti-popular measures and the economic deregulation prescribed by the IMF. The National Assembly judged these reforms, including the independence of the Central Bank, as unconstitutional and dangerous for the sustainability of Ecuador’s dollarized economic regime. Despite this, the new credit agreement signed in September 2020 between the Washington-based multilateral organization and the government of President Lenín Moreno insists on the reforms.

The IMF dogmatically defends this vision of the central bank despite the fact that it has been widely questioned by countless economic studies showing that the policies implemented by independent central banks do not relate to economic growth, have not led to scenarios of greater employment, and show no evidence of impact on controlling inflation. Studies have also revealed that behind the supposed "technical independence" of central banks there are always great political interests of economic groups at play. During the Covid-19 pandemic, this view of the central bank has been practically buried, as governments and central banks have assigned all possible resources to the recovery of their economies.

The IMF itself has urged governments and central banks to allocate all the resources needed to address the dire impact of the Covid-19 pandemic. Why, then, does the IMF prescribe the opposite in Ecuador?

It is true that Ecuador is an economy without its own currency, but this does not mean that the Central Bank is incapable of influencing liquidity management in order to help economic recovery.

Of course, monetary and financial instruments must be used properly, with transparency and due accountability. However, it is an economic absurdity to close off all possibilities for a government to use their full range of policy tools, especially when it needs them the most. By doing so, the IMF makes itself complicit in the agenda of those economic elites who benefit from a decorative Central Bank in their eagerness to liberalize their capital flows and remove other regulations from their midst. Several experts and social organizations in Ecuador have denounced the plain fact that, on account of the visible proximity of the current regime to the banking sector, it will be those these elite insiders who will take the reins of the Central Bank. There is a recent precedent for this in Ecuador. Such a move happened already in the 1990s when the country went through one of its worst financial crises, caused precisely by the economic deregulation implemented by the control agencies co-opted by the banks.

In line with the commitments to the IMF, the Ecuadorian government has announced that it will insist on reforms to the Organic Monetary and Financial Code and, in the next few days, will submit the bill to the National Assembly. It will insist on the creation of a private governing body for the Central Bank and would give it the capacity to design and implement its own economic policy. This violates the Ecuadorian constitution, which establishes a separation of powers: the executive branch of government must define the country's economic policy, and the Central Bank must implement it. Furthermore, this private board could be appointed for a period of 5 years when Ecuador is preparing for an electoral transition.

On the other hand, the bill that they will insist on removes the obligation of financial institutions to invest part of their resources in domestic assets, providing, however, that the Central Bank guarantees their contribution to international reserves. This will facilitate, with a guarantee of public resources, the outflow of capital from Ecuadorian private financial institutions. This is a huge problem Ecuador has, even more so, since it does not have its own currency. The IMF perfectly understands this problem and its particularities in the case of Ecuador. Furthermore, and as mentioned before, the reform would block all the tools that the Central Bank has to allocate resources to state entities, public companies and local governments in the midst of the unprecedented economic and health crisis we live.

As members of the Progressive International, we insist: The reforms proposed by the IMF in Ecuador have already been tried, and they already have failed. From our position of commitment to Ecuador and the popular sovereignty of its citizens, we warn of the danger of this insistence by the IMF on these failed measures. They would prevent a future Ecuadorean administration using policy levers to benefit its citizens and permanently lock in that weakness regardless of the results of next month’s elections.

We once again urge the IMF to be consistent with the discourses of its own authorities — and to stop the dangerous advance of austerity and deregulation in Ecuador. Likewise, we respectfully but emphatically call on the Ecuadorian Government and the National Assembly to refrain from, respectively, sending and receiving this bill and to allow a broad discussion of the economic reforms that the country needs in the context of the upcoming elections.

Signed,

Jayati Ghosh
Professor of Economics, University of Massachusetts at Amherst

Yanis Varoufakis
General Secretary, MeRA25

Benjamin Braun
Senior Researcher, Max Planck Institute

Andrés Chiriboga-Tejada
Doctoral & Teaching Fellow, Sciences Po

Z. Fareen Parvez
Assistant Professor of Sociology, University of Massachusetts at Amherst

Andrea Guillem
Centro de Derechos Económicos y Sociales

Ingrid Kvangraven
Lecturer in International Development, University of York

Melinda Cooper
Professor of Sociology, Australian National University

Matthias Goldman
Max Planck Institute for Comparative Public Law & International Law

Philip Mader
Institute of Development Studies, UK

Osama Diab
Economic Rights Researcher & Lecturer in Development Studies

Leilani Farha
Global Director, The Shift

Crystal Simeoni
Director, Nawi: Afrifem Macroeconomics Collective

Martino Comelli
Political Scientist, Central European University