On September 30, the International Monetary Fund approved a new 27-month credit facility for Ecuador. Despite its novel anti-austerity rhetoric — highlighting the importance of public spending and investment for countries to recover — the agreement with the South American country repeats the same failed recipe of fiscal adjustment and deregulation that unleashed widespread social unrest and left a trail of human rights violations in its wake in October 2019.
While the overall objectives of the programme talk about protecting people, restoring economic stability, strengthening institutions and generating employment, a careful analysis of the agreement and the conditions agreed between the Fund and the Ecuadorian government make it clear they are in stark contrast to the new rhetoric of the Fund's authorities.
The Progressive International raised its concerns publicly and directly with Managing Director Kristalina Georgieva before the Fund's Board of Directors saw and ratified the agreement. It was approved all the same and insists on cutting public spending without providing any explanation as to how the distributive impact of these measures will be assessed.
The text also fails to define mechanisms to ensure that the resource flow from the credit facility will actually finance programmes to protect rights or to strengthen necessary healthcare management resulting from the Covid 19 crisis. It is also far from clear whether the implementation and monitoring process will include broad sectors of civil society. Only one of the nine monitoring indicators is related to social commitments and even then, it proposes increasing conditional transfers to the lowest income population but at the cost of reducing coverage for other families, families that are currently beneficiaries and are also at risk of slipping into poverty as a result of the pandemic.
We also expressed our concern about the lack of discussion or measures to address the problem caused by the enormous volume of foreign currency leaving or simply not entering the Ecuadorian economy at the hands of the country's major economic groups. This phenomenon puts the sustainability of the highly dollar-dependent Ecuadorian monetary system at risk. Instead, the agreement insists on reviving the legislative reforms that were rejected at the end of 2019 by Ecuador's National Assembly, reforms that aim to eliminate state mechanisms for managing liquidity in the economy, which many countries in the world are now actively using to alleviate the effects of the current crisis. These mechanisms are even more necessary for Ecuador if it is to ensure the health of its dollarized economy. We are not against adequate and transparent monitoring of state liquidity management mechanisms, but this should not entail depriving the state of these tools by handing the central bank over to the country's economic groups under false pretences of independence.
This first assessment of the Ecuador programme is an opportunity for the IMF to show that it has not only changed its rhetoric but it can also change its actions. The IMF is well aware that austerity only has adverse effects on economies, especially ones in the midst of a recovery. In fact, as the most recent IMF Fiscal Monitor states, public spending has a greater multiplier effect in promoting economic recovery precisely at times of great macroeconomic uncertainty, such as Ecuador is currently experiencing. It is therefore not clear why the new agreement insists on a drastic fiscal adjustment of 5.5% of GDP until 2025.
On the other hand, we have expressed and insist on our concerns regarding the absence of evaluation and guidelines in addressing the major problem of capital outflows in Ecuador. The IMF is fully aware that this is a problem for Ecuador and understands the similarities and differences with other countries very well. The IMF also understands the particularities of how local capital operates and the detrimental implications this can have for dollarisation. Although some spokespeople for the Ecuadorian economic elite are keen to conceal this reality, others have already recognised this problem. Among them is the head of the Ecuadorian Central Bank with whom the IMF is in permanent contact. Furthermore, the IMF's founding agreement obliges it to ensure there are no significant and continuous capital outflows while its credit agreements are in force. Finally, on the same day the credit facility with Ecuador was approved, the IMF's Independent Evaluation Office issued its report on capital flows which acknowledges the entity must give greater importance to the problem. It clearly states there are cases in which measures to deal with capital outflows and to guarantee its programmes are adequately implemented must be strengthened.
So far, the Ecuadorian government has met the fiscal targets and is rushing through the legal reforms included as conditions for the programme’s December payment. Under pressure from the IMF, the National Assembly is working on anti-corruption law and an “extinción de dominio” rule at full speed. These still require careful debate to ensure that they comply with the Ecuadorian Constitution and do not lend themselves to political persecution. We call on the IMF not to impose urgency and not to be complicit in a regulatory framework that could be unconstitutional and inadequate. Likewise, discussing these bills should be an opportunity to include mechanisms for combating crimes of fraud against the State such as tax evasion and avoidance from tax havens as they add to the very serious problem of capital outflows we have insistently highlighted. We urge the IMF to support the need for an adequate framework to discuss these norms.
The IMF is facing a new historic opportunity to do things differently, to ensure better living conditions for Ecuadorian citizens, and to show the world that its promises of change go beyond rhetoric.
But the IMF will once again have missed a historic opportunity if it fails to thoroughly review the programme with Ecuador. It needs to monitor the real impact of its austerity measures and rethink them in line with human rights standards. Reviewing the programme should also address concerns about capital outflows by means of indicators, concrete commitments, and not undermining state liquidity management mechanisms under the false notion of an independent Central Bank. Finally, the IMF should adopt a genuine consultation process with civil society actors as part of the process for reviewing the agreement and ensure their voices will not fall on deaf ears.
Andrés Chiriboga-Tejada, Observatorio de la Dolarización del Ecuador and Sciences Po Paris
Sergio Chaparro and Allison Corkery, Centro de Derechos Económicos y Sociales
Andrea Guillem, Centre for Economic and Social Rights
Dr Philip Mader, Institute of Development Studies, UK
Adrian Falco, Red Latinoamericana sobre Deuda, Desarrollo y Derechos
Osama Diab, economic rights researcher and lecturer in development studies
Melinda Cooper, Professor of Sociology, Australian National University
Jayati Ghosh, Professor of Economics, Jawaharlal Nehru University, New Delhi
Nicholas Loubere, Associate Senior Lecturer, Lund University, Sweden
Matthias Goldmann, Max Planck Institute for Comparative Public Law and International Law
Gilad Isaacs, Co-Director, Institute for Economic Justice South Africa
Z. Fareen Parvez, Assistant Professor of Sociology, University of Massachusetts at Amherst
Ingrid Harvold Kvangraven, Lecturer in International Development, University of York
Photo: Pedro Szeleky / Flickr
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