Ecuador and the IMF |
Country's Policy Intentions Documents
Letter of Intent
Mr. Horst Köhler
International Monetary Fund
Washington, D.C. 20431
Dear Mr. Köhler:
1. The government of Ecuador wishes to propose some modifications to the letter of intent that we signed on February 10, 2003. These modifications reflect that Congress approved the 2003 budget with small changes, requiring a US$42 million upward revision in the noninterest expenditure ceiling and some associated modifications in the quarterly quantitative performance criteria (Table 1). The revenues also were revised upward slightly, so the program overall and primary balance targets for the year are unaltered. The Government is also requesting modifications to the prior action on the clearance of nonreschedulable external arrears. Finally, the Government is requesting an extension of the time period to complete the signing of contracts with companies to manage the Filanbanco liquidation trust funds and to audit at least 8 closed banks in the Deposit Guaranty Agency (AGD).
2. The proposed modifications based on the amendments introduced to the 2003 budget and the extension of the dates for the completion of the prior actions do not alter the objectives of the economic program described in our Memorandum of Economic Policies of February 10, 2003. The modified budget also remains fully consistent with the fiscal rules in the Fiscal Responsibility and Transparency Law. As you know, we attach great importance to this law as it is the cornerstone of our medium-term economic strategy.
3. The modifications to the budget are:
4. The government of Ecuador will not make any changes to the wage structure for public employees ahead of an agreed civil service reform.
5. The Paris Club agreed on March 11 that the payment of all nonreschedulable arrears outstanding at end-February 2003 be deferred by two weeks, and that the payment of all reschedulable arrears be deferred by a maximum of four weeks. On this basis, we would like to request that the prior action on clearance of nonreschedulable arrears be considered met, although the prior action was completed five working days before the Board meeting, instead of two weeks before the Board meeting, as specified in the LOI signed on February 10, 2003.
6. While we have made progress in selecting independent international firms to manage the liquidation of one Filanbanco trust fund containing the bank's loan portfolio, these firms are conducting their own due diligence, which has delayed the completion of the prior action. The signing of the contract to manage this trust fund is now envisaged before April 5, 2003. We also request an extension of the time period to sign the second contract for the Filanbanco trust fund containing the bank's real estate assets to June 30, 2003, reflecting the need for more time for due diligence and legal consultation on this trust fund. Finally, we request an extension of the time period to sign the contracts for audits in at least eight banks in the Deposit Guarantee Agency to April 5. The Government has just appointed new management to the AGD, which has meant a delay in the completion of this objective beyond February 28, as was envisaged. Because the audits will be slightly delayed, we also request that the performance criterion on entering these banks into liquidation, which is the follow-up action, be delayed as well, from May 31 to June 30, 2003.
7. As of March 10, the prior actions, with the above noted modifications to the LOI of February 10, 2003, have been observed, as reflected in the revised Annex I. The shifting of the commitments regarding the two Filanbanco trust funds and the AGD banks from prior actions to structural performance criteria is reflected in the attached revised Annex II.