News Brief: IMF Management Welcomes Progress in Ecuador's Debt Restructuring
August 17, 2000
The Management of the International Monetary Fund (IMF) welcomed today the progress that has been made in restructuring Ecuador's debt to external private creditors, and expressed the belief that it will help bring Ecuador's payments obligations into line with its medium-term payment capacity and regularize its relations with its private creditors.
Commenting on recent developments in a letter addressed to Mr. Jorge Gallardo Zabala, President of the External Debt Negotiations Commission of Ecuador, Stanley Fischer, First Deputy Managing Director of the IMF said:
"The Management of the International Monetary Fund (IMF) welcomes the progress that has been made in restructuring Ecuador's debt to external private creditors. The debt exchange will help bring Ecuador's payments obligations into line with its medium-term payment capacity. We also take note of the high acceptance rate of the exchange offer, which will make an important contribution to regularizing Ecuador's relations with its private creditors.
"Developments so far under the economic program supported by a Stand-By Arrangement from the IMF have been encouraging. The recession appears to have bottomed out and a moderate pick-up in growth is expected in the second half of the year. Inflation has been running above initial expectations, mainly reflecting a steep depreciation of the exchange rate in late 1999/early 2000, but we expect monthly inflation rates to fall below 1 percent by the end of the year.
"Dollarization is proceeding well; international reserve accumulation is well above the program target; and the banking system is more liquid than anticipated, suggesting some return of confidence. Fiscal performance so far has been better than programmed--helped by stronger oil prices, better collection of non-oil revenues, and a package of fiscal measures introduced in May that sharply lowered generalized subsidies on domestic fuels, along with a concurrent strengthening of the social safety net. We project a fiscal deficit for 2000 of 2.7 percent of GDP, down from 7.2 percent in 1999. We expect that when final data becomes available, it will show that all the quantitative performance criteria for end-June were met, with the exception of that on domestic non-interest payment arrears, for which IMF management is prepared to support a waiver.
"The current situation in congress has delayed final action on some remaining structural issues—notably to make the interest rate ceiling more flexible and to ensure that elimination of the financial transactions tax takes place in the context of a broader tax reform—that are important for the objectives of the program. Management proposes to proceed with the Article IV consultation discussion scheduled for end-August. Management has also circulated to the IMF's Executive Board all of the documentation in connection with the first review of the program and will be prepared to recommend to the Executive Board that the review be completed as soon as action is taken on these remaining issues", Fischer said.