## Press Release: IMF Approves Stand-By Credit for Ecuador

_IMF News, April 19, 2000_

## Source details

**Canonical URL:** [Press Release: IMF Approves Stand-By Credit for Ecuador](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr0032)

## Other formats

- [Markdown version](/en/news/articles/2015/09/14/01/49/pr0032/index.md)
- [Structured JSON version](/en/news/articles/2015/09/14/01/49/pr0032/index.json)
- [Bundle manifest](/en/news/articles/2015/09/14/01/49/pr0032/bundle-manifest.json)

## Bibliographic details
- Published: April 19, 2000

---

### IMF decision and financing terms
- The IMF approved a 12-month stand-by credit for Ecuador in an amount equivalent to SDR 226.73 million (about US$304 million) to support the government's economic program for 2000.
- The first disbursement in an amount equivalent to SDR 85 million (about US$114 million) is available immediately.
- The remainder will be disbursed in five equal bimonthly installments.

### Executive Board discussion — Stanley Fischer (Acting Managing Director)
- Initial successes: policies in the program have "already achieved some important initial success in halting the run on banks and beginning to restore confidence."
- Implementation requirements:
  - The program is described as "very demanding" and requires "firm resolve on the part of the authorities, and the support of the Congress and the public at large."
  - Successful implementation will require adequate external financing, including debt relief and the restoration of banks' external credit lines.
- Dollarization:
  - "While the decision to dollarize the economy has achieved initial successes, its continued success poses major challenges."
  - Required actions include vigorous structural reforms to better withstand external shocks and strengthening public finances to reduce budgetary pressures from the public sector.
- Banking sector measures:
  - Authorities must move ahead quickly with the bank resolution strategy.
  - Implement steps to improve bank supervision and prudential regulation.
  - Speed up restructuring of household and corporate debt.
  - Preserve a voluntary framework for restructuring large debts to minimize ultimate taxpayer costs.
- Social and fiscal mitigation:
  - Program calls for wage restraint and significant increases in heavily subsidized domestic fuel prices; subsidies mainly benefit middle- and upper-income groups.
  - To offset impacts on the poorest, the program provides for substantial increases in cash payments to the poor.
  - Possibility of further increases in social expenditures in the second half of 2000 if projected financing is realized and fiscal revenues are higher than programmed.
- External debt and private sector involvement:
  - External financing needs are large; prospects for regaining market access in the near future are poor.
  - Appropriate private sector involvement is essential and "probably will need to include both cash flow relief and debt reduction" to restore sustainable external and fiscal positions.
  - Authorities intend to seek an early cooperative solution with private creditors and announced a further meeting with private creditors to be held in May 2000.

### Program summary — economic situation and objectives
- Crisis background:
  - Ecuador's economic situation deteriorated sharply in 1997-98; major economic and financial crisis in 1999.
  - Real GDP: stagnated in 1998 and fell by 8% in 1999.
  - Unemployment rate almost doubled to about 17% over the two years to January 2000.
  - Twelve-month inflation in consumer prices rose to 90% in February 2000 from 31% at end-1997.
- Legal and policy framework:
  - Many reforms based on Ley Fundamental para la Transformación Económica del Ecuador (the "economic transformation law").
  - Official dollarization at a conversion rate of 25,000 sucres per U.S. dollar, introduced January 9.
  - New administration (took office January 2000) continues dollarization to enforce fiscal discipline and strengthen banking legislation.
- Early effects:
  - Interest rates declined sharply.
  - Net inflow of deposits into the banking system since the dollarization announcement, suggesting improved confidence.

### Macroeconomic framework and targets
- Growth and inflation:
  - Framework assumes a further decline in real GDP in the first half of 2000, followed by a recovery of 3½ % to 4% growth (year-on-year) in the second half.
  - Real GDP growth for the year assumed to be close to 0. (text: "close to zero")
  - Twelve-month increase in consumer prices projected to come down to about 60% by year-end from 91% in March 2000.
  - Implies decline in monthly price increases to under 1% by year-end from 10% in February 2000.
- International reserves objective:
  - Program targets an increase in the net freely disposable international reserves of the central bank of US$160 million by end-December 2000 (in excess of the 100 percent legally mandated backing for central bank sucre liabilities under the dollarization framework and outstanding credit from the IMF).
  - Purpose: provide partial backing for issuance of U.S. dollar-denominated central bank bonds and to meet banking system liquidity needs.

### Fiscal program and public finances
- Overall fiscal targets:
  - Combined fiscal deficit to be reduced to 3.2% of GDP in 2000 from 7.2% in 1999.
  - Non-financial public sector deficit reduction: to 3.9 % of GDP in 2000 from 6% in 1999.
  - Increase in the primary surplus to 6½ percent of GDP.
- Measures to achieve targets:
  - Higher fiscal revenues from oil exports.
  - Significant increase in domestic fuel prices aimed at reducing costly subsidies.
  - Extension of the temporary import tariff surcharge through end-2000.
  - Tight control over expenditures.
  - Further improvement in tax administration.
- Budget 2001 direction:
  - Will include measures to mobilize additional revenue, diversify tax base away from oil, reduce tax earmarking, and create a more efficient and equitable tax structure.
  - Complementary legislation aimed at liberalizing production, distribution, and pricing of domestic fuels.

### Structural reforms and privatization
- Labor market:
  - Labor code amended to eliminate rigidities and create conditions to increase employment.
- Oil sector and infrastructure:
  - Private companies allowed to refine, process, and store oil and gas, and to build oil pipelines.
  - This provision facilitates the planned construction of a new US$600 million oil pipeline from the Amazon region to the northern coast, scheduled to begin later this year.
- Privatization:
  - In 2000, privatization will include sales of majority shareholdings in state electricity generation, distribution, and transmission companies, and in the two state telecommunications companies.

### Social program and protection for the poor
- Priorities:
  - Public expenditure will prioritize addressing needs of the poorest, protecting them from adjustment effects, and improving human capital and earning capacity over the medium term.
- Key elements:
  - Improved targeting of cash transfers to the poor (bono solidario), taking into account families whose children have good school attendance records.
  - Provision of nutritional and medical support for young children and pregnant women.
  - Development of a fund to accelerate social and economic development of indigenous communities.

### Selected economic and financial indicators (annual percentage changes; unless otherwise indicated)
- National income and prices:
  - GDP at constant prices: 2.0 (1996), 3.4 (1997), 0.4 (1998), -8.0 (1999), 0.0 (2000, Prel. Prog.)
  - Oil sector production: -2.0, 3.5, -3.4, -4.9, 3.7
  - Non-oil sector: 2.6, 1.0, -8.5, -0.6, (no 2000 value shown)
  - Real per capita GDP: -0.1, 1.3, -1.6, -9.8, -1.9
  - Consumer prices (average): 24.4, 30.6, 36.1, 52.2, 74.0
  - Consumer prices (end-of-period): 25.5, 30.7, 43.4, 60.7, 60.0
- External sector (in terms of U.S. dollars):
  - Exports, f.o.b.: 11.1, 7.4, -20.2, -1.0, 5.3
  - Petroleum exports: 13.8, -12.3, -40.7, 47.5, 37.5
  - Imports, f.o.b.: -2.7, 18.2, 11.4, -50.1, 20.7
  - Export volume: 4.5, 9.2, -5.5, -5.4, (no 2000 value shown)
  - Non-oil export volume: 10.7, 11.0, -3.8, -11.4, (no 2000 value shown)
  - Import volume: 24.6, 16.0, -49.4, 19.6, (no 2000 value shown)
  - Terms of trade (deterioration -): 3.6, -13.3, 6.6, 4.7, (no 2000 value shown)
  - Non-oil terms of trade: 1.7, 12.6, -8.9, 0.3, (no 2000 value shown)
  - Real effective exchange rate (depreciation -): 1.4, 14.2, -8.6, -36.4, . . .
- Money and credit:
  - Banking system net domestic assets 1/: 33.6, 35.2, 33.8, 19.2, -14.3
  - Credit to public sector 1/ 2/: -1.8, 2.3, 10.1, -11.8, -24.6
  - Credit to private sector 1/: 15.6, 23.7, 5.9, -20.3, (no 2000 value shown)
  - Money and quasi-money (M2) 3/: 38.0, 28.6, 26.8, 19.8, -28.2
  - Velocity (GDP relative to M2) 3/ 4/: 4.0, 3.8, 3.3, (no 1999 value shown), (no 2000 value shown)
  - Interest rate (90-day CDs, in percent) 5/: 33.5, 31.5, 49.5, 47.7
- Public finance (in percent of GDP):
  - Public sector savings: 4.6, -0.3, 1.1, 4.2, (no 2000 value shown)
  - Nonfinancial public sector balance 6/7/: -3.1, -2.6, -6.2, -6.0, -3.9
  - Quasi-fiscal result of the central bank: 0.2, 0.1, -1.2, 0.7, (no 2000 value shown)
  - Combined public sector balance 6/7/: -3.0, -2.4, -5.9, -7.2, -3.2
  - Gross domestic investment: 17.3, 20.2, 24.7, 11.2, 16.1
  - Gross national savings: 16.6, 13.7, 17.5, (no 1999 value shown), (no 2000 value shown)
  - External current account deficit 8/: -6.3 (year not specified)
  - External debt (end-of-year) 8/9/: 76.2, 76.9, 82.2, 116.2, 148.0
  - Public external debt 8/9/: 65.9, 64.2, 66.2, 97.2, 138.1
- Debt service and reserves:
  - Public sector debt service 9/ (in percent of exports of goods and nonfactor services): 25.4, 30.0, 29.3, 33.4
  - Interest payments: 12.3, 12.2, 16.3, (no 1999/2000 continuation shown)
  - Outstanding use of Fund resources (in percent of quota at end-of-period): 46.0, 45.1, 22.6, 49.8
  - Net official reserves 10/ (in months of imports of goods and nonfactor services): 5.0, 4.4, (no further values shown)
- Notes from original table:
  - 1/ Change in relation to liabilities to the private sector 12 months earlier.
  - 2/ The 2000 figure is not comparable to those of preceding years because of changes in the classification of accounts at the central bank.
  - 3/ The figure for 2000 reflects the impact on M2 of the unfreezing of time deposits with bonds.
  - 4/ Velocity is measured in relation to the 12-month average monthly stock of M2, with the U.S. dollar components valued at end-of-period exchange rates.
  - 5/ Nominal average interest rate on all 90-days time deposits held in private banks in the last week of the year.
  - 6/ Includes interest payments on an accrual basis and the change in the floating debt of the treasury.
  - 7/ Measured from below the line.
  - 8/ Includes interest on external arrears to commercial banks.
  - 9/ Includes obligations to the Fund.
  - 10/ In 2000 it refers to the stock of free disposable international reserves after providing backing for central bank liabilities as mandated by law.

*International Monetary Fund*

---


## References

- [Ecuador and the IMF](http://www.imf.org/external/country/ECU/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr0032_