## Ecuador's New Economic Plan Explained

_IMF News, March 21, 2019_

## Source details

**Canonical URL:** [Ecuador's New Economic Plan Explained](https://www.imf.org/en/news/articles/2019/03/20/na032119-ecuador-new-economic-plan-explained)

## Other formats

- [Markdown version](/en/news/articles/2019/03/20/na032119-ecuador-new-economic-plan-explained/index.md)
- [Structured JSON version](/en/news/articles/2019/03/20/na032119-ecuador-new-economic-plan-explained/index.json)
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## Bibliographic details
- Published: March 21, 2019

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### Program goals and support
- Objective: put public debt on a firm downward path, create jobs, protect the poor and most vulnerable, and bolster the fight against corruption.
- Financial support: program supported by a US$4.2 billion Extended Fund Facility from the IMF, along with additional financial support from the international community.
- Expected outcome: restore sustainable growth that benefits all Ecuadorians.

### Context and rationale for IMF engagement
- Ecuador previously benefited from dollarization and high oil prices but faced growing vulnerabilities after the oil price plunge of 2014 and US dollar appreciation.
- Past policy inconsistencies with dollarization: wage increases outpaced productivity growth, hurting competitiveness.
- Consequences: public debt doubled over the past five years and international reserves fell to very low levels; previous government resorted to central bank financing.
- Government action: current government proactively sought IMF support to tackle vulnerabilities, restore growth, and improve social outcomes.

### Core pillars of the economic program
- Fortify the institutional foundations of Ecuador’s dollarization.
- Boost competitiveness and create jobs.
- Promote shared prosperity and protect the poor and most vulnerable.
- Improve transparency and strengthen the fight against corruption.

### Competitiveness strategy in a dollarized economy
- Constraint: using the US dollar prevents exchange rate adjustment to improve export competitiveness.
- Internal devaluation measures emphasized:
  - Reign in government spending, particularly through optimization of the wage bill.
  - Allow less rigidity in wages and prices to support external adjustment.
  - Remove rigidities in the labor and product markets and in the financial sector.

### Policies to support jobs and formal employment
- Reforms to attract private investment and boost formal employment:
  - Review the system of taxation.
  - Remove obstacles to business formation and operation.
  - Encourage private investment and deepen capital markets.
  - Open international trade.
  - Create better conditions for participation of women in the labor market.

### Social outcomes and protection measures
- Historical social progress:
  - Share of population below the national poverty line fell from 64.4 percent in 2000 to 21.5 percent in 2017.
  - Share of population living below US$1.90 a day fell from 28.2 percent in 2000 to 3.6 percent in 2016.
- Remaining challenges: poverty rates among rural and indigenous populations remain high.
- Measures to protect the poor and most vulnerable:
  - Increase spending on social assistance programs, such as Bono de Desarrollo Humano and Bono Joaquin Gallegos Lara, and extend coverage of non-contributory pensions.
  - Develop a social registry to improve targeting of social programs.
  - Increase the efficiency and quality of primary education and health spending to improve outcomes and enhance the quality of the labor force and external competitiveness.

### Transparency and anti-corruption measures
- Rationale: improved transparency and anti-corruption efforts support business environment, lower public financing costs, and encourage private investment and jobs.
- Key measures:
  - Anti-corruption legislation to enhance the independence and power of law enforcement agencies and the judiciary, and improve access to government operation information.
  - Publish central bank financial statements in conformance with international financial reporting standards as they become available.
  - Develop an anti-money laundering and countering financial terrorism (AML/CFT) national risk assessment that properly prioritizes corruption-related threats and incidents.
  - Gain membership into Extractive Industries Transparency Initiative to improve transparency in the oil sector.

*Source: Ecuador's New Economic Plan Explained (March 21, 2019).*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Read the report](https://www.imf.org/en/Publications/CR/Issues/2019/03/20/Ecuador-Staff-Report-for-the-2019-Article-IV-Consultation-and-Request-for-an-Extended-46682)
- [Watch the video](https://www.imf.org/external/mmedia/view.aspx?vid=6016636374001)
- [Extended Fund Facility factsheet](https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/20/56/Extended-Fund-Facility)
- [Ecuador and the IMF](https://www.imf.org/en/Countries/ECU)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2019/03/20/na032119-ecuador-new-economic-plan-explained_