Ecuador: IMF completes second review and approves extension

• Pages: 186

Page 186

On May 25, the IMF Executive Board completed the second review under the Stand-By credit for Ecuador and approved its extension to December 31, 2001. The full text of News Brief No. 01/47 is available on the IMF's website (www.imf.org).

The Executive Board's decision enables Ecuador to draw up to SDR 37.8 million (about $48 million) from the IMF. Stanley Fischer, First Deputy Managing Director, said: "The IMF welcomes the progress Ecuador has made in recent months, recouping policy slippages of the last year. Economic activity has picked up, unemployment has fallen, and inflation has decelerated sharply. In addition, the fiscal and external positions are stronger than expected and pressures on the banking system have eased. The authorities have shown considerable resolve in implementing politically difficult policy decisions needed to strengthen the public finances and the banking system, and the program is now back on track.Nevertheless,much more remains to be done to continue fiscal consolidation, strengthen the financial sector, and implement structural reforms.

"The recent reduction of energy subsidies and the increase in the value-added tax rate, together with improvements in tax administration, are crucial to sustaining a viable fiscal position by helping reduce dependence on volatile oil revenues, compensating for revenues lost from the abolition of the financial transactions tax and import tariff surcharge, and allowing for a stronger social safety net and improved public infrastructure.

With tight control over spending, the fiscal deficit in 2001 is expected to be contained to about 1/4 of 1 percent of GDP. "The steps taken to strengthen the banking system include establishing a bank liquidity fund, liberalizing bank fees and interest rates, recapitalizing Filanbanco, and relaunching the scheme to...