The International Monetary Fund (IMF) arrived in Ecuador Wednesday and will stay until July 4 to “review” the economic situation in the South American country, according to Economy Minister Richard Martinez. The IMF delegation is expected to meet with government officials and representatives of the business and financial sectors.
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The visit isn't, however, Ecuador's only interaction with international lending agencies.
On Tuesday president Lenin Moreno met with the World Bank director for Andean countries, Alberto Rodriguez. After the meeting, the World Bank announced it would increase the available funds for Ecuador to US$ 1.4 billion.
During the IMF’s previous visit in November 2017, they presented a series of suggestions, which have been included in the Productive Development Law (or Ley de Fomento Productivo in Spanish), currently being debated in Ecuador's National Assembly.
The law includes an exemption on income tax between five to 10 years for new investments in the two main cities, Quito and Guayaquil, and for a duration of 20 years for investments in economically depressed areas and the Amazon.
The law will also include the progressive elimination of the tax on currency exiting the country, which was approved to avoid currency flight.
It is unclear how reducing public revenue will help reduce the fiscal deficit.
Since 2015 the IMF recommended the Ecuadorean government should reduce the fiscal deficit through cuts in public spending. Moreno has eliminated all coordinating ministries and other state institutions hoping to adhere to the IMF’s recommendations, but official records show that spending on salaries in the public sector increased by US$131 million between January and May 2018, in comparison to the same period in 2017.
The World Bank and the IMF are known in the region for imposing strict fiscal austerity measures and the liberalization of financial markets in exchange for loans. In the late nineties and early 2000s, the policies imposed by these two institutions through their Structural Adjustment Programs (SAP) were widely interpreted as the primary cause for the prolonged economic and financial crisis that ravaged the region.
The World Bank and the IMF were expelled from Ecuador in 2007 after former president Rafael Correa accused them of blackmailing the country over its oil reforms.
In 2014, Correa’s government welcomed them back in the context of low oil prices that placed a heavy burden on the Ecuadorean economy.