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The IMF and Ecuadorian officials only reached a “Staff-Level” Agreement on a US$4.2 billion to be approved if the country fulfills several policy conditions.
On the night of Feb. 20, President Lenin Moreno announced that Ecuador will receive US$10.2 billion in international loans, which would interest rates of less than 5 percent and could be paid in terms of up to 30 years.
"We have regained confidence and credibility," Moreno said and added that "the most important world's organizations have decided to join the road we are building."
According to El Telegrafo, a state-owned local newspaper, Ecuador would receive US$6 billion from the World Bank (WB), the Inter-American Development Bank (IDB), the Development Bank of Latin America (CAF), the European Investment Bank (EIB), Latin American Reserve Fund (FLAR), and the French Development Agency (AFD). For its part, the International Monetary Fund (IMF) would grant US$4.2 billion.
The optimism shown by the Ecuadorean government and media, however, was not accompanied by explanations of the terms, conditions and objectives of such possible loans, which have been locally presented as agreements already reached and intended to support President Moreno's "Prosperity Plan".
On Feb. 21, through a press release, the IMF clarified that its technical staff in Ecuador and Ecuadorean officials have reached only an agreement on the policy measures that the government of Ecuador must implement to subsequently apply for the US$4.2 billion loan, which the IMF would then process in the context of what it calls Extended Fund Facility (EFF).
"Nos darán millones, nos ofrecen millones, recibiremos millones, acuerdo salvavidas". Así maquilló la prensa de Ecuador la multimillonaria deuda adquirida por el gobierno con el FMI. En ninguna portada se menciona el escándalo offshore que salpica a Lenín Moreno y su familia. pic.twitter.com/MtRL3bsh3w
"They will give us millions, they offer us millions, we will receive millions, a life-saving agreement." This is how the Ecuadorian media disguised the multi-billion dollar debt acquired by the government with the IMF. On no cover is mentioned the offshore scandal that splashes Lenin Moreno and his family."
"Ecuador and the IMF staff have reached an agreement on a set of policies to underpin US $ 4.2 billion (435 percent of quota and SDR [Special Drawing Rights] 3,035 billion) arrangement under the IMF's EFF. This arrangement, which is subject to IMF Executive Board approval, would provide support for the Ecuadorean government's economic policies over the next three years," the IMF press release explains.
To reach a staff-level agreement under the EFF, therefore, does not imply the IMF has already approved a US$4.2 billion loan, which Ecuador may use for any purpose.
An EFF is "to assist member countries in overcoming balance of payments problems that stem from structural problems and requires a longer period of adjustment than is possible under a Stand-By Arrangement," the IMF debt terms glossary states, highlighting that a country requesting an extended arrangement "outlines its objectives and policies for the whole period of the arrangement (typically three years) and presents a detailed statement each year of the policies and measures it plans to pursue over the next 12 months... Countries must repay EFF resources over a period of four and a half to 10 years."
These EFF resources for Ecuador, which the IMF Executive Board has not approved yet, should be used to resolve the Ecuadorean balance of payment' problems. In practical terms, this means that the IMF possible loan is expected to be used to increase the Ecuadorean Central Bank's international reserves, which have decreased by 36 percent, going from US$5.7 billion in Jan. 2018 to US$3.6 billion in Jan. 2019.
That is why 71.4 percent of the possible US$4.2 billion loan will be granted in Special Drawing Rights (SDR), which are international reserve assets created by the IMF to supplement its member countries' official reserves.
In order to receive those conditioned resources, in the coming months, Ecuador will have to implement austerity measures, which President Moreno' economic team has not communicated to the Ecuadoreans so far.