In an interview with PRIMICIAS, Finance Minister Simón Cueva explains that the country will be subject to fewer reviews by the IMF in 2022, which is a sign of confidence.
Minister Simón Cueva during the accountability of the Ministry of Finance, in Quito, on March 11, 2022.
The International Monetary Fund (IMF) approved the fourth and fifth revisions of the credit program that it signed with Ecuador in 2020 and that was renegotiated in 2021.
With the approval, the IMF will deliver a disbursement of USD 1,000 million to Ecuador in mid-June, a figure that exceeds the USD 700 million that the country initially expected.
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In addition to the disbursement planned for June, the IMF would disburse another USD 700 million by the end of 2022.
The money is part of the credit program for USD 6,500 million with the IMF. and from which, so far, Ecuador has received USD 4,800 million.
In an interview with PRIMICIAS, the Minister of Finance, Simón Cueva, anticipates that there will be fewer revisions of the agreement by the Fund, which Ecuador interprets as a sign of confidence in the management of the economy.
How did Ecuador do in the fourth review of goals with the Monetary Fund (IMF)?
We have good news and that is that the IMF approved the fourth and fifth reviews of the credit program with Ecuador.
Of the USD 6,500 million included in the program, the Fund had yet to disburse us USD 1,700 million.
Of that money, USD 1,000 million will arrive in the first half of June and USD 700 million more after the sixth review. That is a change that was made to the initial agreement.
Initially, the credit program contemplated quarterly revisions and there were seven. But now there will be only six. The next and last one is scheduled for December 2022.
That the IMF has reduced the number of target revisions and that Ecuador has approved two in a row is a symbol of confidence in the country?
Yes, definitely, it is a sign of trust, it shows that the IMF sees that Ecuador’s accounts are in order, so the Fund no longer needs to be checking us every 15 minutes. We still had three revisions to go in 2022, but now there is only one left, the December one.
If we complete the latest review, it would be the first time in many years that Ecuador has been able to fully comply with a credit agreement with the IMF.
When does the USD 1,000 million arrive?
The disbursement must still be approved by the IMF Board. I would say that the resources will arrive (to the fiscal box, ndr) in the first half of June 2022.
The government planned to propose to the IMF more space to increase public spending, in order to boost the economy, was that proposal approved?
I cannot speak in detail about the goals yet, because we closed an agreement at the technical level with the IMF, that is, an agreement between the Fund’s technical team and the Ecuadorian authorities.
But this still needs to be approved by the agency’s Board.
What I can say is that the agreement with the IMF provided for a gradual fiscal adjustment equivalent to 4.5% of Ecuador’s Gross Domestic Product (GDP), measured by the non-oil primary deficit, which includes spending on subsidies.
That is, measured by the size of the country’s economy minus oil revenues and expenses, although it includes spending on fuel subsidies.
The logic of this indicator is for the country to reduce its dependence on oil and become fiscally sustainable.
Ecuador’s ‘addiction’ to oil has been a permanent concern at the IMF.
One of the country’s great challenges is to overcome its structural problems. Ecuador has a higher Country Risk compared to economies such as Peru, Colombia or Mexico and it is because it has structural fiscal imbalances.
These imbalances make us wonder every year where and how to get resources to finance the General State Budget.
It is healthy for Ecuador to strengthen the sustainability of its public finances so as not to depend on recurrent indebtedness.
The more deficit a country has, the more indebtedness it will need to cover that gap between income and expenses that we call deficit.
Now, having a recurring deficit makes Ecuador appear less trustworthy in the eyes of international investors.
As long as we make the country more fiscally solid, we will make Ecuador credible and reduce its need to seek financing (indebtedness).
What will be the destination of the USD 1,000 million that are to come?
The strengthening of fiscal consolidation and will allow us to allocate more resources to social spending, to road projects that are important, to security and to the fight against chronic child malnutrition.
In short, the new disbursement strengthens the State’s capacity to support economic reactivation.
Has it been considered as an objective of its management to achieve Ecuador’s old dream of achieving a good risk rating, an investment grade like the one Peru and Colombia already have?
It is part of the goal, although that goal also depends on other factors.
For example, the current international context is very volatile, partly as an effect of the Russian invasion of Ukraine, due to the growth of inflation in the world, which will push central banks to raise interest rates and, with it, raises the cost of borrowing.
The country risk has risen for all Latin American countries, although Ecuador has fared better in terms of risk than other countries and this in an adverse international context, it is not a coincidence, it is because the country is putting the fiscal house in order.
Although the country’s risk has not fallen, the markets perceive Ecuador as an economy that has been improving in terms of fiscal sustainability.
Why did public investment have such low levels of execution in the first quarter of 2022?
There are two elements. The first is that this year items were excluded that, in reality, do not correspond to public investment, such as the payment of salaries and bonuses, which are current spending.
That makes there is an apparent difference with the data for the first quarter of 2021, but what was done was a cleaning of figures.
Another factor is that in the first months of the year the execution of public investment always tends to be low.
With this cleaning of figures, do we already know how much the State owes to the Ecuadorian Social Security Institute (IESS)?
With the cleaning, we include the figure of the debt with the IESS that is related to the state contribution of 40% for retirement pensions.
The second thing is the debt of the State with the IESS for health, although the registration of this item is a little more complicated, because medical audits and a crossing of accounts with the Ministry of Finance are needed. For that reason I don’t have the final numbers yet, but we are working on registering these accounts.
If the Government has more income due to higher tax collection and because the price of oil is high, why are there delays in payment to State suppliers and with the Decentralized Autonomous Governments (GAD)?
Because the government has been paying and reducing the arrears inherited from previous years and which have been falling little by little.
At the same time that we have lowered that debt, we have recognized pre-existing debts, which were not registered, such as that of the IESS, which previously did not appear in the General State Budget. And as these liabilities are recorded and made transparent, arrears rise.
One piece of news is that we are already paying the historical debt for VAT with the GADs. Until the end of 2021, we paid about USD 224 million and we expect to pay a final tranche of USD 66 million until the end of the year.
Including other transfers for assets and competencies such as irrigation and drainage, what will be paid to the GADs will amount to more or less USD 100 million.
There is a perception that the macroeconomy is doing well, but the economy of the people is not so good.
When the macroeconomy is doing well, the rest of the sectors are doing well. But there is a context that can be complicated, the world scenario is pushing up inflation in all countries.
Ecuador has more controlled inflation than in other countries, here it is 2.8%, while in the rest of Latin America we are seeing inflation levels of 7.5% and higher in some cases.
This does not mean that consumers do not feel the effects of the increase in the prices of certain products, such as flour, oil, lubricants and certain agricultural inputs.
However, the fact that the country has frozen prices for diesel and low-octane gasoline has attenuated the inflationary process, which is why we see a more moderate impact.
When will we begin to feel the reactivation of the economy?
They are starting to feel. There are more than half a million people who receive state bonds, who were on the poverty line and did not receive this economic support before, and who are part of the poorest 30% of the country’s population.
We will deliver vouchers to low-income mothers to combat chronic child malnutrition.
The increase in the price of oil and an increase in tax revenue gives us room to increase transfers to local governments.
Do you feel you have been treated unfairly for putting your house in order?
If I wanted to be popular, I would not have accepted this position. Being finance minister, by nature, is an unpopular and thankless activity because I have to take care of the country’s finances.
My job is not to give in to the demands of particular sectors. My obligation is to take care of the finances of all Ecuadorians. The advantage is that I come from academia and I have no conflicts of interest.
