[stop-imf] IMF insists Ecuador pay debts before health care

[Robert Weissman]

ECUADOR: IMF Wants Future Oil Revenues to Service Debt, not Health
By Kintto Lucas

 QUITO, May 29  2002 (IPS) - The IMF has conditioned approval of a loan to
Ecuador on the modification by parliament of a law that earmarks for health
and education 10 percent of revenues from the oil exports that will be piped
through a new heavy crude pipeline still under construction.

 The revenues attained from the OCP pipeline, which will carry crude from
the Amazon jungle region to Pacific coast ports, must go exclusively towards
servicing debt, International Monetary Fund (IMF) spokespersons told
Ecuador's negotiators in Washington.

 But on May 22, the Ecuadorean Congress approved a law that assigns 70
percent of future oil export earnings from the pipeline to paying off the
foreign debt and the state's debt to Ecuador's Social Security
Institute, 20
percent to an oil fund, and 10 percent to health and education.

 Minister of Economy and Finance Carlos Julio Emanuel, who has been in the
United States since last week negotiating with the IMF, confirmed that the
allotment of 10 percent of the revenues to social spending is the main
obstacle Ecuador is facing in securing approval of a 240 million-dollar
credit.

 ''The negotiations will continue, and I expect the problems to be worked
out soon,'' since the differences are based on the IMF's complaint that the
percentage reserved for health and education has been ''pre-assigned''
before it even exists, Emanuel explained on a stopover in New York.

 But ''the entire law is a pre-assignation, because the same could be said
of the 70 percent that is allocated to paying off the debt and the 20
percent that is to go into the oil fund,'' to be used to service the
debt in
the case of future oil price slumps, he argued.

 Nevertheless, Emanuel said President Gustavo Noboa would try to fulfill the
IMF requisite, by somehow getting the law amended, although he did not
explain how the president meant to do that. Observers point out that the
only way would be for parliament to enact a new law.

 The chief of the IMF mission for Ecuador, Bob Traa, also questioned how
much maneuvering room Noboa had, saying it was odd that the president
believed that such an important law could be changed after it had been
approved by Congress.

 In its original form, the draft law submitted by the Noboa administration
stipulated that 80 percent of the revenues obtained by exports of oil pumped
through the OCP pipeline would to go towards paying off the debt, and 20
percent would go into the oil fund. But the legislature modified the bill,
allotting 10 percent to social spending.

 The pipeline, to run from Ecuador's Amazon jungle region to the Pacific
coast in the northwestern province of Esmeraldas, is being built by the OCP
Limited consortium, made up of Alberta Energy of Canada, Kerr McGee and
Occidental Petroleum of the United States, Agip Oil of Italy, the
Spanish-Argentine Repsol-YPF, and Techint of Argentina.

 The 600-km pipeline, to begin operating next year, has drawn loud criticism
from local and international environmental groups, indigenous communities
and even the World Bank, which have all warned of the damages it will cause
to pristine areas of the Amazon jungle and water sources that supply cities
like Quito.

 The law approved last week by Congress only involves the funds derived from
exports of crude carried by the pipeline. The revenues from the rest of
Ecuador's oil exports - the country's main source of foreign-exchange - will
continue to be used as stipulated by the national budget, which allots 40
percent to debt- servicing.

 Ecuador's debt amounts to 16 billion dollars, equivalent to 95 percent of
the country's Gross Domestic Product (GDP). Of that total, 52 percent is
owed to private banks, 30 percent to multilateral lending institutions, and
18 percent to the rich countries grouped in the Paris Club.

 The new law also stipulates that the Ministry of Economy and Finance is to
cut fiscal expenditure and service the public debt, to attempt to bring down
the level of debt to 40 percent of GDP in the next 10 years.

 Traa said that it was possible that an agreement would be reached in June,
despite the discrepancies between the IMF and Ecuador, which he said did not
only involve a question of percentages, but ''go much deeper than that.''

 Minister Emanuel warned that if an agreement is not reached with the IMF,
his country may use the future oil income as a guarantee for loans in
private banks - an option opposed by the multilateral lender.

 Economic analyst Wilma Salgado said the Ecuadorean population will not
benefit in the least from the rise in oil revenues if the government yields
to the IMF's demand that the funds from exports of the piped oil be used
exclusively to pay the foreign debt.

 ''Under the new law, the creditors who hold Ecuador's public debt, most of
which is external, will be the beneficiaries of 90 percent of the revenues
from exports of oil transported by the OCP pipeline,'' she said.

 Salgado underlined that not only will the creditors directly receive 70
percent of the foreign exchange brought in by the new exports, but the
remaining 20 percent will be deposited in a fund that will be used to
service the debt when oil prices drop.

 The payment of the public debt became a top priority for this Andean nation
of 12.4 million 20 years ago, due to ''the combined pressure of the IMF and
of local holders of foreign debt bonds, generally financial intermediaries
or high-level government officials,'' she explained.

 ''Local traders purchased debt bonds on the secondary market when the price
dipped below 20 percent of nominal value. Later, they pressured the
governments for preferential treatment such as that granted by this law,
thus allowing them to double or triple the value of their investment,''
Salgado added.

 ''The bonds have quadrupled in value since the announcement of the new law,
in which creditors are guaranteed that Ecuador will earmark the earnings
from the sales of oil transported by the new pipeline to servicing the
public debt,'' she stated.