[stop-imf] IMF Rejects Health Spending in Ecuador

[Robert Weissman]

(note dates on stories)

Ecuador Removes Health, Education
Segments From Oil Fund
August 2, 2002

DOW JONES NEWSWIRES

 QUITO -- In another step toward the signing of a long-delayed $240 million
standby credit accord with the International Monetary Fund, Ecuador's
executive branch has proposed to eliminate a health and education category
from an oil revenue fund.

 On Friday, President Gustavo Noboa submitted eight amendments to a fiscal
responsibility law, which establishes a fund to collect revenues from a new
oil pipeline.

 The fund is aimed at paying down debt and building a contingency reserve
for fiscal and natural emergencies.

 The addition of a category for health and education, to which 10% of fund
inflows would be deposited under a previous proposal, was  one of the
obstacles holding up the IMF accord.

 With the amendments, 70% of fund deposits would still go toward debt
reductions and 20% to the contingency reserve. But no  mention is made of
what's to happen with the balance 10%.

 The fiscal responsibility law requires that Ecuador's debt to gross
domestic product drop by 16 percentage points every four years until the
ratio of debt-to-GDP falls to 40% from 78% currently. One of the eight
amendments aims to prohibit the country's debt/GDP  from increasing once
that target ratio is hit.

 Another change sought is the elimination of an article that would require
any central government budget surplus at the end of a fiscal  period to
automatically be allocated according to the new fiscal law guidelines.

 Yet another change would require the country's social security system to
resolve its deficit to guarantee current and future pension  payments.

 Another proposal would require the nod of the central bank for future
foreign debt issues.

 Savings from debt buybacks would go into investment projects, in yet
another proposed amendment.

 Budget planners would be required to use projections from a high-profile
international energy agency in drafting base oil prices for  projected
revenues.

 Yet analysts note that one key condition still pending for IMF aid is a cut
of some $500 million in public spending to hit the primary  fiscal surplus
target of 6.4%. The cut is equivalent to about 5% of GDP. Ecuador's finance
minister, Francisco Arosemena, is currently in Washington meeting with IMF
officials.

 Meanwhile, Mauricio Yepez, president of the central bank's board of
director, said the primary surplus should come in at 6% this  year, while
the global surplus should amount to 2% of GDP. He added that economic growth
this year should amount to about 4%,
and 6% next year.

    By Maria Elena Verdezoto,Dow Jones Newswires



 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.