[stop-imf] IMF to Ecuador: Austerity, austerity, austerity

[robert weissman]

Does the Fund really think a country should be quaking about a 4 percent
inflation rate?

--

http://www.thebusinessonline.com/DJStory.aspx?DJStoryID=20051121DN009623

IMF Calls On Ecuador To Resist Government Spending Pressures
November 21, 2005

QUITO -(Dow Jones)- The International Monetary Fund has called on
Ecuador's government not to give in to political pressure to increase
public spending above budgeted levels, and to establish priorities for
capital spending.

"The emergence of inflation pressures and the expected decline in the
international price of petroleum underscore the importance of resisting
demands to increase current government spending above that contained in
the budget proposal and to rigorously prioritize capital spending," said
Trevor Alleyne, head of the IMF's mission to Ecuador, in a statement
distributed over the weekend.

Since taking over as interim president in April, President Alfredo
Palacio has taken on commitments to spend $650 million to appease public
protests. Palacio's administration remains fragile and vulnerable to the
protesters, who have brought down a number of recent presidents.

Most of the extra spending will be paid out in 2006, and comes from the
windfall in revenues from sky-high international crude oil prices.

The IMF team visited Ecuador between Nov. 7 and 16 to carry out its
annual evaluation of the economy, and met with senior government
officials including President Palacio.

The IMF's mission also advised against classifying oil revenues as
current account expenditure, as this would "complicate efforts to
control spending." Congress recently said it would re-classify oil
revenues as current spending, which would mainly bolster the day-to-day
spending of provincial and municipal governments.

It also emphasized the need to "curtail the high and rising government
spending on subsidies for domestic consumption of petroleum products."
Domestic fuel prices have been frozen since January 2003.

The IMF said it expects Ecuador's gross domestic product as a whole to
grow by 3% in 2005, while the non-oil segment of GDP should grow by
3.5%. Inflation is likely to end at almost 4%, close to the government's
own recent forecasts.

For the IMF, the increase in inflation is "largely reflecting sharp
increase in public spending and credit to the private sector."

The IMF encouraged the government to prioritize reforms that would
improve the efficiency of the electric power, oil and telecommunications
industries, including a move away from political involvement in
management decisions and towards encouraging private sector investment.

It also called on the government to strengthen supervision of the
financial system, which would improve its operating efficiency and lead
to lower interest rates.

The mission emphasized the government still has much to be done to
reduce the external vulnerability of the economy and to strengthen
financial stability, and said it supports efforts to maintain prudent
fiscal management in the difficult political context.

The IMF encouraged Ecuador to build political consensus around economic
policies that would "bolster external competitiveness."

"Such reforms are needed so that Ecuador can take greater advantage of
the opportunities provided by the expected increased opening of foreign
markets to Ecuadorian exports in the years ahead in the context of
bilateral and multilateral trade liberalization," the statement said.



-By Mercedes Alvaro, Dow Jones Newswires; 5939-9728-653;
mercedes.alvaro@dowjones.com



(END) Dow Jones Newswires

November 21, 2005 12:05 ET (17:05 GMT)

Copyright (c) 2005 Dow Jones & Company, Inc.