Ecuador has signed a $4.2bn programme with the IMF, signalling a final break by President Lenín Moreno with the policies of his leftist predecessor in a deal that he said saved the country from becoming like Venezuela.
The loan to the Opec country forms part of a larger $10bn package with other multilateral lenders to support Ecuador’s struggling economy, which is burdened by external debt that grew under former president Rafael Correa, in part due to oil-backed loans from China.
Mr Moreno, who came to power in 2017, has sought to curb public spending and buttress Ecuador’s external accounts with bond issues, although a long record of past defaults made terms onerous. The price of Ecuador’s benchmark 2028 bond rose almost 2 per cent on Thursday following the announcement.
“Thanks to the firm decisions I have made, we are not what Venezuela is today . . . we have recovered democracy,” Mr Moreno said in a televised address late on Wednesday. “This money will create work opportunities for those who have not found something stable.”
Over the past two years, Mr Moreno has sought to reform the economy, while also distancing himself from the more controversial political positions of Mr Correa, who ruled Ecuador for a decade.
The leftist firebrand, who faces multiple corruption charges in Ecuador and now lives in Belgium, was a close ally of socialist regimes such as Venezuela, Nicaragua, Cuba and Bolivia. Notoriously, he gave political asylum to WikiLeaks founder Julian Assange at the Ecuadorean embassy in London.
The IMF deal comes on the seventh anniversary of Mr Assange’s asylum at the embassy. Mr Moreno, facing popular pressure at home and from the US to end the arrangement, said in December that Mr Assange had sufficient UK legal guarantees to leave.
“Our government is recovering its credibility,” Mr Moreno said as he announced the IMF-led programme, in which other lenders such as the Inter-American Development Bank and World Bank will also participate. “The fact that the world trusts us shows that we are on the right path.”
Ecuador fell into recession in 2016 with the decline in global oil prices. At the same time, because its economy is fully dollarised, it was unable to devalue to boost competitiveness. The country still owes China about $4bn in loans-for-oil, Nomura estimated.
Mr Moreno said most of the money from the loan package would be dedicated to “social investment” and was at an average 5 per cent interest rate with maturities of up to 30 years. By contrast, $1bn of 10-year bonds issued in January carried a punishing 10.75 per cent interest rate.
“Ecuador's willingness to call the IMF certainly proves that the government is serious about stabilising the country's finances and embracing economic reforms,” said Siobhan Morden, head of Latin American fixed income strategy at Nomura.
The loan package from the IMF is its latest after a long absence from the region as the commodity boom turned to bust. Last year, the IMF signed a $57bn lending programme with Argentina, its biggest ever, after the country hiked rates to 60 per cent in a failed attempt to staunch a currency crisis.
As part of its normal surveillance work, the IMF is also understood to have run the numbers on a potential Venezuela programme that analysts estimate could require up to $30bn of international help annually.
Investors praised Mr Moreno’s decision to get ahead of Ecuador’s economic problems by turning to multilateral lenders now.
“If you look at Turkey, which took its sweet time and is still in trouble with its finances, and Argentina, which hiked rates and [then] went to the IMF, the latter is in a much better position,” said Kathleen Gaffney at Eaton Vance, the fund manager, which does not hold Ecuadorean debt.
Ecuador’s extended fund facility with the IMF, which must still be approved by the Washington-based lender’s board, will support the government’s plans to create a “more dynamic, sustainable and inclusive economy,” said Anna Ivanova, the IMF mission chief to Ecuador.
*This story has been amended to clarify that the IMF agreement with Ecuador is an extended fund facility.
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