IMF policies fuel social crisis in Ecuador

15 September 1999

In July, rising transport and fuel prices in Ecuador led to strikes and public protests, and an up-rising by thousands of indigenous people who are also concerned about privatisation plans. The government eventually froze the fuel price, against the recommendations of the IMF which advocated that price rises to help balance the budget. IMF prescriptions to stabilise the economy, which is suffering from a currency crisis and a collapse in commodity prices, are being held partly to blame for growing hardship in the country.

A new agreement for $900m has now been reached with the IMF. The government has described it as a land-mark agreement because it includes a social clause which will allow the government to protect social spending and guarantee the wages and salaries of teachers, doctors and police. However, it seems likely that this adjustment package may fail for the same reasons as its predecessors – failure to build a consensus between the different business circles, trade unions, indigenous peoples movements, political parties, etc. Some of the arrangements with the IMF, such as on tax reform, will need political backing that does not exist.

The IMF loan will be used for debt repayment and to stabilise the currency. The country is suffering from severe debt problems: the US$13bn debt amounts to 92 percent of Ecuador’s national income and interest payments consume 50% of the government’s budget. The government intends to renegotiate its debts, half of which is private debt held in Brady Bonds. This is supported by the IMF, demonstrating new official interest in holding private creditors responsible for their investment decisions.