In Ecuador, the impact of the coronavirus is one of the most devastating in the world, severely exacerbated by the IMF-backed policies implemented before the crisis. Yet, even now, Ecuador is undergoing IMF-mandated structural reforms that further dismantle its health system and suppress economic growth, just when it is necessary to increase public investment and delay fiscal austerity measures to overcome the crisis caused by the pandemic.
In June, the Financial Times placed Ecuador first in the world ranking of excess mortality, with the civil registry documenting 20,000 excess deaths during the Covid-19 crisis. While it should be clear that not all these deaths were directly caused by the virus, they must be added to the excess victims from other serious or chronic ailments that could have been treated and perhaps saved, had the health system not collapsed so completely.
The evident weakness of the country’s public health system is the result of six years of fiscal austerity measures endorsed by the IMF, including a fall of 64 per cent in public investment in the health sector in just the last two years. Reflecting the implications of these policies, just five days after the start of the quarantine, the health minister resigned, explaining that she could not face a health emergency without resources and stated that, “no budget allocation has been received from the competent authority to emergency management.”
Only in this framework can the incongruous scene that the country is witnessing be understood: While the doctors are protesting in the midst of the pandemic due to the lack of financing for medical supplies, the Ecuadorian government is paying interest to private creditors and the IMF on time.
While the IMF was careful not to explicitly condition its 2019 loan programme on cuts in social spending, the programme was based on the expectation that Ecuador would transform its current account deficit of 0.7 per cent of GDP in 2018 to a surplus of 0.4 per cent in 2019, including through the “strengthening of controls on expenditure commitments [in the health sector]” and “realigning the public sector wage bill.” Predictably, this led to 3,680 public health workers being laid off in 2019, or 4.5 per cent of total employment in this Ministry, ahead of the worst global public health crisis in decades. New analysis demonstrated that, “every single low-income country that received IMF advice to cut or freeze public employment in the past three years had already been identified by the World Health Organisation as facing a critical health worker shortage.”
That said, the lack of resilience is linked to a wider deterioration of the economy and it is essential to reference the entire package of IMF-imposed fiscal, labour and financial reforms. With similar public spending reductions in the social security sector being announced last year, one of the most significant difficulties during the crisis has been the state’s inability to provide financial support to the 60 per cent of Ecuadorian families whose subsistence depends on the informal economy and daily wages.
The state of emergency instituted on 16 March was used to further approve structural adjustment measures long called for by the IMF: a flexible labour reform that had been postponed for fear of social opposition (see Observer Autumn 2019); a tax reform that had been rejected by parliament in late 2019; and resuming the elimination of fuel subsidies after a massive social protest had prevented it last year (see Observer Winter 2019). The implementation of the IMF agenda was only possible because social mobilisation was made impossible.
Yet, things will only get worse. Bewilderingly, the IMF’s austerity recommendations continue. While the IMF has emphasised that it is supportive of increased public health spending in the immediate response to Covid-19, in its emergency financing loan agreed in May, the Fund revealed its proposal to continue “fiscal consolidation…of about 6.2 percentage points of GDP during the period 2019-2025” in Ecuador, which will inevitably severely undermine social spending and protection. In this context, should we really be surprised by headlines finding that during the pandemic, a further 11,820 public sector workers were fired, or that as recently as 31 May, another health budget cut of $217 million relative to the initial 2020 budget was made?
The reduction of social spending hits the poor, women and marginalised harder, while benefitting creditors, and increasing the profits of the rich. It should thus not be surprising that new regulations approved during the pandemic include guarantees for the payment of external debt and even for the payment of arbitration awards for the benefit of transnational corporations that sue the state for measures taken to protect its people from the pandemic (see Observer Summer 2020). Only in this framework can the incongruous scene that the country is witnessing be understood: While the doctors are protesting in the midst of the pandemic due to the lack of financing for medical supplies, the Ecuadorian government is paying interest to private creditors and the IMF on time.
These are the same supply-side reforms promoted by the IMF for more than four decades, with the aggravating circumstance that they are applied today in the midst of a pandemic that requires sustained counter-cyclical policies that support economic recovery and guarantee people’s human rights. The IMF must go beyond the declarations of good intentions and change the course of its specific policies. One cannot wait any longer: It is time to put finances at the service of life.
by Pablo Iturralde, Center for Economic and Social Rights (CDES) Ecuador