Ecuador takes far-reaching measures to save economy
Ecuador has announced drastic measures to keep its floundering economy afloat amid the coronavirus pandemic, including scrapping seven state-owned companies, liquidating the national flag carrier and closing embassies around the world.
The Andean nation has recorded more than 34,000 coronavirus cases. Its number of deaths, at nearly 3,000, is by far the worst per capita in Latin America. In a televised address, President Lenín Moreno said Ecuador was suffering a crisis worse than “all the wars and natural disasters put together that the country has suffered throughout its history”.
Ecuador’s finances were shaky even before the coronavirus crisis, and it has been battling to put them in order. It agreed a $4.2bn package with the IMF last year as part of $10.2bn of borrowing from multilateral lenders, but struggled to implement it. The country has now negotiated a four-month reprieve from repayments with bondholders while it tries to restructure about $19bn of sovereign debt.
Mr Moreno said Ecuador had lost $12bn from the impact of the virus and the sharp drop in oil prices — about half its national income. “It’s as if a family has lost half of what it needs to live.”
The emergency measures included the elimination of seven state-owned companies and the liquidation of the airline Tame, which has lost more than $400m in the past five years. The other companies included a railway company, a media conglomerate and the national post office.
Mr Moreno said Ecuador would close its embassies in Malaysia, Iran and Nicaragua, shut six consulates and withdraw 10 ambassadors from their posts, downgrading their positions.
The measures do not need parliamentary approval as congress has already given the president emergency powers to tackle the crisis.
When Mr Moreno tried to slash fuel subsidies in October to meet the IMF programme’s demands, thousands of people took to the streets in deadly riots and the president was forced to back down.
By the end of last year the country appeared to be back on course but the coronavirus and the drop in oil prices have knocked the economy, which is pegged to the US dollar. Ecuador and the IMF were forced to rip up their programme and are in the process of trying to draft a new one.
State-owned oil company Petroamazonas has also reached a standstill deal with creditors, and the government is talking to Chinese banks in a bid to reprofile debt owed to them.
Ecuador faces presidential elections next year in which former leftwing president Rafael Correa, currently appealing a corruption conviction, is likely to try to make a comeback via a proxy candidate. Multilateral institutions have stuck by Ecuador during this year’s crisis, in the hope that a more market-friendly candidate will prevail.
The IMF has lent the country $643m, the World Bank $500m and the Inter-American Development Bank $700m.
The coronavirus hit Ecuador’s business capital of Guayaquil particularly badly, and for a time local authorities were so overwhelmed they were unable to collect the bodies of the dead. Some corpses were abandoned in the streets or stored inside houses for days in the tropical heat.
As well as announcing the austerity measures, Mr Moreno announced $1bn in help for businesses hit by the pandemic and — in the light of lower oil prices — trimmed the price of gasoline and diesel at the nation’s pumps, a measure that might help avert popular protests.
The prospects for the economy look bleak. The IMF predicts it will shrink by 6.3 per cent this year — the sharpest drop in South America. Rating agency Fitch has downgraded Ecuador’s sovereign rating to “restricted default”.