Press Release No. 03/134

Press Release: IMF Completes First Review of Ecuador's Stand-By Arrangement, Approves US$42 Million Disbursement and Grants Waivers

August 1, 2003

The Executive Board of the International Monetary Fund (IMF) completed today the first review of Ecuador's performance under a 13-month SDR 151 million (about US$211 million) Stand-By Arrangement, approved in March 2003 (see Press Release No. 03/39). This decision entitles Ecuador to the release of a further SDR 30.2 million (about US$42 million), which would bring the total amount disbursed under the program to SDR 60.4 million (about US$85 million).

In completing the review, the Executive Board also approved Ecuador's request for waivers of nonobservance of performance criteria and waivers of applicability, until September 15, 2003 of certain end-June, 2003 performance criterion.

Following the Executive Board's discussion on Ecuador, Anne Krueger, First Deputy Managing Director and Acting Chair, said:

"The government of Ecuador has embarked on an ambitious fiscal and structural reform program to foster economic growth and reduce poverty. However, the authorities have faced significant political and institutional challenges, and performance under the program in the first half of 2003 was uneven. Nevertheless, the authorities remain fully committed to the originally envisaged macroeconomic objectives, and have taken corrective steps to ensure that these can be met. Moreover, despite some delays, good progress is being made in advancing the structural reform agenda.

"In the fiscal area, the government has taken measures to contain the wage bill, reduce goods and services outlays, and start collecting in cash PetroEcuador's fuel deliveries to the electricity companies. As a result, notwithstanding recent wage and pension increases, the program's objective of an overall public sector primary surplus of 5¼ percent of GDP in 2003 can still be achieved. Moreover, a new law to overhaul customs administration has already been passed, and progress is being made to pass legislation for civil service and tax reforms. These reforms should further strengthen the fiscal position in 2004 and lay the foundations to bring down Ecuador's high public debt, as revenues from the new oil pipeline begin to come on stream, consistent with the Fiscal Responsibility and Transparency Law.

"The authorities are also committed to improving the management and financial condition of the state enterprises in the oil, electricity and telephone sectors. Strong public enterprise reforms will have a positive effect on the public finances and on the country's productive infrastructure. Finally, welcome progress is being made to auction off restructured loans of closed banks, and to prepare the way for these banks to be liquidated.

"These reforms, together with actions to improve governance and the investment climate and increased focus on progress in strengthening the social security net, will expand Ecuador's growth potential while broadening the public support for the government's program," Ms. Krueger stated.