QUITO, March 11 (Reuters) - The International Monetary Fund’s executive board on Monday approved the $4.2 billion financing deal with Ecuador its staff reached last month, the Fund said in a statement.
The deal will allow the Andean country to receive an immediate disbursement of $652 million, and opens the doors for it to receive an additional $6 billion in loans from other multilateral institutions as it struggles with tight liquidity because of a wide fiscal deficit and a hefty foreign debt load.
“The Ecuadorian authorities are implementing a comprehensive reform program aimed at modernizing the economy and paving the way for strong, sustained and equitable growth,” IMF Managing Director Christine Lagarde said in the statement.
Ecuador will be able to draw on the funds for three years. The loans have an interest rate of 3 percent and a maturity of 10 years, with a four-year grace period. In a statement, Finance Minister Richard Martinez called those terms “unbeatable.”
After the staff-level deal was announced in late February, Martinez laid out a plan to increase Ecuador’s foreign reserves, “simplify” the tax system and optimize public spending to reach a fiscal surplus, and take steps to boost the central bank’s independence.
That came after President Lenin Moreno had already begun to implement an austerity plan that includes layoffs of workers at state-owned companies and cuts to gasoline subsidies.
The OPEC nation’s debt grew under former leftist President Rafael Correa, who endorsed Moreno in the 2017 election but has since become a critic of his successor’s turn toward market-friendly economic policies.
Skepticism of the IMF runs strong in Ecuador and throughout Latin America, where many blame Fund-imposed austerity policies for economic hardship. In its statement, the Washington-based lender said the savings from the government’s reforms would “allow for an increase in social assistance spending.”
Reporting by Alexandra Valencia; Writing by Luc Cohen; Editing by Peter Cooney