November 27, 2019 / 3:50 PM / 11 days ago

IMF backs Ecuador tax reform, remains 'closely engaged' with government

FILE PHOTO: The International Monetary Fund (IMF) logo is seen outside its headquarters building in Washington, U.S.,September 4, 2018. REUTERS/Yuri Gripas//File Photo

(Reuters) - The International Monetary Fund said passage of recently proposed tax reform would facilitate the soon-to-be-completed reviews of its financing program with Ecuador.

“The tax reform recently submitted to the legislative assembly will help strengthen government finances and make the tax system simpler and more growth-friendly,” said IMF spokesperson Gerry Rice after Managing Director Kristalina Georgieva met with Ecuador Finance Minister Richard Martinez on Tuesday.

“The passage of this reform by the National Assembly will be an important milestone for the government’s program supported by the IMF and would facilitate the combined second and third reviews of the program to be completed soon.”

Ecuadorian president Lenin Moreno submitted last week a tax reform proposal with minor changes compared to one rejected by the National Assembly earlier this month. The new proposal was initially presented to several legislators, hinting that its approval is more likely.

“We do not view the initial rejection as a rejection of the economic program but rather a political mistake from the Moreno administration,” said Siobhan Morden, Head of Latin America Fixed Income Strategy at Amherst Pierpont Securities in New York in a Wednesday note to clients.

“The tax reform is an important litmus test; however there are still many challenges ahead,” she wrote.

Ecuador’s 2029 bond EC192937701= tumbled to a record low of 74 cents on the dollar last week before recovering to 86 cents. It traded above par as recently as two weeks ago.

Moreno last month had to reverse his decision to end a fuel subsidy after it triggered one of the worst street protests in the last decade.

“The IMF remains closely engaged with the authorities as they continue to work on the implementation of their economic plan,” Rice said.

Reporting by Rodrigo Campos in New York; Editing by Nick Zieminski

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