Not a minute to lose

ECUADOR - Report 14 Jun 2019 by Magdalena Barreiro

The IMF mission assessing Ecuador’s compliance with the goals for Q1 set up under the agreement visited the country in the past few weeks. The official report has not been published yet, but apparently there is no reason to believe that the Republic will not receive the attached disbursements because fiscal and international reserves results for Q1 2019 are within the boundaries required by the IMF. In this instance, the Ministry of Finance might receive $1.5b by the end of June. These disbursements would come from the IMF ($250 m), the IDB ($500m), the World Bank ($500m), and CAF ($250m).

In the meanwhile, Minister Martinez and his team carried out a successful liability management operation for $1,125 million of sovereign bonds that will mature in 2029. The purpose of this operation ‒ which had been under analysis since January this year ‒ is to repurchase at least 78% of the bonds maturing next March 2020. While this issue does not help to reduce debt service as it remains expensive with a coupon of 10.75%, it offers a yield of 9.85%, lower than that of the previous issue of January. It also helps to reduce the stress of the difficult financing planning for next year, which includes payment of the nominal $1.5 billion of the 2020 issue.

Thus, the fiscal side of the economy seems to be following a better path than the external sector side. Imports grew by 5.8% y/y between January and April, while non-oil exports only grew 0.4% during the period, and the oil sector grew 8.2% ‒ far lower than the 21% growth of 2018. Not surprisingly, the Central Bank downgraded its initial GDP estimate of $113b for 2019 to $109b with a real growth rate of 0%, more in line with the multinational institutions’ expectations.

Accusations of corruption and mismanagement of public funds continue to pile up against members of the past government, including President Correa, and even against those managing the elections of 2017. However, there is no firm indictment against the former president. This is probably why he feels strong enough to announce he is thinking of running for vice-president in 2021. What is the probability of this outcome? According to some analysts it's 60%.

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