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Austerity is Killing Ecuador. The IMF Must Help End this Disaster

Opinion piece by Allison Corkery, Andrés Chiriboga-Tejada, Jayati Ghosh, Demba Moussa and Adrian Falco in The Guardian

August 31, 2020

In Ecuador, IMF-promoted austerity has been disastrous and brutal. It’s time to reverse course

Ecuador is among the countries hardest hit by the Covid-19 pandemic: staggering deaths, an overwhelmed health system, and an economy plunged deep into depression. Amid this chaos, the 1 September deadline is fast approaching for the government of Ecuador to restructure $17.4bn in debt owed to international creditors. Securing IMF assistance is a condition of this restructuring – assistance that is likely to come with even more brutal austerity.
Despite its failure in every country where it has been applied, the IMF continues to promote austerity as a solution to sovereign debt concerns. In Ecuador, the effects of these policies have been particularly disastrous, wreaking havoc on the country’s economy as well as its healthcare system – and leading to systematic violations of the economic and social rights that the Ecuadorian constitution and international law protect.
In a word, austerity in Ecuador has become a vector for the health, economic and social crises of Covid-19. The IMF has the influence – and responsibility – to end it.
The IMF does not bear this responsibility alone. The government of Lenín Moreno is also bound to protect human rights, which its austerity policies fail to do. In the healthcare sector alone, public investment was reduced by almost two-thirds (falling by 64%) between 2017 and 2019. Cuts continued in 2020 in line with IMF guidelines. In March 2019, Moreno signed a credit agreement with the IMF for $4.2bn, with the expectation that the country address its fiscal deficit, including by “strengthening controls over spending commitments” and “realigning the public sector wage bill”. This led to the dismissal of 3,680 workers from the ministry of public health in 2019 (4.5% of total employment in this ministry) – just before the worst public health crisis in decades.
The results have been predictably terrible. The cuts have exacerbated the country’s vulnerability to the Covid-19 pandemic, contributing to one of the deadliest outbreaks of the coronavirus worldwide. The country’s marginalized populations have been disproportionately affected: Indigenous peoples, Afro-descendants, women, older people, informal workers and families in the lowest-income quintiles, who are more dependent on public services.
Ecuador’s debt obligations are leading the government to prioritize advance payment of foreign debt servicing over basic care for its citizens. The terms agreed for the restructuring process – the deadline for which is just days away – are extremely disadvantageous: although Ecuador’s bonds fell to 35% of their value due to the pandemic, the renegotiation guarantees its creditors 59% of the current value. While this allowed the country to relieve some pressure to deal with the pandemic, it in no way resolves the current debt crisis.
A particularly problematic aspect of the restructuring agreement is that it depends on Ecuador securing increased financial support from the IMF under its Extended Fund Facility. According to the IMF, this type of assistance has “a strong focus on structural adjustment”. So it’s likely to include more conditions on the country’s economic and social policy. The spiral of austerity swirls downward.
The IMF claims to support increased spending on public health to respond to Covid-19. Yet the emergency financing loan it granted to Ecuador in May recommends the continuation of “fiscal consolidation … of about 6.2 percentage points of GDP over the period 2019-2025”. Prioritizing this target will further weaken Ecuador’s capacity to adequately finance public services, social protection programs, and regulatory schemes that are essential to protect the economic and social rights of the Ecuadorian population from the economic fallout of Covid-19. ECLAC estimates that Ecuador will be one of the countries with the highest increases in extreme poverty and inequality in the region as a result of Covid-19. These projections can only be mitigated by significant public spending in the very sectors where cuts are being considered.
Recent history provides ample reasons for the IMF to reconsider its role in Ecuador. Massive popular protests against IMF-backed reforms erupted in October last year, led by Indigenous peoples and residents of working-class neighborhoods in major cities. This must go beyond the reprioritizing the particular policies it prescribes and include a rethink of the process through which it prescribes them. To date, the IMF has demonstrated no respect for democratic procedures in Ecuador – one of the primary motivations for the protest movement last October. It has been silent about the Moreno government’s use of the state of emergency, enacted in March, to accelerate structural adjustment across the board: a labor flexibilization reform that had been postponed for fear of social opposition; a fiscal reform that had been rejected by parliament at the end of 2019; and the elimination of fuel subsidies, which had previously been reversed.
To end this downward spiral – and respect the rights in the Ecuadorian constitution – the IMF should at the very least adopt the measures that align with its own research findings.
First, the IMF should properly assess – and be transparent about – the human rights impact of its loan conditions, in particular economic and social rights. This means measuring the distributional effect of changes in fiscal policy, with an emphasis on impacts on gender inequality. Those that impose a cost on the most disadvantaged groups, including Indigenous peoples, must be avoided.
Second, the IMF should respect democratic processes for economic decision-making. Agreements must be negotiated transparently. This means refraining from exerting any undue influence over fiscal policy decisions.
Finally, the IMF should recommend and promote alternative rights-based policies to expand fiscal space. These include tax reform, in order to tax large fortunes and the excess profits of large corporations and to meaningfully combat tax evasion and avoidance; repealing the rule preventing the Central Bank of Ecuador from acquiring public debt securities to finance liquidity problems in crisis situations, such as the current one; and support for an orderly debt restructuring process at an international level, in line with the United Nations’ basic principles for sovereign debt restructuring processes.
For too long, the IMF has gotten away with apologizing for its role in brutal austerity after the fact, only to implement it again and again in country after country. It is time to hold the IMF accountable for its human rights responsibilities – and protect the constitutional rights of the Ecuadorian people to a good life and democratic government.
Allison Corkery, Centre for Economic and Social Rights
Andrés Chiriboga-Tejada, Observatorio de la Dolarización del Ecuador and Sciences Po Paris
Adrian Falco, Latindadd (Red Latinoamericana sobre Deuda, Desarrollo y Derechos)
Demba Moussa, Third World Forum
Jayati Ghosh, professor of economics, Jawaharlal Nehru University, New Delhi
Osama Diab, economic rights researcher and lecturer in development studies
Sergio Chaparro, Centre for Economic and Social Rights
Ignacio Saiz, Centre for Economic and Social Rights
Leilani Farha, global director, the Shift
John N. Robinson III, assistant professor of sociology, Washington University in St Louis
Carolyn Sissoko, senior lecturer in economics, UWE Bristol
Crystal Simeoni, director, Nawi: Afrifem Macroeconomics Collective
Gilad Isaacs, co-director, Institute for Economic Justice, South Africa
Nicholas Loubere, associate senior lecturer, Lund University, Sweden
Dr Philip Mader, Institute of Development Studies, UK
Matthias Goldmann, Goethe University Frankfurt and Max Planck Institute for Comparative Public Law and International Law, Heidelberg
Stephan van der Merwe, senior attorney, notary public and lecturer, Stellenbosch University Law Clinic, South Africa
Z Fareen Parvez, assistant professor of sociology, University of Massachusetts at Amherst
Ingrid Harvold Kvangraven, lecturer in international development, University of York
Melinda Cooper, Professor of Sociology, Australian National University