August 31, 2020
It is time for the IMF to recognize its human rights responsibilities and defuse the time bomb that Ecuador's austerity policies have become.
Despite a change in rhetoric, the International Monetary Fund (IMF) continues to promote disastrous austerity policies in Ecuador. These policies are wreaking havoc on the country's economy as well as its health care system, leading to systematic violations of the economic and social rights that the Ecuadorian Constitution and international law protect.
There is ample evidence that austerity has been a failure in every country where it has been implemented. Nevertheless, Ecuador resumed a path of austerity at the end of 2017. The human rights consequences have been devastating. In the healthcare sector alone, public investment was reduced by almost two thirds (falling by 64%) between 2017 and 2019, and cuts continued in 2020 in line with IMF guidelines. This exacerbated the country's vulnerability to the Covid-19 pandemic and disproportionately affected marginalized populations: indigenous peoples, Afro-descendants, women, older people, informal workers, and families in the lowest income quintiles, who are more dependent on public services.
The credit agreement Ecuador signed with the IMF for 4.2 billion USD in March 2019 expects the country to address its deficit 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. This contributed to one of the deadliest outbreaks of the coronavirus worldwide. The impacts of austerity continue to be measured in terms of lives lost.
After having prioritized advance payment of foreign debt servicing and honoring speculative commitments in the most critical months of the pandemic, the Ecuadorian government recently reached a debt restructuring agreement with its bond holders for 17.4 billion USD. While this allowed the country to relieve some pressure to deal with the pandemic, it in no way resolves the current debt crisis. The terms agreed are extremely disadvantageous: although Ecuador's bonds fell to 35% of their value due to the pandemic, the renegotiation guarantees its creditors 59% of their current value.
A particularly problematic aspect of the negotiation is that it depends on reaching a new agreement with the IMF for increased financial support under its Extended Fund Facility. This is likely to include more conditions that will further restrict the fiscal space needed to protect people's economic and social rights.
The IMF has said it supports increased spending on public health in the immediate response 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 public from the economic fallout of COVID-19. ECLAC estimates that Ecuador will be one of the countries with the highest increase 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 now being considered.
Additionally, the government used the state of emergency declared in March 2020 to accelerate structural adjustment measures previously requested by the IMF that directly harm rights: 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 after a massive popular protest in October last year, led by indigenous peoples and residents in working-class neighborhoods in major cities. This follows an earlier attempt to impose these measures without the proper participation of the affected populations and without due respect for democratic procedures, which was combined with the government's harsh crackdown on legitimate protest.
The IMF must take responsibility for the impact of its policies on people’s rights. After multiple prior warnings, it should now be clear to the IMF that it cannot ignore the will of the people and insist on failed prescriptions that threaten to plunge the country into an unsustainable spiral of debt and a larger economic and social crisis. This popular discontent, as well as the devastating consequences of COVID-19 amplified by fiscal austerity, provide sufficient reasons for the IMF to reconsider its role in Ecuador. In this regard, it should at the very least adopt the following measures.
First, it should properly assess the human rights impacts of the conditions attached to its loans. This means measuring the distributional effect of changes in fiscal policy, with an emphasis on impacts on gender inequality. Policies that impose a cost on the most disadvantaged sectors, including indigenous peoples, must be avoided.
Second, it 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, it 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 the international level, in line with the United Nations' Basic Principles for Sovereign Debt Restructuring Processes.
It is time for the IMF to recognize and honor its human rights responsibilities and defuse the time bomb of austerity policies in Ecuador and around the world.