IMF approves $37 mln for Ecuador

  
WASHINGTON, Aug 28 (Reuters) - The International Monetary Fund on Monday 
approved the release of $37 million from its $310 million loan to Ecuador and 
praised the debt-ridden Andean country for pushing ahead with painful 
reforms. 

``The fiscal position is significantly stronger than anticipated, the 
liquidity situation in the banking system has improved, and there are 
indications of recovery in economic activity,'' said IMF First Deputy 
Managing Director Stanley Fischer in a statement. 

This performance suggested ``a gradual return of confidence in the Ecuadoran 
economy,'' Fischer said, noting the fund had agreed to waive conditions that 
the Latin American country had not met in two areas in time for a review at 
the end of June, as well as two areas for which data were only preliminary. 

But he said IMF officials had pointed to continued fragility in Ecuador and 
emphasised that further actions might be required to keep deficits low and 
bolster the financial sector. 

``Directors welcome the fiscal adjustment this year, but stressed the need 
for a tight fiscal stance for the foreseeable future, with substantial 
primary surpluses and low overall deficits,'' Fischer said. 

He said a number of measures would be necessary to accomplish this, including 
a comprehensive reform to broaden the tax base and increase non-oil tax 
revenues. 

Moreover, Ecuador should sharply curtail the degree of revenue ``earmarking'' 
to allow for more flexible fiscal management, further reduce subsidies on 
domestic fuels, eliminate domestic payment arrears and maintain tight control 
over spending, Fischer said. 

The IMF payment to Ecuador had been delayed since June while Ecuador 
struggled to reach a deal with its creditors to reschedule some $6.5 billion 
of defaulted Eurobonds and Brady bonds -- the latter issued to resolve a 
previous debt crisis. 

The cash should open the door to a similar rescheduling package with members 
of the Paris Club of creditor states, who hold some $1.3 billion of Ecuador's 
debt. 

Ecuador's default, during a deep financial crisis, won it the dubious 
distinction of being the first country to default on Eurobonds and Bradies. 

Its latest efforts to rebuild its economy centre around the introduction of 
the U.S. dollar to replace the battered local currency, the sucre, and on new 
efforts to strengthen the financial sector and make the economy more 
competitive. 

Ecuador is targeting a budget deficit of 2.7 percent of gross domestic 
product, down from 4.7 percent in 1999 and below the 4 percent figure 
outlined in its initial lending agreement with the IMF.