Deadline for Ecuador-IMF financing deal arrives
Today marks the negotiation deadline for the Ecuadorian government and IMF to establish a new long-term financing mechanism.
Earlier this month, Ecuador gained the approval of a majority of its creditors regarding a $17.4 debt restructuring plan, which will allow bondholders to exchange short-term bonds for new long-term bonds maturing in 2030, 2035, and 2040, freeing more funds for economic stimulus instead of debt repayment. As a condition of the agreement, Quito must establish a long-term financing arrangement with the International Monetary Fund (IMF) that includes longer financial support and a focus on structural adjustments under the IMF Extended Fund Facility.
Ecuador had such an agreement until earlier this year, when the global pandemic-induced oil devaluation prevented the government from meeting its obligations. Negotiations have continued even as COVID-19 has spread aggressively throughout concentrated urban centres such as Quito and Guayaquil. On August 14, the country requested an extension of the settlement deadline until September 1, boosting the likelihood that IMF negotiations will not be concluded today.
Expect the extension to be granted, given that creditors have already approved the restructuring plan. Ecuador is unlikely to default in the short-term as it has been able to negotiate with creditors and the IMF more effectively than other debtor nations such as Argentina. However, the long-term regional outlook remains bleak as the amount of debt accumulated will likely necessitate austerity measures in the near future, which could prolong economic recovery and boost the likelihood of protests similar to last year’s demonstrations.
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