Quito, Ecuador
Mayo 14, 2001
Mr. Horst
Köhler
The Managing Director
International Monetary Fund
Washington, D.C. 20431
Dear Mr. Köhler:
1. The attached policy memorandum outlines the economic policies and
objectives of the Government of Ecuador for the year 2001. Also attached is a
technical memorandum of understanding which lists the policy actions to be
taken prior to consideration of the second review of the Stand-By Arrangement
by the Executive Board of the Fund. On the basis of these memoranda, the
Government of Ecuador requests an extension of the current Stand-By Arrangement
to end-December 2001 and a rephasing of the schedule of purchases under the
arrangement. The program for 2001 would incorporate two further reviews, to be
completed by September and November 2001, respectively.
2. The Government of Ecuador requests waivers for the non-observance of
the quantitative performance criterion for central government expenditure for
end-August 2000, and for nonobservance of the structural performance criteria
on the recapitalization of viable but under capitalized intervened banks
(September 2000); the implementation of the redefined rules for the composition
of bank capital in accordance with the Basle standards (December 2000); and the
increase of the refinery prices of domestic fuels and cooking gas (October
2000).
3. The Government of Ecuador reaffirms its commitment to maintain close
relations with the Fund and consult on the adoption of policy measures that may
be needed during the period of the program.
Sincerely yours,
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Jorge Gallardo
MINISTER OF ECONOMY AND FINANCE |
José Luis Ycaza
PRESIDENT OF THE BOARD
CENTRAL BANK OF ECUADOR
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MEMORANDUM OF ECONOMIC POLICIES OF THE GOVERNMENT OF ECUADOR
FOR 2001
I. Background
1. The early results of the dollarization of the economy have been
encouraging: the financial crisis has stabilized; economic activity has picked
up; unemployment has fallen; inflation is declining; and the banking system is
liquid. Although there have been some delays putting in place the institutional
structure to support dollarization, considerable progress has been made in
recent months. Two bank liquidity support mechanisms—a recycling facility at
the central bank and a liquidity fund—are in place; tight control over public
spending has contributed to a substantial build-up of "excess"
reserves at the central bank to support dollarization; and last year's
successful debt exchange has helped put the public finances on a more
sustainable basis. This memorandum of economic policies (MEP) describes the
policies and objectives of the Government of Ecuador for the year 2001,
which aim at sustaining recovery in output and employment and addressing
priority social needs, and in support of which the government requests from the
Fund an extension of the current arrangement and a rephasing of the remaining
purchases.
II. Recent Developments
2. Recent macroeconomic developments have been generally better than
expected:
-
The recovery in output was
stronger than projected. Real GDP is estimated to have increased by
2½ percent in 2000 (compared to ½ percent projected in the program)
and about 4½ percent (year-on-year) in the first quarter of 2001, mainly
reflecting a recovery in public investment. Unemployment fell to 10 percent in
March 2001 from a peak of 16 percent a year earlier. Inflation has
remained high—reflecting the pass-through of price increases following the
sharp devaluation prior to dollarization and increases in public sector prices—but
is decelerating sharply. 12-month inflation in consumer prices was 46½ percent
April 2001 and in producer prices it was 4½ percent in March 2001, down from
peaks in 2000 of 108 percent and 301 percent in 2000, respectively.
-
The public finances strengthened
in 2000, reflecting oil export prices substantially higher than in the program
and higher tax revenues because of faster economic growth and improvements in
tax administration. The combined public sector recorded a surplus of about 1½
percent of GDP (compared to a programmed deficit of 2.7 percent of
GDP) and the primary surplus of the nonfinancial public sector (NFPS) was
9 percent of GDP (compared to a programmed primary surplus of
5½ percent of GDP). Tight control was maintained over spending, and the
public sector wage bill declined by 1.4 percentage points of GDP (to
5.7 percent of GDP). In the first quarter of 2001, the combined public
sector recorded a deficit of ½ percent of projected annual GDP. Tax revenues
remained buoyant but petroleum revenue weakened, reflecting a fall in export
prices and production difficulties, the government on-lent US$147 million to
the bank liquidity fund, and fixed investment recovered.
-
The banking sector stabilized.
Total deposits grew at a fairly steady rate, increasing by 25 percent in
2000 and 26 percent (year-on-year) in March 2001. Credit to the private sector
(net of loan provisions) fell by 3 percent last year but grew by 8½
percent in the year to March 2001. While banks' nonperforming loan ratio
remains high—at about 47½ percent for the system as a whole—this mainly
reflects developments in closed and intervened banks. For private banks the
ratio peaked at about 18½ percent in March 2000 and fell to about
13 percent in March 2001, partly because of the restructuring of
small (i.e., less than US$50,000) nonperforming loans to households and
corporations. There was little progress in restructuring large loans in 2000,
mainly because of the short period during which a formal restructuring scheme
was in effect, the lack of appropriate incentives for creditor and debtor
participation, and legal obstacles to the effective participation of intervened
banks in the restructuring scheme (intervened open banks account for about
38 percent of the total loan portfolio of open banks). Banks' external
credit lines have continued to fall—to US$645 million in April 2001
compared to a peak of about US$2.5 billion in mid-1998.
-
The external position was stronger
than projected in 2000. The current account surplus was about 5½ percent
of GDP in 2000 (compared to a programmed surplus of 3.2 percent),
reflecting the increase in oil prices. However, the surplus narrowed
progressively over the year as imports recovered sharply and in the first
quarter of 2001 the external current account moved in modest deficit. Private
capital outflows have continued to be high, partly reflecting the rebuilding of
banks liquidity positions, but the capital account has improved sharply,
reflecting higher private direct investment. Central bank excess freely
disposable net international reserves (FDNIR) increased by about
US$1 billion to US$775 million in 2000 (compared to a programmed increase
of US$469 million), and further to US$787 million by end-April 2001,
notwithstanding a shortfall in expected external disbursements.
-
Program performance criteria. The
quantitative performance criteria for August 2000 were met comfortably
with the exception of the ceiling on central government expenditure, which was
breached by 1.3 percent because of somewhat higher than anticipated
interest payments.
3. A number of policy measures have been implemented in recent months:
-
Domestic fuel subsidies have been
reduced markedly. In December 2000, the prices of gasoline and diesel were
increased by between 20-30 percent; cooking gas prices initially were
raised by 100 percent but in February 2001 the increase was
rolled-back to 60 percent in the interests of social cohesion. The impact
of the cooking gas increase on the poorest families was more than offset by a
corresponding increase in the monthly cash transfer they receive (the bono
solidario).
-
The first stage of the tax reform
became law on May 10, 2001 and included a 2 percentage point increase in the
value-added tax rate (to 14 percent).
-
Several steps were taken to
strengthen the financial sector, make interest rate policy more transparent,
and increase the supply of credit to the economy: (i) the financial transaction
tax of 0.8 percent was abolished (from January 1, 2001) to
encourage financial intermediation; (ii) the Ley para la Promoción de la
Inversión y la Participación Ciudadana (known as Ley Trole II, which became law
in September 2000) amended the calculation of the usury interest rate
ceiling, setting it at 1.5 times the central bank's reference rate on new
commercial bank loans to the corporate sector; (iii) in November 2000 the
need for banks to make additional provisions on loans which carried interest
rates above 18 percent was eliminated; (iv) also in
November 2000 the ceiling on fees banks could charge in lieu of interest
was abolished; and (v) to support banks temporarily in need of liquidity, in
January 2001 the resources of the liquidity fund were boosted by onlending
from the central government, and a liquidity recycling facility at the central
bank became operational.
-
The corporate debt restructuring
scheme was relaunched in February 2001 with a 60-day window for the submission
of applications. The early results have been very encouraging, with about 2,500
applications received from bank debtors to restructure loans of US$1.9 billion,
or 95 percent of the loan portfolio eligible for restructuring.
-
The pay-out of the deposit
guarantee was accelerated. In December 2000, the ministry of finance
transferred US$137 million to the deposit guarantee agency (AGD) to
facilitate payments to small depositors of obligations stemming from guaranteed
deposits in failed banks. The maintenance of the government's commitments under
the deposit guarantee has been important in restoring stability to the banking
system and containing liquidity pressures, and has helped sustain low income
families. The obligations of the government to honor the deposit guarantee
through cash payments to depositors now have been met.
-
Foreign trade was liberalized
through the partial elimination in January 2001 of the import tariff
surcharge of 5-10 percent. The government hopes to eliminate the surcharge
altogether if the tax reform to be submitted to congress on
March 1, 2001 (see below) yields sufficient revenue.
-
Good progress was made in
normalizing relations with external creditors. At the meeting of Paris Club
creditors on September 13-15, 2000 creditors granted Ecuador a
rescheduling/deferral of about US$800 million in arrears and maturities
due in 2000. The agreement takes effect on approval of the second review
by the Fund's Executive Board. In August 2000, Brady bond and Eurobond
debt totaling US$6.4 billion was successfully exchanged for global bonds
of US$3.9 billion, and arrears to bond holders were cleared. About
97 percent of bondholders participated in the bond exchange; the
government has paid the few remaining Eurobond holdouts (US$16 million) in
full and is current with the Brady bond holdouts (US$137.5 million) and
will continue to service these bonds.
III. The Government's Macroeconomic Program
for 2001
4. The proposed macroeconomic framework for 2001 is set out in Box
1 below. Real GDP growth would be boosted by investment associated with the
construction of the new oil pipeline (to begin in March). Twelve-month inflation
would decline sharply, but still be 22-27 percent by end-2001, mainly
reflecting increases in public sector prices that have already taken place or
are scheduled. The external current account would shift to a modest deficit:
imports would rebound from the compressed levels of the last two years,
reflecting the recovery in economic activity and construction of the new oil
pipeline, but exports would decline because of lower prices for primary
exports, including oil, and weakness in Andean export markets. The program
targets a decline of US$100 million of central bank excess net international
reserves, which would put the stock of reserves at about 15 percent of
projected M2 by end-2001.
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5. The performance criteria and indicative targets of the economic
program for 2001 supported by the Fund are set out in a separate technical
memorandum of understanding.
IV. Fiscal Policy and Social Spending
6. The program aims at a combined fiscal deficit of about ¼ percent of
GDP, consistent with a primary surplus for the NFPS of about 6¼ percent of GDP
(or about 7¼ percent of GDP excluding the onlending of CAF resources to the
liquidity fund), to be achieved through a combination of revenue and
expenditure measures. The main revenue measures to achieve the fiscal targets
are: (i) the increase in domestic fuel prices in December 2000 (described
above), which is projected to reduce fuel subsidies by the equivalent of about
1.3 percent of GDP in 2001; (ii) the tax reform which became
effective on May 10, 2001 and is estimated to generate revenues equivalent to ½
percent of GDP in 2001 (and a further ¼ percent of GDP in 2002); and (iii) an
increase in the salary base applied to social security contributions, expected
to yield about 0.7 percent of GDP in 2001. The main elements of the tax reform
were: a 2 percentage point increase in the rate of the value-added tax ;
some rationalization of the tax system through the elimination of many
"nuisance" taxes; an increase in taxes on motor vehicles; and a
reduction in personal income tax through an increase in the income tax
thresholds. Taking account of the revenue lost as a result of the elimination
of the financial transactions tax and the import tariff surcharge, there would
be a net increase in fiscal revenues deriving from policy measures in 2001
of about ½ percentage point of GDP.
7. Public expenditure will continue to give priority to addressing the
needs of the poorest segments of the population. In particular: (i) the poorest
families have been more than compensated for the recent increase in cooking gas
prices by an increase in the monthly cash transfer they receive (the bono
solidario); (ii) capital spending in 2001 is to give greater emphasis to
the development of rural areas with a high density of indigenous groups; and
(iii) the state development bank is to gear more of its microlending activities
to support the economic development of indigenous communities. Given the
overall financing constraints of the government's economic program, further
efforts are to be made to improve the targeting of social expenditures.
8. To tighten control over public expenditure, in February 2001 a
presidential decree was issued giving the ministry of economy and finance
authority to set spending targets for public sector institutions, including
with respect to wage payments, and to monitor and enforce compliance with the targets.
The increase in public sector wages in 2001 will be limited to the
12½ percent increase granted in January 2001.The government will
monitor closely the investment plans of the nonfinancial public enterprises and
the rest of the general government, and ensure that pricing policies are
consistent with achieving a modest operating surplus in the nonfinancial public
enterprise sector in 2001.
9. The fiscal program for 2001 provides additional financial
support for the banking strategy, including the interest cost of public sector
bonds to be issued for bank recapitalization and in exchange for certificates
of frozen deposits and the onlending of resources to the liquidity fund.
10. The assumptions behind the fiscal program have been kept conservative
given the dependency on oil revenues and the relatively large financing needs
of the program. If there are strong indications of a revenue shortfall prior to
the third review of the arrangement (August 2001), the government will adopt
the additional measures deemed necessary to ensure the achievement of the
fiscal objectives of the program.
11. In June 2001 the second phase of the tax reform will get underway.
It will focus on improving tax collections and facilitating stable macro and
fiscal management in the presence of the large increase in fiscal revenues from
the oil sector after 2003. In June 2001 emergency legislation will be sent to
the congress in June 2001 to increase the control of the tax revenue service
(SRI) over customs administration. In July 2001, legislation will be sent to
the congress aimed at:
-
Replacing the existing oil
stabilization fund (whose operation is triggered by a threshold price and whose
proceeds are marked for a variety of expenditure programs) by a new oil
stabilization fund. The aim would be for the new fund to accumulate significant
reserves to make it an effective device for absorbing external shocks.
-
Eliminating tax revenue-earmarking
with the exception of that mandated by the constitution. Instead, a revenue
sharing mechanism would be introduced which would take into consideration
proposals pending for greater fiscal decentralization.
-
Revising and building on existing
fiscal rules enacted under the Ley de Transformación Económica del Ecuador
(known as Ley Trole I) with comprehensive fiscal responsibility legislation
encompassing the central government as well as regional and local governments.
In the process of fiscal decentralization, the government will put in place
mechanisms aimed at transferring expenditure responsibilities pari passu with
the constitutionally mandated transfer of central government revenues to the
municipalities, and measures to strengthen the institutional capacity of the
municipal authorities. Thus, revenues will be transferred only when municipal
authorities have proven themselves competent to assume additional spending
responsibilities.
V. Financial Sector Policies
12. The central bank is committed to greater transparency in interest
rate policy and—subject to the usury interest rate ceiling—to market-determined
interest rates. As such, the central bank will apply consistently the formula
established in Ley Trole II for setting the usury interest rate ceiling, which
will not be allowed to impede any adjustment of interest rates that may be
needed to counter stresses in the banking system. The central bank is also
committed to ensuring that the interest rate policy governing liquidity
recycling is consistent with market conditions.
13. To speed up progress in the restructuring of large debts (above
US$50,000) of households and corporations to banks, a presidential decree was
issued in January 2001 reopening for a further 60 days the window for
applications for loan restructuring. The implementing regulations supporting
the scheme were issued by the banking board in early February 2001. The
key principles of the restructuring scheme remained: the voluntary
participation of creditors and debtors; only viable debts are to be
restructured; and no net commitment of funds from the public sector. As noted
above, the early results have been very encouraging with applications received
to restructure almost all of the eligible loan portfolio.
14. The main incentives for creditor participation in restructuring are
a flexible classification system to be applied to loans restructured under the
scheme to encourage banks to recognize implicit losses, and classifying as a
"loss" (with a 100 percent provisioning requirement) loans not
restructured within the timeframe provided by the scheme. While closed AGD
banks cannot forgive interest or principal, they will participate in the
restructuring process by negotiating extensions of maturities and adjusting
interest rates to provide debt relief consistent with the agreements reached
between open banks and their clients.
15. Debtor participation in restructuring is encouraged through use of
special foreclosure procedures (the coactiva) to be applied to debtors who
continue to be in arrears for more than 90 days after the deadline for
restructuring. In January 2001, the AGD issued regulations governing the
use of coactiva; by end-April 2001 345 cases had been initiated for assets of
about US$146 million. In addition, borrowers with nonperforming loans have
begun to approach their banks to make use of the restructuring decree to
forestall coactiva procedures. To facilitate the use of coactiva by intervened
open banks, provision has been made for them to transfer nonperforming loans to
intervened closed banks which have access to coactiva procedures. Furthermore,
the resolution governing coactiva authorizes both the Corporación Financiera
Nacional (CFN) and the central bank to apply it to the nonperforming loans of
private banks.
16. A restructuring unit has been established in the superintendency of
banks to coordinate the work of the public bodies involved in restructuring
(the superintendency of banks, the central bank, the deposit guarantee agency,
the ministry of economy and finance, and the CFN) and to promote the
participation of debtors and creditors.
17. An important element of the banking strategy is strengthening bank
solvency through recapitalization, provided such banks are deemed viable and
establish business plans (to be agreed with the superintendent of banks) for
restoring profitability. In this setting, in May 2001 the government
recapitalized Filanbanco with a US$300 million issue of negotiable government
bonds with a view to the eventual sale of the bank. The government bonds are
immediately available to replenish the liquidity needs of Filanbanco.
18. To assist in the recapitalization of private banks, in
June 2001 the government intends to establish a scheme for making
available to banks matching funds to private capital contributions to bank
recapitalization. The government has negotiated a loan of US$76 million
from the CAF to finance bank recapitalization; and the fiscal program
for 2001 includes a provision for public bond issues of up to
US$100 million as additional resources. In assisting the recapitalization
of private banks, the government will seek to maximize reliance on private
sources of capital.
19. By August 2001, the authorities intend to submit to congress
legislation providing the AGD (or some other public institution) with the
authority to take over insolvent but viable banks, recapitalize them and
prepare them for privatization. The legislation will clarify that the decision
to liquidate or continue operating a bank will be made according to least costs
criteria.
20. The authorities are reviewing the liquidity requirements of the
banking system to determine the appropriate level and combination of liquid
instruments to be held as reserves. It is envisaged that reforms to the current
system of reserve requirements would be introduced in the second half of 2001.
VI. Financing of the Program
21. The external financing gap for 2001 is estimated at about
US$501 million (2.9 percent of GDP). The government intends to meet
this gap by means of emergency program financing of US$339 million from
the World Bank, IDB, the CAF, and the Fondo Latinoamericano de Reservas (FLAR).
The bulk of the financing from the multilaterals would represent disbursements
of support already announced at the time of the initiation of the government's
adjustment program. Negotiations are also underway with a foreign bank to
reschedule arrears of about US$162 million on the external credit lines of
intervened banks, and for the maintenance of foreign banks' exposure under
external credit lines. The Government of Ecuador also intends to request from Paris
Club creditors an extension of the consolidation period for the agreement
reached last September, in line with the request for the extension of the
period of the SBA.
VII. Structural Policies
22. Although legal obstacles have delayed important parts of the
government's structural reform program, significant progress has been made in
several areas:
-
Agreement has been reached with a
consortium of private oil companies to construct a second oil pipeline from the
Amazon to the coast; construction is expected to begin in March 2001. The
new pipeline will be able to transport up to 450,000 barrels of oil a day,
more than doubling oil exports (the capacity of the existing oil pipeline is
385,000 barrels a day). Total foreign investment in the pipeline is estimated
at US$1 billion over the next two years.
-
In December 2000, a 30-year
concession for the supply of water and sewage services to the city of Guayaquil
(the largest city in Ecuador) was awarded to a foreign company; the company is
to invest US$520 million over the next five years to improve the
infrastructure for such services.
-
The state monopoly in the
telecommunications sector is to be ended from end-2001; after that date free
competition in the supply of such services is permitted.
-
The privatization of the six state
electricity generation companies and 18 electricity distribution companies
is envisaged by end-2001 (in March 2001 the government launched
"road-shows" to Europe and the United States in support of the
privatization).
23. The ruling by the constitutional tribunal last December that many
elements of the Ley Trole II were unconstitutional has delayed the development
of joint ventures in the petroleum sector and the privatization of the state
airline (TAME). However, the authorities are examining the possibility of
overcoming the objections of the tribunal through changes in the legal
structure of the joint ventures and of the state airline and expect to be able
to proceed with these activities later in 2001.
VIII. Statistical Issues
24. The statistical system in Ecuador is weak and the authorities have
been unable to implement timely changes in the methodology, particularly with
respect to the national accounts and the external sector. Furthermore,
complications arising from the change in accounting systems following the
dollarization of the economy, and high staff turnover in key ministries, have
resulted in a marked deterioration in the quality and timeliness of data
reported to the Fund recently. To improve the monitoring of developments under
the SBA, the government is seeking technical assistance—including from the
Fund—to improve the data management and information systems related to domestic
debt and treasury operations of the nonfinancial public sector.
ECUADOR—TECHNICAL MEMORANDUM OF UNDERSTANDING
1. This supplementary technical memorandum of understanding (TMU) sets
out the specific performance criteria (PC), indicative targets (ITs),
structural benchmarks, and prior actions that will be applied under the second,
third, and fourth reviews of Ecuador's Stand-By Arrangement with the
International Monetary Fund. In addition, this supplement provides the
technical details that underlay the government's plans for 2001 as discussed in
the government's memorandum of economic policies (MEP). The definition and
measurement of PCs and ITs, as well as the authorities commitments to providing
data to the Fund staff, will remain as outlined in the original TMU of April 4,
2000.
I. Phasing of Purchases and Reviews
2. After approval of the second review and an extension of the Stand-By
Arrangement to end-October, a purchase of SDR 37.80 million will be
available to Ecuador. It is envisaged that Ecuador will complete two more
reviews during 2001. The amounts, dates of review, conditions for completion of
these reviews, are shown in Table 1.
It is envisaged that the 2001 Article IV consultation will be concluded at
the time of the fourth review.
II. Quantitative Targets
A. Fiscal Targets
3. There is a ceiling on the combined public sector
deficit. The public sector deficits will be measured by their net borrowing
requirements, and the combined public sector deficit is defined as the sum of
the net cumulative borrowing requirements of the NFPS and the operating cash
result of the Central Bank of Ecuador (CBE). Revenues are measured on a cash
basis, while expenditures are on an accrual basis; in particular, interest is
on a due basis. The NFPS comprises the central government (CG) and the same
sub-national governments, government institutions, and public enterprises as
described in the original TMU of April 4, 2000.
4. The borrowing requirement of the CG includes the
interest accrued on bonds issued to the deposit insurance agency (AGD) as
described in paragraph
5, and on all other government bonds issued for the
recapitalization of the banking system and for honoring deposit guarantees. For
the purpose of the program, and regardless of the terms with respect to grace
periods on interest, bonds issued to the AGD for the recapitalization of banks
will accrue monthly simple interest at a rate 6 percent per annum or higher
from the effective date of issuance.
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5. The net borrowing requirements of all the NFPS entities are measured
in U.S. dollars as the sum of the net change in: (i) the indebtedness of the
NFPS to the domestic banking system, net of deposits and excluding government
bonds initially sold abroad; (ii) the domestic public debt of the NFPS
(including securities issues by any of its entities) held by the nonbanking
private sector; (iii) the floating debt of the NFPS including the non-interest
domestic arrears of the CG as defined in paragraph
9; (iv) the financial assets held abroad by NFPS
entities; and (v) the total external debt of the NFPS. The borrowing
requirements of the NFPS will also include all net privatization receipts. The
combined public sector deficit equals the NFPS borrowing requirement plus the
quasi-fiscal deficit of the central bank of Ecuador. Disbursements and
debt-service charges in other currencies will be converted into U.S. dollars
according to paragraph
20. The domestic banking system comprises the central
bank, commercial banks, the National Development Bank, and any other financial
institution holding deposits from or claims against the NFPS.
6. The interest debt settlements between the public
enterprises being prepared for privatization (including PACIFICTEL, ANDINATEL,
and the successor of INECEL) and the CG will be counted as current revenue of
the CG. Privatization and concession receipts will be deposited in the account
of the solidarity fund (SF) in the CBE, and for the purpose of the program will
not be considered revenue of the government; its operations are consolidated
with the accounts of the CG. Privatization receipts will not be counted as
revenue of the SF but concessions receipts will be to the extent that they do
not exceed the annuity component.
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7. Expenditure of the CG includes the interest accrued on bonds issued
to the AGD for the recapitalization of banks and for the payment of the deposit
guarantee in AGD closed banks in bonds as described in paragraph
4.
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8. Non-interest domestic arrears of the CG are defined as the difference
between orders of payments submitted (valores determinados) by the budget
directorate (Secretaría de Presupuesto) to the treasury (Tesorería de La
Nación) and the payments issued (valores emitidos) by the treasury to the
central bank to credit the public entities' accounts. Financial expenditures
(gastos financieros) are excluded from this definition.
B. External and Monetary Sector Targets
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9. The above limits apply to all public- and
publicly-guaranteed external debt. Limits on new debt do not apply to: (i) loan
disbursements to restructure, refinance, or prepay existing debts that do not
result in an increase in outstanding external debt; (ii) any government loans or
guarantees issued associated with the restructuring of banks intervened or
under AGD administration, including the refinancing of arrears on external
trade and interbank lines, or for the funding of government participation in
the recapitalization of private banks and the restructuring of their loan
portfolio. The above figures include disbursements from emergency credit lines
from the World Bank, the Inter-American Development Bank (IDB), and the Andean
Development Corporation (CAF), which will be used exclusively for the purposes
listed below, and will be made to the extent needed for those purposes only. In
the event that disbursements for balance of payments support from bilateral
sources were to materialize, the above ceilings will be adjusted upwards for
their full amount. The government will not collateralize any new medium- and
long-term debt.
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Box 5. Performance Criteria on New Short-term
External Debt of the Nonfinancial Public Sector
The government will not contract, guarantee, or
collateralize any new debt of maturity of less than one year. The ceiling
applies to the nonfinancial public sector, as defined above. Excluded from it
are guarantees associated with the financial sector restructuring, and normal
import-related credits.
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10. Current legislation mandates the full backing of specific CBE
liabilities with freely disposable net international reserves (FDNIR). The
program sets a performance criteria on the path for "excess" FDNIR of
the CBE. The concepts of FDNIR and "excess" FDNIR are defined in the
original TMU of April 4, 2000.
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Adjuster for
higher-than-programmed assistance to banks
11. The floor on "excess" FDNIR could be lowered by up to a
half the amounts indicated in Box 6 to provide further liquidity assistance to
banks through repurchase operations, if needed.
Adjuster for foreign loan
disbursements shortfall
12. The floor on "excess" FDNIR will be lowered (increased) on
any test date, and on that test date only, by the shortfall (excess) in
disbursements on policy-based loans from multilateral or regional development
institutions,1
relative to the cumulative program baseline as specified below, to the extent
that delays in disbursements do not reflect failure to meet loan conditionality
as reported by the creditor institutions. In the event that bilateral creditors
were to provide balance of payments support loans (not currently envisioned)
the floor on "excess" reserves will be adjusted upward by the amount
of disbursement.
Adjuster for CBE external
debt
13. The path for "excess" FDNIR assumes the repayment of US$45
million to the FLAR in 2001. New foreign loan disbursements to the BCE other
than from this source, but excluding from the Fund, will result in a matching
upward adjustment to the "excess" FDNIR floor.
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Accumulation of new
external payments arrears
14. There will be no accumulation of external payments arrears. Any cash
flow savings resulting from the extension of the Paris Club consolidation
period will result in an equal upward adjustment of "excess" FDNIR.
III. Prior Actions
A. Second Review
15. Recapitalization of Filanbanco with a negotiable public bond issue.
16. Approval by congress of a tax reform acceptable to the IMF.
B. Third Review
17. Submission to congress of legislation that includes agreed reforms
of the oil stabilization fund, and elimination of all tax revenue earmarking
not mandated by the constitution.
IV. Structural Benchmarks and Performance Criteria
A. For Completion of the Third Review (No Later than August, 2001)
18. Implementation of the rules for the composition of banks' capital in
accordance with the Basle standards.
19. Establish a time-bound program for the disposal of assets acquired
by the AGD in the resolution process, which will include an asset management
strategy covering institutional arrangements, information and transparency, and
private sector outsourcing by April 30, 2000 (item VII. b. in the FSRM;
SB).
20. Reach agreement on restructuring outstanding AGD
external credit lines, and secure commitments with foreign banks to stabilize
and reconstitute their interbank and trade-related credit lines to AGD open
banks (item VI. f . in the FSRM; SB).
V. Disclosure of Specific Information
21. The authorities will provide regularly to Fund staff all the
necessary information to monitor the program in an adequate form. In particular,
the specific daily, weekly, and monthly data enumerated in the original TMU of
April 4, 2000 will be provided on the schedules indicated therein. Whenever
possible, the information will be sent by electronic mail; otherwise, by
facsimile. In both cases, a copy will be provided to the Fund resident
representative.
VI. Baselines and Conversion Rates Used for Selected
Variables
22. SDR-denominated accounts will be converted into U.S. dollar at
US$1.384 per SDR. Disbursements and debt-service payments falling due on
foreign debt not denominated in U.S. dollars will be converted to U.S. dollars
at the international market exchange rates.
|
|
||
|
Amounts
(Millions SDRs) |
Date of Review
(earliest possible dates) |
Conditions
|
|
|
||
|
37.80
|
May 25, 2001
|
Completion of second review, and observance of
end-August 2000 performance criteria.
|
|
37.80
|
August 31, 2001
|
Completion of third review, and observance of
end-June 2001 performance criteria.
|
|
37.80
|
October 31, 2001
|
Completion of fourth review, and observance of
end-August 2001 performance criteria.
|
|
|
||
1 Includes the World Bank,
the IDB, the CAF, and the Latin-American Reserve Fund (FLAR).
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