News Release

Behind Ecuador’s State of Emergency

BBC is reporting: “Ecuador protests: State of emergency declared as fuel subsidies end.” Also see New York Times: “Ecuador Declares State of Emergency as Striking Workers Block Roads.” The Ecuadorian government says some 275 people have been arrested in connection with the protests, according to Reuters, which are in reaction to changes implemented in accordance with Ecuador’s $4.2 billion agreement with the International Monetary Fund.

ANDRÉS ARAUZ, andres.arauz at comunidad.unam.mx
Arauz is a former Ecuadorian central bank official and a PhD candidate at the National Autonomous University of Mexico (UNAM). He is co-author, with Mark Weisbrot, of the research report, “‘Headwinds to Growth’: The IMF Program in Ecuador.” He said today: “Military and police repression were widely expected; IMF-sponsored reforms can rarely be implemented without repression. Even if Moreno outlasts these protests, the IMF agreement requires more rounds of austerity measures in the coming months, including an ‘indirect tax’ (i.e., sales) hike, so political and social instability are likely to become chronic.”

MARK WEISBROT, via Dan Beeton, beeton at cepr.net

Weisbrot is co-director of the Center for Economic and Policy Research in Washington, D.C. and co-author, with Arauz, of the research report linked above.

He recently wrote a piece for for The Guardian headlined: “The IMF is hurting countries it claims to help: The fund’s loan agreement with Ecuador will worsen unemployment and poverty.”

Wrote Weisbrot: “In March, Ecuador signed an agreement to borrow $4.2 billion from the IMF over three years, provided that the government would adhere to a certain economic program spelled out in the arrangement. In the words of Christine Lagarde — then the IMF chief — this was ‘a comprehensive reform program aimed at modernizing the economy and paving the way for strong, sustained, and equitable growth’.

“But is it? The program calls for an enormous tightening of the country’s national budget — about 6 percent of GDP over the next three years. (For comparison, imagine tightening the U.S. federal budget by $1.4 trillion, through some combination of cutting spending and raising taxes). In Ecuador, this will include firing tens of thousands of public sector employees, raising taxes that fall disproportionately on poor people, and making cuts to public investment.

“The overall impact of this large fiscal tightening will be to push the economy into recession … Unemployment will rise — even the IMF program projections acknowledge that — and so will poverty.”