March 21, 2019 / 11:03 PM / a month ago

Ecuador's economy to contract by 0.5 pct this year, IMF says

QUITO, March 21 (Reuters) - Ecuador’s economy will contract by 0.5 percent this year, but grow slightly in 2020, the International Monetary Fund said on Thursday.

The organization last month reached a $4.2 billion deal with the Andean country, allowing Ecuador to receive an immediate disbursement of $652 million, and opening the door for it to receive an additional $6 billion in loans from other multilateral institutions.

Ecuador is struggling with tight liquidity amid a wide fiscal deficit and a hefty foreign debt load.

Ecuador, OPEC’s smallest member, will see inflation of 0.6 percent this year, the IMF said in a document released on Thursday that summarized the deal. Consumer prices will increase by 1.2 percent in 2020, it said, adding the country’s economy will grow by 0.2 percent next year.

Ecuador will be able to draw on the IMF funds for three years. The loans have an interest rate of 3 percent and a maturity of 10 years, with a four-year grace period.

After the initial deal was announced in late February, Ecuador’s government laid out a plan to increase the country’s foreign reserves, “simplify” the tax system and optimize public spending to reach a fiscal surplus, and take steps to boost the central bank’s independence.

President Lenin Moreno has already begun to implement an austerity plan that includes layoffs of workers at state-owned companies and cuts to gasoline subsidies.

Ecuador’s debt grew under former leftist President Rafael Correa, who endorsed Moreno in the 2017 election but has since become a critic of his successor’s turn toward market-friendly economic policies.

Skepticism of the IMF runs strong in Ecuador and throughout Latin America, where many blame IMF-imposed austerity policies for economic hardship. (Reporting by Alexandra Valencia Writing by Julia Symmes Cobb Editing by Leslie Adler)

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