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(Bloomberg) – The International Monetary Fund agreed to lend Ecuador $6.5 billion, which will allow the country to complete a bond restructuring plan and finance its 2020 budget.
The deal announced Friday will allow you to redeem $17.4 billion debt by September 1. The country had agreed with the bondholders that it would seek a new agreement with the IMF and that the restructuring would take place without an agreement.
The so-called extended financing mechanism is a staff-level issue for IMF board approval and is repayable in 27 months, the IMF said in a statement.
Under the agreement, $4 billion would be dispensed by the end of the year, according to four other people familiar with the deal, who asked not to be identified because the main points are not yet public.
The agreement replaces Ecuador’s previous agreement with the IMF, which was suspended amid the pandemic. Under that, the country to get $4.2 billion in 3 years.
Ecuador severely devastated by the Covid-19 epidemic, which caused the bodies to pile up on the sidewalks of Guayaquil.
The economy was also badly affected, as the debt crisis made it highly unlikely that fiscal stimulus measures were implemented to mitigate the effect of blockades. At the same time, crude oil costs collapsed, while Ecuador’s use of the US dollar as a currency made its exports more expensive as the dollar strengthened.
Market reaction
The country’s bonds deserve to subscribe to the news of the agreement when negotiations resume on September 1, said Siobhan Morden, director of early income strategy for Latin America at Amherst Pierpont Securities in New York.
“This IMF program obviously shows diplomatic aid and foreign policy for a country that has pushed an open schedule and moved away from technical problems through friendly investor relations,” Morden said, in response to written questions.
The program aims to stabilize the economy and then pave the way for a recovery, the fund said in its statement.
By avoiding a deeper economic collapse, the agreement with the IMF reduces the chances that former President Rafael Correa’s allied socialists will perform well in next February’s elections, said Vicente Albornoz, UDLA’s dean of economy in Quito. President Lenin Moreno will resign in May.
(Updates with analyst comment in paragraph)
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