QUITO, May 29 2002 (IPS) - The IMF has conditioned approval of a loan to Ecuador on the modification by parliament of a law that earmarks for health and education 10 percent of revenues from the oil exports that will be piped through a new heavy crude pipeline still under construction.
The revenues attained from the OCP pipeline, which will carry crude from the Amazon jungle region to Pacific coast ports, must go exclusively towards servicing debt, International Monetary Fund (IMF) spokespersons told Ecuador's negotiators in Washington.
But on May 22, the Ecuadorean Congress approved a law that assigns 70 percent of future oil export earnings from the pipeline to paying off the foreign debt and the state's debt to Ecuador's Social Security Institute, 20 percent to an oil fund, and 10 percent to health and education.
Minister of Economy and Finance Carlos Julio Emanuel, who has been in the United States since last week negotiating with the IMF, confirmed that the allotment of 10 percent of the revenues to social spending is the main obstacle Ecuador is facing in securing approval of a 240 million-dollar credit.
''The negotiations will continue, and I expect the problems to be worked out soon,'' since the differences are based on the IMF's complaint that the percentage reserved for health and education has been ''pre-assigned'' before it even exists, Emanuel explained on a stopover in New York.
But ''the entire law is a pre-assignation, because the same could be said of the 70 percent that is allocated to paying off the debt and the 20 percent that is to go into the oil fund,'' to be used to service the debt in the case of future oil price slumps, he argued.
Nevertheless, Emanuel said President Gustavo Noboa would try to fulfill the IMF requisite, by somehow getting the law amended, although he did not explain how the president meant to do that. Observers point out that the only way would be for parliament to enact a new law.
The chief of the IMF mission for Ecuador, Bob Traa, also questioned how much maneuvering room Noboa had, saying it was odd that the president believed that such an important law could be changed after it had been approved by Congress.
In its original form, the draft law submitted by the Noboa administration stipulated that 80 percent of the revenues obtained by exports of oil pumped through the OCP pipeline would to go towards paying off the debt, and 20 percent would go into the oil fund. But the legislature modified the bill, allotting 10 percent to social spending.
The pipeline, to run from Ecuador's Amazon jungle region to the Pacific coast in the northwestern province of Esmeraldas, is being built by the OCP Limited consortium, made up of Alberta Energy of Canada, Kerr McGee and Occidental Petroleum of the United States, Agip Oil of Italy, the Spanish-Argentine Repsol-YPF, and Techint of Argentina.
The 600-km pipeline, to begin operating next year, has drawn loud criticism from local and international environmental groups, indigenous communities and even the World Bank, which have all warned of the damages it will cause to pristine areas of the Amazon jungle and water sources that supply cities like Quito.
The law approved last week by Congress only involves the funds derived from exports of crude carried by the pipeline. The revenues from the rest of Ecuador's oil exports - the country's main source of foreign-exchange - will continue to be used as stipulated by the national budget, which allots 40 percent to debt- servicing.
Ecuador's debt amounts to 16 billion dollars, equivalent to 95 percent of the country's Gross Domestic Product (GDP). Of that total, 52 percent is owed to private banks, 30 percent to multilateral lending institutions, and 18 percent to the rich countries grouped in the Paris Club.
The new law also stipulates that the Ministry of Economy and Finance is to cut fiscal expenditure and service the public debt, to attempt to bring down the level of debt to 40 percent of GDP in the next 10 years.
Traa said that it was possible that an agreement would be reached in June, despite the discrepancies between the IMF and Ecuador, which he said did not only involve a question of percentages, but ''go much deeper than that.''
Minister Emanuel warned that if an agreement is not reached with the IMF, his country may use the future oil income as a guarantee for loans in private banks - an option opposed by the multilateral lender.
Economic analyst Wilma Salgado said the Ecuadorean population will not benefit in the least from the rise in oil revenues if the government yields to the IMF's demand that the funds from exports of the piped oil be used exclusively to pay the foreign debt.
''Under the new law, the creditors who hold Ecuador's public debt, most of which is external, will be the beneficiaries of 90 percent of the revenues from exports of oil transported by the OCP pipeline,'' she said.
Salgado underlined that not only will the creditors directly receive 70 percent of the foreign exchange brought in by the new exports, but the remaining 20 percent will be deposited in a fund that will be used to service the debt when oil prices drop.
The payment of the public debt became a top priority for this Andean nation of 12.4 million 20 years ago, due to ''the combined pressure of the IMF and of local holders of foreign debt bonds, generally financial intermediaries or high-level government officials,'' she explained.
''Local traders purchased debt bonds on the secondary market when the price dipped below 20 percent of nominal value. Later, they pressured the governments for preferential treatment such as that granted by this law, thus allowing them to double or triple the value of their investment,'' Salgado added.
''The bonds have quadrupled in value since the announcement of the new law, in which creditors are guaranteed that Ecuador will earmark the earnings from the sales of oil transported by the new pipeline to servicing the public debt,'' she stated. _______________________________________________ stop-imf mailing list stop-imf at lists.essential.org http://lists.essential.org/mailman/listinfo/stop-imf To subscribe or unsubscribe by e-mail, send a message to stop-imf-admin at lists.essential.org, with your administrative request in the subject line. Or go to http://lists.essential.org/mailman/listinfo/stop-imf