Competition to attract immigrants

By Luis Fierro Carrión 

While the headlines are full of stories of undocumented immigrants trying to enter the United States or Europe, the real crisis facing developed countries is that they don't have enough immigrants.

This situation became evident during the COVID-19 pandemic, when it is estimated that the entry of immigrants (mainly Latin Americans) to the US fell by close to two million people, which contributed to a labor market in which there are almost two vacancies for every unemployed person, and upward pressure on wages (which, in turn, has led to higher inflation). Another factor was the deaths and chronic diseases derived from the COVID-19 pandemic.

The lack of personnel was especially noticeable in the area of health care (doctors, physician assistants, nurses, laboratory personnel, etc.), which led to the creation of special programs to attract health specialists. But it has also become evident in areas such as information technology, agriculture, restaurants, hotels, construction, child care and elder care, among others.

Read more:

https://luisfierro.substack.com/p/competition-to-attract-immigrants

The "Wired" magazine 1997 predictions (and my predictions for 2064)

By Luis Fierro Carrion (*)

Twitter: @Luis_Fierro_C

In July 1997, "Wired" magazine published a rather optimistic article predicting a long "boom" of prosperity, freedom, and environmental improvements in the next 25 years (until 2022). 

However, to temper such optimism a bit, it also published a sidebar on problems that could arise and adversely affect this boom.

Some of these negative predictions have been fulfilled almost to the letter:

• “Tensions between China and the US escalate into a new Cold War — bordering on a hot one.”

• “Russia devolves into a kleptocracy run by a mafia or retreats into quasi-communist nationalism that threatens Europe"

• “Major ecological crisis causes a global climate change that among other things, disrupts the food supply - causing big price increases everywhere and sporadic famines".

Others have been partially fulfilled, for example

• “An uncontrollable plague - a modern-day influenza epidemic or its equivalent - takes off like wildfire, killing upward of 200 million people". The COVID-19 pandemic is estimated to have killed 20 million people to date.

• “Europe's integration process grinds to a halt. Eastern and Western Europe can't finesse a reunification". Although the United Kingdom left the European Union through Brexit, since 1997 the number of Member States of the European Union has increased from 15 to 27 (including several Central and Eastern European countries), with an additional 10 countries waiting to enter.

• An increase in crime and terrorism.

Other predictions failed, for example, that new technologies would not bring about an increase in productivity.

In my science fiction novel "The Last Human", I make some predictions until 2064. 

Without going into too many "spoilers", some of these are:

• The Saudi autocracy will collapse and an Islamic republic will be established.

• Both China and Cuba will move towards multi-party democracies, although still with a predominance of a “democratic socialist” party; while the North Korean government will implode and reunite with South Korea.

• Russia will weaken, losing population and economic dynamism (the novel was written before the 2022 invasion of Ukraine).

• Islamist fundamentalists will detonate several radiological bombs (explosives that disperse radioactive material); and they will also blow up nuclear plants.

• Despite the Paris Agreement and other efforts to combat climate change, the concentration of carbon dioxide in the atmosphere will continue to rise, and sea levels will continue to rise. More natural disasters due to climate change will occur, and several cities and areas of the planet will be flooded.

• Global artificial intelligence systems will gain consciousness.

• The Republican Party in the US will collapse, as the proportion of the US population that is Latino, Asian, or black increases (and as the position of young white people changes as well). A party further to the left of the Democratic Party will eventually emerge.

• In Europe, on the other hand, there will be an ascendancy of far-right, anti-Islamic, xenophobic and racist parties; and greater political fragmentation.

• Collapse of agriculture, pollination, loss of drinking water sources.

• Nuclear proliferation.

• The Israeli government will decide to decentralize the Jewish population to other regions.

My novel tries to be a call to action to avoid being affected by these new horsemen of the Apocalypse. It is available on Amazon (in print and on Kindle):

https://www.amazon.es/Last-Human-English-Luis-Fierro-ebook/dp/B09D45JFK8

(*)  A shorter version of this column appeared in Spanish in Diario "El Universo" on August 19, 2022.

https://www.eluniverso.com/opinion/columnistas/predicciones-de-wired-y-mias-nota/

My top 10 blog posts in 2021 / Mis artículos de blog más leídos en 2021

Mis artículos de blog más leídos en el 2021 / My top 10 blog posts in 2021

# 10 Proposals by Pedro Castillo, candidate in Peru

https://economicsandinvestment.blogspot.com/2021/05/proposals-by-pedro-castillo-candidate.html

# 9 Prohibido Olvidar

https://economicsandinvestment.blogspot.com/2021/04/prohibido-olvidar.html

# 8 Presentation on Climate Change, the Paris Agreement and Climate Finance

https://economicsandinvestment.blogspot.com/2021/11/presentation-on-climate-change-paris.html

# 7 Resumen de mi gestión como Viceministro de Economía de Ecuador

https://economicsandinvestment.blogspot.com/2021/10/resumen-de-mi-gestion-como-viceministro.html

# 6 Disinfodemic

https://economicsandinvestment.blogspot.com/2021/02/disinfodemic.html

# 5 Ecuador: Agreement with the IMF and the presidential candidates

https://economicsandinvestment.blogspot.com/2021/01/ecuador-agreement-with-imf-and.html

# 4 ¿Año Nuevo, Vida Nueva?

 https://economicsandinvestment.blogspot.com/2021/01/ano-nuevo-vida-nueva.html

# 3 Elecciones en Ecuador: Dos opciones opuestas

https://economicsandinvestment.blogspot.com/2021/03/elecciones-en-ecuador-dos-opciones.html

# 2 Ecuador: Acuerdo con el FMI y los candidatos presidenciales

 https://economicsandinvestment.blogspot.com/2021/01/ecuador-acuerdo-con-el-fmi-y-candidatos.html

And my top blog post of 2021 / Y el artículo más leído en 2021:

Green Recovery and Climate Finance in Ecuador

https://economicsandinvestment.blogspot.com/2021/08/green-recovery-and-climate-finance-in.html

What a strange and weird year

The year 2021 was another strange year, affected by the pandemic. I also held four jobs during the course of the year (according to LinkedIn, I worked 14 months, because I ended and started jobs in mid-months).

At the beginning of the year, Vanessa and I had been finalizing 9 months of essentially staying at home (we had returned from Peru and Ecuador in February 2020, when the pandemic hit in the U.S. in March).

However, a new job as a “Climate Finance Expert” for the EuroClima+ Programme of the European Union (through the French Development Agency) required that I had to go to Bogotá, Colombia to start the job.

I was able to get one of the first Pfizer vaccines before travelling (but Vanessa was not able to).

So, I started the new job, but essentially continued to have all meetings via videoconference (Zoom, WebEx, Teams, etc.).

At the end of January, we had to fly back to Miami, to get the second Pfizer dose (and also for a periodical medical treatment). The idea was to stay a few days and fly right back to Bogota. I got the second dose of the vaccine. I thought I had some mild secondary effects. However, when I took a COVID-19 PCR test (to fly back to Colombia), I tested positive. Thankfully, Vanessa (who was not yet vaccinated) did not get it. It was a fairly mild episode, given, I suppose that the first vaccine dose had generated some immunity. I had a bit of fever and malaise, but not more severe symptoms.

In any case, we were forced to stay in Miami. When I finally tested negative, we flew back to Colombia. Bogotá was having a second wave, and many restrictions were in place (including that I could only go to the office a couple of days per week). I was finally able to convince the good folks at the AFD that it did not make much sense to be paying an AirBnB apartment just to work from home (considering especially that all meetings continued to be virtual). So back to Miami we went. Vanessa was finally able to get the first dose of the vaccine.

I should also mention that since July 2020 I had been working remotely (and part-time) for a Mongolian green housing project financed by the Asian Development Bank. Even though initially the idea had been for the team to stay in Ulaanbaatar (Ulan Bator in the good ol’ days), finally we were only able to work remotely.

So, I was merrily working remotely on the two climate finance related projects from Miami, when the Ecuadorian elections took place. I had campaigned in the first round for my friend César Montúfar (contributing to his campaign program), but in the second round I strongly supported Guillermo Lasso. He was the candidate competing with the Correista (Chavista) candidate.

Against initial expectations and polls, Lasso managed to pull off an upset in the second round, in part thanks to expanding his proposals to incorporate some center and center-left initiatives (such as increasing the minimum wage, defending women/LGBTQ/ environmental rights and issues), and committing himself to fighting childhood malnutrition, something that the nominally leftist Correa had failed to do in 10 years, with more than $360 billion in fiscal revenue.

Lasso named as Economy and Finance Minister Simón Cueva, a centrist and prestigious economist, who had previously worked at the IMF and in academic positions.

In a surprising move, Simón asked me to join his team as Vice Minister of Economy. I had been considering public service in Ecuador (I even thought about running for member of the National Assembly, representing migrants in North America), but even so the proposal took me a bit by surprise. I am a center-left economist (leaning towards social-democracy), so I had not expected to join the government of a center-right former banker. But I accepted, given my trust in Minister Cueva, and also the urgent need to address the severe economic, social and health crisis that Ecuador was facing. So, I moved to Quito (I could not serve as Vice Minister remotely 😉).

I had never held public office in Ecuador, except for a six-month period when I was the Representative of Ecuador on the IMF Board of Directors in 2006 (before Correa). I had to regrettably leave my consulting work for EuroClima+/AFD and for the Mongolian ADB green housing project.

As I said, the challenges were manifold. The initial thrust was to put into motion and finance a massive vaccination drive, that ramped up to the point in which 12 % of the total population of Ecuador received a dose in a single week. President Lasso had offered to vaccinate 9 million people in his first 100 days in office, which at the time seemed like an overly ambitious goal, but in fact the goal was met.

The second effort was to renegotiate the terms of an “Extended Fund Facility” with the IMF, that would enable Ecuador to receive $1,500 million in 2021. The initial program sought to increase fiscal revenue by 3 % of GDP (about $3 billion) in 2022; the thought was that this could be accomplished by raising the Value Added Tax (VAT) by 3 points (to 15 %); this, however, is a regressive tax, and it seemed unlikely that the Assembly (dominated by left and center-left parties) would approve it.

The Ministry team was able to negotiate with the IMF to reduce the amount of additional revenue expected and designed a direct taxation fiscal reform that would only affect the 3.5 % of the population with the highest income (as well as the 0.1 % of the population with the highest net worth).

Even though this was a very progressive (some called it a social-democratic) tax reform, in the end the majority of the “leftist” and "center-left" parties in the Assembly did not vote in favor of it, but simply let it become law by not taking a position (under the terms of emergency laws, if a proposed law is not adopted or rejected in 30 days, it comes into force automatically).

A greater effort was required to reactivate the economy, boost private sector investment and employment. In the period through September, sales, tax revenues, private investment and employment all started to recover (from their pandemic lows). The progress in vaccination helped, as well as some multilateral credits that were channeled towards small and medium enterprises. Here is a summary of some accomplishments:

http://economicsandinvestment.blogspot.com/2021/10/resumen-de-mi-gestion-como-viceministro.html

In August, I was notified that a consulting position for which I had applied many months before (in 2020, actually) had been approved. This was a long-term (five years) contract to work as a “Green Economic Policies Expert” for a new EU NDC Facility, which would work to assist developing countries in strengthening their climate action plans (NDCs, as well as long-term low-emissions development strategies, National Adaptation Plans, etc.).

Given the uncertain tenor of my work at the Ministry of Economy and Finance, and the fact that this new job was essentially my dream position, I unfortunately had to leave the Ministry on September 20th.

The European Union funded project required that we move to Brussels. I had to get a short-term visa to be able to travel, and was just about to do so, when there was a new spike in COVID-19 infections in Brussels and new restrictions were imposed. So, it was decided that it did not make sense for me to travel to Brussels and work from a hotel room. We are now in the process to obtain a long-term residence permit for Belgium and will likely travel next year.

So COVID-19 thwarted our travel plans twice; modified jobs to be remote three times; but thankfully did not make us severely ill or worse (thank you Moderna and Pfizer-BioNTech researchers!).

All of our immediate family members have been vaccinated, and not one of them contracted a severe case (although some less immediate relatives did regrettably succumb to the disease).

It has been, without doubt, a strange and weird period, and to be honest, working remotely has become somewhat tiresome and frustrating.

We did see my parents, my siblings, my nieces, my son Pablo, his wife, and my granddaughter Nelia Luna throughout the year, and we will see Vanessa’s family at the end of the year.

A silver lining has been that, in 2020, greenhouse gas emissions fell for the first time in recorded history, although the temperature kept on rising (see this updated presentation on the topic: http://economicsandinvestment.blogspot.com/2021/11/presentation-on-climate-change-paris.html).

I also published my first novel, “The Last Human”, a science fiction novel that is a call to action to confront climate change and other existential threats to humanity (including, yes, pandemics).

https://www.amazon.es/Last-Human-English-Luis-Fierro-ebook/dp/B09D45JFK8

I hope that by expanding vaccination globally, and continuing to observe other precautions (masks, social distancing, remote working) we will finally defeat the pandemic in 2022.

Happy Holidays!

The lost savings Funds would have cushioned the crisis in Ecuador

By Luis Fierro Carrión (*)

On May 11, Norway's sovereign wealth fund decided to liquidate 3% of the fund's value, to support the government's efforts to combat the COVID-19 pandemic and boost economic recovery.

That withdrawal of 3% of the value was equivalent to 37 billion dollars. This is so because the fund has accumulated a value of 1.18 trillion dollars. It is the largest sovereign wealth fund in the world; it is followed by SWFs from China (China Investment Corporation), Abu Dhabi, Kuwait, and Saudi Arabia, all with more than $ 500 billion in assets at the end of 2019.

In Latin America, some countries have stabilization and savings funds, but with much smaller amounts. For example, Chile has an economic and social stabilization fund ($ 14.7 billion) and a Pension Reserve Fund ($ 9.4 billion). Other countries with smaller funds include Peru, Brazil, Mexico, Trinidad and Tobago, Colombia, and Bolivia (all linked to the export of natural resources). Venezuela had a substantive fund, but with its protracted crisis it has vanished.

In the case of Norway, the fund has the official name of “Global Government Pension Fund”, and was created in 1990 to save the oil income that the Nordic country was receiving; The objective was to reduce the volatility of tax revenues due to the fluctuation of oil prices in the international market. A secondary objective was to reduce the macroeconomic impact of oil revenues, which in other countries (including Ecuador) has generated the so-called “Dutch disease”, in which the productivity of other economic sectors was affected.

The "Tiny Funds" in Ecuador

In Ecuador, apart from the international reserves, there were some attempts to create a stabilization or savings fund:

• In 1998, the Petroleum Stabilization Fund (FEP) was created to accumulate the surpluses of oil revenues above the budget.

• In 2002, the “Fund for Stabilization, Social and Productive Investment, and Reduction of Public Debt” (FEIREP), a trust managed by the Central Bank, was created.

• Later, in 2005, at the initiative of then Minister Correa, the FEIREP was transformed into the “Account of Productive and Social Reactivation” (CEREPS); 20% of its income went into a “Savings and Contingency Fund” (FAC), apart from the unused CEREPS balances at the end of the fiscal year. The FAC had among its specific objectives to be able to attend natural disasters and other emergencies.

• In 2006, the “Ecuadorian Investment Fund in the Energy and Hydrocarbon Sectors” (FEISEH) was created, fed with the income of Block 15 (after the declaration of expiration of the Occidental oil contract), as well as the Eden-Yuturi fields and Limoncocha.

Between these “tiny funds”, as then President Rafael Correa derogatively called them, savings equivalent to 12.1% of GDP were accumulated (https://flacsoandes.edu.ec/web/imagesFTP/9431.WP_018_CGiraldo_01.pdf ). Apart from this, the balance of public debt was reduced.

During the Constituent Assembly, an Organic Law was approved in 2008 for the “Recovery of the Use of State Petroleum Resources and Administrative Rationalization of Debt Processes”. In practice, it meant the elimination of these funds and facilitating the contracting of additional debt.

Oil revenues and fuel subsidies

During the decade of Correa's government, the country had oil revenues for a total of $95,581 million (35% of all oil revenues in the history of the country, in real terms, according to a study by Alberto Acosta and John Cajas, “A Wasted Decade”). Between 2007 and 2016, the non-financial public sector had total revenues of $ 283 billion. 

Notwithstanding this massive level of income, not only were the savings and contingency funds eliminated, but the net international reserve was left in negative terms; and Correa bequeathed a total public debt of about $ 60 billion.

Of the total oil revenue, about $ 23 billion (a quarter) was used for fossil fuel subsidies. This subsidy is very regressive, as more than 50 % benefits the two quintiles with the highest incomes: apart from which a significant part of the subsidy escapes by contraband. The subsidy also encouraged fossil fuel consumption, with adverse effects on climate change, health, pollution, etc.

After a failed attempt in October 2019 to eliminate subsidies for extra gasoline and diesel (the subsidy for super gasoline had previously been eliminated), on May 19 the President issued Decree 1054, which establishes a new market price system for extra gasoline, extra gasoline with ethanol and diesel. A “price band” system was established, taking into account the cost of fuels, the marketing margin, plus a monthly variation limit of +/- 5%.

In the initial period of application of this new price system, the result was that the price decreased, given the significant drop in the international price of crude oil and derivatives in international markets. Thus, the retail price of extra gasoline (including the commercial margin) decreased to $ 1.75 per gallon, and the price of diesel decreased slightly to $ 1 per gallon.

The Ministry of Economy and Finance will design the “necessary compensation instruments as a consequence of the application of the price band system”. Minister Martínez indicated that the government is analyzing social protection mechanisms in the event of sustained growth in the prices of gasoline and diesel. There is a preliminary proposal to increase the Human Development Bonus cash transfer program by $ 10 and compensate the most vulnerable in the event of an increase in public transport tickets. Another alternative is to subsidize public transport (either to users or carriers). 

Laws approved by the Assembly

In the laws approved by the Assembly, the Solidarity Law or COVID-19 and the Law on Public Finances, there are two aspects to highlight regarding the issue of oil revenues.

On the one hand, the possibility of contracting insurance to hedge the risk of lower oil prices is introduced, as the Mexican government has regularly done (Minister Martínez argued that previously he did not have the legal backing to do so, which will now be made possible by a provision of the Public Finance Regulation Law).

On the other hand, a Fiscal Stabilization Fund is created again, from income from the exploitation and commercialization of non-renewable natural resources (oil, gas, mining) that exceed what is contemplated in the annual public budget.

Obviously, with current prices, it will not be possible in the short term to accumulate resources in the fund, nor to contract a price insurance, but the reform is designed for the future, so that, if another pandemic, natural disaster or abrupt fall in the prices of exports occurs, Ecuador has a financial “cushion” – a cushion that the Correa government took away from us.

(*) This is an English translation of the article published by “Revista Gestión” on May 23, 2020.

https://revistagestion.ec/economia-y-finanzas-analisis/los-desaparecidos-ahorros-nacionales-hubieran-amortiguado-la-crisis

The author is an economist from the Catholic University of Ecuador (PUCE), with graduate degrees from the University of Oregon and the University of Texas at Austin. He was a staff member of the IDB from 1997 to 2013, and Representative of Ecuador to the IMF in 2006. Advisor on climate finance and development issues. Personal opinions.

Pandemic and Depression

Pandemic and Depression

By Luis Fierro Carrión (*)

In November 2019 a new human coronavirus appeared in Wuhan, China. It was not produced in a laboratory: it made the jump from an animal to humans (probably from a bat, probably in a market where there were shellfish and wild animals in the middle of tubs of water).

The new coronavirus, named SARS-CoV-2 by the World Health Organization, began to reproduce rapidly among humans, having a high rate of contagion. It causes a severe acute respiratory syndrome, like the original SARS (which appeared in November 2002 in Foshan, China). The mortality rate, despite being about 20 times higher than that of seasonal influenza (2% vs. 0.1%), is lower than that of the original SARS, MERS or Ebola.

The rapid rate of infection, combined with a high but not too high mortality, makes this pandemic resemble that of the "Spanish flu" of 1918-20. Back then, influenza infected a third of humanity in two years, and an estimated 50 million people died (2.7% of the world's population at the time).

Given the similarity of the contagion and death rates, epidemiologists have warned since January that the new coronavirus, which causes the COVID-19 disease, could infect up to 80% of humanity, and of those infected, 2% could die, that is, 123 million people (in Ecuador, 272,000 persons).

This would occur if no control measures were taken, such as imposing isolation of the infected, restricting the movement of people, wearing masks and gloves, etc. The problem would be worse if the contagion were sudden, since it would exceed the capacity of intensive care units and artificial ventilators, which are required in about 5% of the cases. According to INEC, there were 1,183 intensive care beds in Ecuador (72% in Quito, Guayaquil and Cuenca), and 1,745 artificial respirators. If 10% of the population were infected at the same time, some 85,000 beds and respirators would be required. Guayaquil has already seen its hospitals and funeral parlors surpassed.

The official statistics of confirmed cases and deaths are under-reporting the cases, because they reflect the number of tests carried out (15,526 until April 8). In the month of March, there were 1,371 more deaths in Guayas (except Milagro) than the average of January and February (in other provinces the number of deaths decreased, perhaps due to a reduction in accidents and homicides). While not all additional deaths can be attributed to COVID-19, at least 1,000 are likely due to the disease (more than double the official number of confirmed and probable deaths, 482 on April 8). But it also means that the actual number of infections in Ecuador must already be around 50,000 (considering the 2% fatality rate).

It is essential to maintain and reinforce social distancing measures, equip the population with masks, and provide health personnel with professional protection equipment. There is an urgent need to increase the number of intensive care beds and ventilators.

The restrictions will have a severe economic impact. In addition to the fall in the price of oil and other export products, there is the paralysis of sectors of the domestic economy, including restaurants, hotels, tourism, entertainment and transportation; a simultaneous supply and demand shock. 

The economic collapse is likely to be more severe than the 2008 global financial crisis; global GDP could fall between 3 and 6%, and that of Ecuador by 10% or more. Global unemployment could exceed double digits; in Ecuador adequate employment, which was just 40% of the total, will decrease further.

Some economists have proposed measures to alleviate the humanitarian emergency (many families have lost their income); avoid massive bankruptcies of micro and small companies; and reactivate production progressively. There are public and private initiatives to alleviate the crisis. Here are the proposals I made on March 23^rd:

http://economicsandinvestment.blogspot.com/2020/03/propuestas-ante-la-emergencia-sanitaria.html

The pandemic will continue until there is an effective vaccine (at least 12 months), or until the majority of the population has been infected. What will come next will be a "new normal". Teleworking, distance education, and teleconferencing will increasingly weigh. International tourism will not recover in the short term. All this will reduce the demand for fossil fuels.

The sectors to be strengthened will be e-commerce, video-conference systems, distance education, digital finance, 3D manufacturing. The only good thing that will come out will be a reduction in greenhouse gas emissions, which will slow down climate change and reduce deaths from air pollution.

(*) This is a translation of the opinion column I published in Diario El Universo on April 13^th:

https://www.eluniverso.com/opinion/2020/04/13/nota/7811796/pandemia-depresion

Coronavirus, oil prices and Ecuador's risk premium

By Luis Fierro Carrion (*)

The World Health Organization has warned that the COVID-19 coronavirus could lead to a worldwide pandemic.

The number of cases of coronavirus has increased exponentially, and according to Harvard University epidemiologist Marc Lipsitch, it could spread to between 40% and 70% of humanity by the end of the year. The incubation period lasts up to 14 days, and many asymptomatic people spread their disease before it is detected.

Despite the quarantine of millions of citizens in China, the epidemic has spread to South Korea, Japan, Iran, Italy, the United States and dozens of other countries (the first cases in South America have already been detected, including 6 in Ecuador by March 2).

If the mortality rate remains as high as in the first cases (1% - 3%), and a pandemic is unleashed, it could reach a death toll not seen since the 1918 "Spanish flu" pandemic (by comparison, annual seasonal influenza has a mortality rate of 0.1%, mainly affecting infants and the elderly with other health problems).

The Chinese economy, which has grown at rates above 6% annually since 1990, is collapsing, and forecasts of the global GDP growth rate have already been lowered; a recession could break out. Foreign trade, international travel and tourism are particularly affected sectors. Stock exchanges fell by 14% at the end of February.

A direct impact of the slowdown in the Chinese economy has been the fall in the price of oil and other commodities (palm oil, corn, soybeans, copper, etc.). The price of WTI crude oil has fallen 23% since the beginning of January, and has fallen below $ 50 per barrel (and below the estimated price for the 2020 Ecuadorian budget, of $ 51.30 per barrel).

The fall in oil has, in turn, influenced the steep increase of the so-called “country risk premium” (the investors' perception of Ecuador's ability to pay the external debt). This is the differential in the yield of Ecuadorian bonds in the secondary market with respect to the rate of the 10 year U.S. Treasury bonds. This index, which reached a level of 5069 basis points (50.69%) in December 2008 (when Correa declared a unilateral moratorium unilaterally not due to an inability to pay), had dropped to 446 in February 2018. After the indigenous strike, it increased to 1418, in January it went back to around 800, and at the end of February it shot up again to 1450.

It did not help that the Moody's rating agency has lowered its credit rating of Ecuador’s external debt to Caa1, considered “a poor position with a very high risk”. In its analysis of the fiscal and economic situation of the country, one of the negative factors mentioned was the inability to generate a social and parliamentary consensus on the economic measures required to deal with the fiscal downturn. Several political sectors are privileging their electoral expectations over the urgent need to recover the fiscal balance.

It should be remembered that the Correa Government did not make an economic adjustment when the price of oil began to fall in 2014, opting for aggressive indebtedness, which left a legacy of public debt of $ 60 billion (including external and internal debt, as well as other obligations). The public debt reached USD 58,560 million in January 2020, equivalent to 53.4% ​​of GDP. Apart from that, according to the Ministry of Economy, there are “Other Obligations of the State”, which total USD 5,941 million.

The Government has cut public investment, aggravating the country's economic stagnation. But it has failed to significantly reduce current spending, which portends a fiscal deficit of 3.1% of GDP. At least USD 6665 million in financing will be required in 2020, including USD 2000 million expected from concessions and sale of public assets.

With the expected disbursements of the IMF and multilateral banks, and other non-orthodox measures (issuance of Treasury Certificates, arrears of payments) the 2020 financing gap is expected to be closed; but Moody’s and other economic agents are concerned that external debt amortizations will increase significantly from 2022, and the economic reforms necessary to achieve an economic recovery are not being adopted; The possible return of economic populism is also worrying.

(*) Translated and updated (to March 2, 2020) version of my column in Diario "El Universo" of Ecuador

https://www.eluniverso.com/opinion/2020/03/02/nota/7762857/coronavirus-petroleo-riesgo-pais