Ecuador announces measures intended to wean country off dependence on oil revenues.

QUITO -- Finance Minister Jorge Gallardo announced the government's latest fiscal reform package on Monday, detailing plans that would cut the country's public debt burden from today's 63.6% of GDP, to a more manageable 40%, via a fiscal responsibility law, as well as creating a fund to offset any effects that oil price weakness could have on the country. He also outlined plans to end the politically sensitive practice of earmarking tax revenues. The introduction of these measures are all part of conditions put in place by the IMF to ensure the next disbursement of its $300 million credit line.

The government's goal is to post a structural surplus of at least 2% of GDP, according to Gallardo, and reduce the country's debt burden to a more manageable level.

Implementation will hinge around state spending whereby the central government would determine expenditures by assessing state incomes, and is expected to lead to substantial savings, although it is likely that the provinces would have to reduce expenditures considerably. The creation of a new oil stabilization fund is another important measure, and will be funded from revenues gained from the new heavy oil pipeline (OCP), due to be completed in 2003. Indeed, the IMF has been eager for Ecuador to try to move away from its dependence on oil revenues in advance of the Amazonian fields running dry.

Although in order to secure disbursement IMF funds, the government only needs to submit the bill to Congress, the measures show how determined the fund is to force fiscal reform on the country following the defeat of the IMF inspired Value Added Tax hike by the constitutional court. Indeed, it is vital Ecuador detaches itself from dependence on oil revenues, and the sooner such measures are put in place the easier the transition will be. With the non-oil economy resisting the regional slowdown, and growth expected to accelerate in 2002, it could prove to be an ideal time to push through these tough reforms.