fiscal FECUNDITY
The increasing independence of the central bank is set to create a more certain landscape for economic and financial management and serve to protect Ecuador’s dollarized system.
How has the bank been a source of fiscal stability in recent years?
BCE has experienced an important change in recent years. Until May 2017, we were transferring funds to the Ministry of Economy and Finance. However, after June 2017 and after analyzing the balance sheet of the BCE, we decided to stop financing the government. That decision was supported by the president as an attempt to strengthen BCE and the status of the US dollar as our currency. Since then, we have recovered USD613 million. Over the last year, we have worked on a law to strengthen BCE as an institution and create a central banking directorate. It will comprise five members designated by the president and be managed by a chairman of BCE’s directorate. This individual will also be the legal representative of the institution, and the directorate will be responsible for monetary policy. We will also have a general manager of BCE responsible for managerial matters, as well as corporate governance. Three of the five members will work part-time and two full-time. The former will play a surveillance role in all the decisions taken. We have also proposed the creation of certain committees to improve the decision-making process and internal control of the institution in areas like auditing, investment, and others. Meanwhile, we have focused on the publication of our information. BCE is the largest producer of statistics, issuing more than 5,000 publications per year. In that regard, we are working to update the methodology and the data we use to calculate our balance of payments. In a dollarized economy, the balance of payments is a key consideration, which clearly shows the state of the economy. The Achilles’ heel of a dollarized economy is the foreign sector, which we have observed in the balance of payments. We must obtain more refined information, which will be vital for us, particularly in developing our politics.
BCE and the IMF are working on a new regulatory framework for the bank. What can we expect from those changes?
Since January 2019, we have worked with the IMF to develop a new law for BCE. The decision to stop lending money to the Ministry of Economy and Finance was established under a prohibition in the second law of economic development. We are returning to ratify that disposition in this new law, and we are working on the independence of BCE in the decision-making process on monetary policy. Right now, the top authority of BCE is the general manager, and all the political decisions are made by the monetary policy regulatory board, which is chaired by the Ministry of Economy and Finance, a delegate of the country’s president, and two additional ministers. This is not the ideal method for decision-making. The law has three goals: to strengthen the balance of BCE and international reserves, given how crucial the institution is to maintaining dollarization; recovering a government advisory role; and obtaining autonomy in financial resources.
There have been fluctuations of international reserves. How can you combat that?
The international reserve is closely connected to external flows of resources. In October 2019, the reserves totaled USD4.7 billion, which is a reasonable level. With that, we are able to cover all the private deposits in the bank. With those results, we expect to reach the goals established under the IMF program.
How do you see BCE and the fiscal and macroeconomic situation of Ecuador?
With respect to economic growth, we had an estimate of 0.2% for 2019; however, we are calculating the effects of the halt experienced in October 2019. We want to not only quantify the size of the economy but also the social aspects and environmental effects that impact the country. With respect to the tax reform, the Ministry of Economy and Finance has said it is possible to collect USD700 million. This will help improve revenues in 2020 and prepare us to reinvest in public construction projects. ✖