Correa Spurns IMF-Ecuador Deal That Allowed Debt Restructuring

(Bloomberg) -- Rafael Correa, the leftist leader who governed Ecuador for a decade and defaulted on its debt, and his protégé in next year's presidential election said they would reject the spending cuts requested by the International Monetary Fund as part of a loan deal.

“These austerity policies kill economies,” Correa said in an interview from exile in Belgium. “We'll check all of this. We can't continue with these IMF policies.”

The Washington-based institution agreed in August to lend Ecuador $6.5 billion, paving the way for the South American nation to restructure $17.4 billion of its international debt. Should Correa's favored candidate, Andres Arauz, win the February election, his administration will focus on increased public spending and foreign investment, rather than repaying the IMF, the former president said. The comments raise the stakes in the vote as the government struggles to finance even the current level of fiscal expenditure.

The 57-year-old politician was blocked from becoming Arauz's running mate in the election after a court refused to review his conviction for embezzlement. Arauz tapped television presenter Carlos Rabascall instead, though Correa remains a key adviser.

Among almost 30 other investigations into alleged crimes committed while he was president, Correa and other defendants in April were found guilty of funneling bribes to finance political campaigns. He lost successive appeals.

In a separate interview, Arauz said the IMF financing contains language that violates the nation's constitution and that his administration would seek to negotiate a new deal.

“We won't go forward with these conditions,” he said.

The IMF is pushing for tax increases including a 3-point hike in value-added tax to 15% and a carbon-emissions tax, along with cuts to capital spending and more transparent fiscal procurement.

The lender forecasts Ecuador's economy will contract 11% this year and only recover slowly after that. The IMF's Western Hemisphere Director Alejandro Werner said on Monday that Fund officials have spoken to candidates and legislators from different political parties and that the accord could be modified under a new government so long as core targets are maintained.

Arauz, 35, and 64-year-old banker Guillermo Lasso are the leading candidates in the election. With the electoral board still processing registrations, polls are inconclusive and the number of undecided voters remains high. The first round of the election is set for Feb. 7.

President Lenin Moreno, who served as Correa's vice president for six years, isn't seeking a second term.

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The race bears some resemblance to 2017. That vote also featured a Correa ally, Moreno, against Lasso, except Moreno pivoted post-election by renouncing socialism and pursuing free-market policies.

“That was the biggest betrayal in Ecuadorean history,” Correa said. “When you're a democratic president, you shouldn't care about what Wall Street says about you. You should care about what your people say about you.”

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