(Bloomberg) -- Ecuador's central bank doubled its emergency credit line with the Bank for International Settlements to $840 million as a precautionary measure in case of a downturn, its governor said in an interview.
The credit line is part of efforts to strengthen the bank after previous administrations used its funds for government spending, Guillermo Avellan said. Those actions hurt the monetary authority's autonomy and put “both the institution's liquidity and capacity to meet obligations at risk,” he said.
Ecuador's economy is getting a boost from a coronavirus vaccination drive that is expected to inoculate half of the country's 17.5 million residents this month. That push will boost consumer spending and investment, likely propelling this year's growth beyond the bank's 2.8% estimate, Avellan said. Still, the top near-term threat would be a hawkish shift by the U.S. Federal Reserve.
“Under the current outlook, that's even more dangerous than a reduction in the price of oil,” Ecuador's top export, Avellan said.
Read more: Ecuador Defaulted Last Year. Now Its Bonds Are World's Best
Tighter monetary policy in the U.S. would strengthen the dollar against rival exporters' currencies as they vie for market share, making Ecuadorian goods more expensive, he said. Ecuador uses the dollar as its official currency.
Other Key Takeaways:
- The dollar is still trading at competitive rates for exports, Avellan said
- With central bank independence restored by a new law, the institution will be restructured through the end of the year
- The central bank will work on reform of the financial industry, encouraging electronic payments and changing regulations to build a financial hub
- The International Monetary Fund is supporting the design of stress tests for the local banking system
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