Ecuador, Covid-19 and Debt

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Ecuador is experiencing a health and humanitarian crisis as a result of Covid-19. This blog explores the implications of the pandemic, Ecuador's debt crisis and the DSSI initiative. 

Ecuador is experiencing a health and humanitarian crisis as a result of Covid-19. Images of overcrowded hospitals, corpses lying in the streets and mass graves in the country have been shared around the world. These are just a small sample of the problems faced by Ecuador in the battle to protect the rights and lives of its citizens.

The social and public health consequences of the pandemic

Ecuador, a country with a population of 17 million, has reported a total of 180,676 cases and 13,016 deaths caused by Covid-19, as of November 2020. The official figure is likely to underestimate the true toll of the pandemic in the country. A comparison of the mortality rates between 2019 and 2020 shows excess deaths reaching 38,788 in the context of the crisis. This figure places Ecuador as the country with the highest rate of excess deaths per capita in the world.

The tragic impact of the pandemic is a direct result of a slow and insufficient response by a government burdened with austerity and debt. Authorities delayed the introduction of a strict lockdown until mid-March. The measures were announced nearly three weeks after the first reported case of Covid-19 in the country. The government then proceeded to ease the lockdown measures as early as the beginning of May, despite the surge in cases and deaths caused by the pandemic. The reduction in the restrictions was not accompanied by any substantial efforts to either strengthen the capacity of the health sector or social safety nets.

The economic and social consequences of this approach have been devastating. The International Monetary Fund (IMF) projects the economy will shrink by 11 per cent in 2020. Formal sources of employment are being decimated. Only one in three companies are expected to remain profitable in the aftermath of the pandemic. As a result, more than 700,000 people have lost their jobs, while an additional 1,440,983 have been pushed into the informal sector. All the gains in the fight against poverty achieved over the last two decades are threatened to be reversed by the pandemic. Going forward, at least half a million people will need permanent social assistance.

Ecuadorian women have been disproportionately affected by these dynamics. Women in the country work fewer hours for less pay and in worse conditions than their male counterparts. The pandemic has worsened this situation. A survey conducted by the United Nations (UN) in Ecuador shows that 45 per cent of women had lost their jobs. A further 76 per cent saw their workload increase as a result of care duties and home, with 56 per cent of women being solely in charge of educational responsibilities for their children. Lockdown measures have also had a negative impact on gender-based violence. The number of cases has increased and it is estimated that there is a report of gender-based violence taking place on average every five minutes at the national level.

A debt crisis in the middle of a pandemic

Before the pandemic, the country was already struggling with an ongoing debt crisis. Public debt had increased from 30.9 to 68.9 per cent of Gross Domestic Product (GDP) between 2015 and 2020. As a result, the country allocated 29 per cent of government revenues to meet creditor claims in 2019. This figure is equivalent to 2.3 times the public health budget of the country or 1.9 times its education budget.

These mounting debt problems forced the country to request IMF financial assistance in March 2019. The IMF programme provided the country with a loan of US$ 4.2 billion on the basis of strict conditionality and binding fiscal targets. Massive protests made the government and IMF withdraw their initial intentions to cut petrol subsidies. However, the planned austerity measures and structural reforms were implemented during the state of emergency which restricted mobility for over seven months. As part of this programme, the country was expected to implement expenditure cuts worth 5 per cent of GDP between 2019 and 2022. Austerity measures included in the programme systemically weakened its public health sector. The public health budget declined from US$ 353 to 110 million between 2017 and 2019. The cuts led to a dismissal of health personnel and a decline in the availability of medical supplies, which left the country woefully unprepared to deal with a pandemic.

As the pandemic struck the country, the initial IMF programme had to be scrapped as a result of social protest, data discrepancies and non-compliance with targets. In addition, Ecuador requested a six- month deferral of interest payments from its private creditors in April 2020. This eventually led to a debt restructuring process, which was completed on 1 September 2020. Ecuador exchanged bonds to the value of US$ 17.4 billion with a participation of 98.5 per cent of the bondholders. The IMF explicitly endorsed the outcome of the negotiations with a new programme that provides the country with US$ 6.5 billion in additional financing.

The success of the debt restructuring and IMF programme is premised on the ability of the country to deliver on austerity measures worth 5.8 per cent of GDP over the next three years. This figure is eight times the resources the country was able to mobilise to protect the lives of its citizens in 2020. It is questionable whether Ecuador will be able and willing to go through with cuts of this magnitude as social and political tensions rise in the country. The possibility of a new default in the medium term is not negligible.

A call for help to the international community from Ecuadorian civil society
Since the beginning of the pandemic, civil society has remained active, demanding a strong response from authorities in Ecuador to protect its citizens from the dual threat of austerity and the pandemic. Earlier this year, Centro de Derechos Económicos y Sociales (CDES) launched a campaign demanding that austerity measures in the field of public health should be reversed. At CDES, we requested allocation of resources to contain the risks of the pandemic, including the formulation of labour income protection policies and special protection measures for vulnerable groups.

In addition, CDES welcomed recommendations from agencies such as the UN Economic Commission for Latin America and the Caribbean (ECLAC) and the reports from the United Nations High Commissioner on External Debt. CDES has requested that the management of external debt by the national government does not sacrifice resources that should be allocated to contain the pandemic. Given the exceptional nature of the situation, the suspension of external debt payments should be contemplated. This line of action included the filing of a constitutional appeal with the Ecuadorian Constitutional Court, in conjunction with other civil society actors.

However, we can't do this alone. As is the case in other countries around the globe, such as Kenya and the Philippines, the people of Ecuador are in need of international solidarity to tackle the impact of the social, health and economic crisis we are going through. Measures such as the G20 DSSI and the “Common Framework” are leaving countries like Ecuador in the lurch. More than anything we need our voices to be heard in international forums and our needs should be acknowledged in the design of policy responses to the crisis. Only through multilateral solutions, such as the implementation of a debt workout mechanism under the auspices of the UN, can we hope to avoid a new lost decade.


Pablo José Iturralde is the director of the Centre of Economic and Social Rights (CDES). This blog was co-authored in collaboration with Eurodad.

This blog is part of a series of articles that Eurodad is producing in collaboration with our global partners on the implementation of the Debt Service Suspension Initiative (DSSI), complementing and updating the report "Shadow report on the limitations of the G20 Debt Service Suspension Initiative: Draining out the Titanic with a bucket?" published in October 2020. Over the coming months, we will publish a variety of articles covering issues related to the implementation of the DSSI and the debt situation in several countries in the global south.

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    • Mary Stokes
      published this page in Blog 2020-11-19 11:31:05 +0100