Ecuador taps IMF for aid after $3B earthquake

Rodrigo Buendia | AFP | Getty Images

Pedernales, one of Ecuador's worst-hit towns, two days after an earthquake hit the country.

Ecuador has asked the International Monetary Fund (IMF) for aid after this month's massive earthquake killed hundreds of people and laid extra stress on the struggling economy.

On Wednesday, an IMF official said it had received a request for a credit line from Ecuador, according to Reuters. The country might receive up to $368 million during the course of the loan, the newswire calculated.

The 7.8-magnitude earthquake hit Ecuador on April 16, around 100 miles west of Quito, the capital city — where it was felt. More than 650 people were killed and around 16,600 injured, according to Reuters, citing Ecuador's emergency management authority.

Smaller quakes then hit the region, including a powerful 6.0-magnitude one on April 20.

Ecuador's President, Rafael Correa, has estimated the cost of damage at $3 billion or 3 percentage points of the country's gross domestic product, according to political risk consultancy, Teneo Intelligence.

This poses a huge challenge for the upper-middle income country, which is has been hit by greatly reduced oil revenues. It is a member of oil-producing cartel OPEC and exports around 422,000 barrels a day.

Correa was originally reticent about tapping the IMF for aid. Loans from the body tend to be subject to economic conditions that are sometimes unpalatable for leaders.

Juan Cevallos | AFP | Getty Images

A man walks along a street of Portoviejo, Ecuador, almost a week after an earthquake hit.

Nicholas Watson, senior vice-president at Teneo Intelligence, was skeptical of Correa's previous assertion that the IMF had offered condition-free support.

"The claim should be treated cautiously; condition-free assistance tends to be provided by the IMF only when the applicant country has very strong economic fundamentals," Watson said in a report on Wednesday.

In the meantime, Ecuador's National Assembly is fast-tracking emergency tax-raising measures that are supposed to raise $1 billion over the next year, according to Watson.

These measures include a 12-month increase in sales tax to 14 percent from 12 percent, a one-time levy for people with assets over $1 million, a one-off 3 percent tax on company profits and sliding-scale contribution from people earning more than $1,000 per month.

The National Assembly also approved a separate program to increase tax revenues this week, in a move that might potentially rile Ecuadoreans and rival politicians.

Guillermo Granja | Reuters

Damage is seen on the road between Pedernales and Jama after Ecuador's earthquake.

Plus, Ecuador has tapped oil-backed loans from China.

"Politically, Correa faces growing frustration at this slew of new taxes, despite general acceptance of the emergency measures … Correa's messianic style of leadership may make him feel he is irreplaceable, especially post-earthquake, or he could yet decide to let someone else take the flak for the economic difficulties Ecuador is facing," Watson said.

http://www.cnbc.com/2016/04/28/ecuador-taps-imf-for-aid-after-3b-earthquake.html