When Paul Wolfowitz became president of the World Bank in June, there was widespread concern that he would be tough, uncompromising and bad news for the world’s poorer countries. If the World Bank’s stance on Ecuador is anything to go by, these fears appear to be well founded.
In August, the Bank suspended at the last minute a $100 million loan to the Andean nation. This was done because Ecuador will divert some of its oil revenues away from debt reduction to social spending. The Bank reckons that by altering the oil stabilization fund’s aims, Ecuador will be unable to achieve some of the promises agreed in its fiscal loan programme with the multilateral.
This reasoning is disingenuous. As Ecuador’s finance minister at the time, Rafael Correa, said, the country had kept its agreement with the Bank, which says that 70% of the oil stabilization fund should have been used to pay down debt until September 2004.
In any case, he added, it is none of the Bank’s business if Ecuador decides to change the spending strategy for its surplus oil revenues. “We are a sovereign country. Nobody can punish us because we are changing our own laws,” he said.
It seems Correa is wrong – Ecuador can be punished. In fact, things could get even worse. The Bank is also considering postponing a further $100 million disbursement due next year as well as another $200 million in loans for social programmes.
Ecuador is in dire straits. Although it can probably get by this year without the World Bank loan, it is teetering on the brink of another debt crisis. Six years ago, the Andean nation became the first country to default on its Brady bond debt. Many analysts expect it to default again – this time on conventional debt owed to foreign creditors.
In desperation, Ecuador’s relatively new, left-leaning government has turned to Venezuela’s president, Hugo Chávez, to bail it out. Chávez is only too pleased to help – what better PR stunt for the bad boy of Latin America in his bid to become a regional champion. But Ecuador should not rely on a neighbour that is hardly in a stable position itself.
No-one is saying that the World Bank should write a blank cheque for Ecuador or that its government can’t do more to help itself. But if the Bank turns a blind eye to Ecuador, what is the point of the institution?
Instead of loaning more money to middle-income countries, such as China and India (whose governments are hardly faultless themselves), Wolfowitz should ensure that the institution he leads helps those countries that really need its funds.
