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FOCUS-Ecuador to get $2 bln from IMF, other lenders

By Janet Guttsman

WASHINGTON, March 9 (Reuters) - International lenders announced plans for a $2 billion aid package for crisis-hit Ecuador on Thursday and said payments, which will help Ecuador bring in the dollar, could start within the month.

The package, announced a day after the release of a controversial report criticizing the big rescue deals which marked the world economic crisis of 1997-99, will help Ecuador implement its dollarization plans, restructure the banking sector and build a social safety net, an IMF statement said.

The total aid package will be paid out over three years, although the IMF said Ecuador could receive a total of $900 million over the next 12 months, including the IMF's $300 million share of the bailout.

``The loans are a combination of balance of payments support and investment lending,'' the IMF said, noting that payments would start after Ecuador's Congress approved "complementary measures to implement its economic reform program.

``They are intended to assist the implementation of dollarization, the resolution of the banking crisis, and to strengthen the public finances, including Ecuador's social safety net to minimize the impact on the poor of the nation's difficult economic situation.''

Ecuador announced plans to bring in the dollar in January, as an already deep economic crisis threatened to spiral out of control. Officials hope it will steady the local currency and boost confidence in the economy, although opponents fear it could push up prices without raising wages.

The dollarization law is linked to tough measures to liberalize the economy, including labor reforms and other measures to cut business costs.

``This ambitious economic program represents an important step forward for Ecuador,'' a U.S. Treasury official said.

``Full and sustained implementation will help lay the basis for the resumption of economic growth and stability which offers the best prospect for improved living standards for all of Ecuador's people during this period of difficult economic challenges.''

Treasury said it would provide Ecuador with up to $90 million in foreign aid this year for ``specific security and development needs.''

MANY DONORS

The IMF said the package would comprise $400 million from the World Bank, $620 million from the Inter-American Development Bank and $700 million from Latin America's Andean Development Corporation, as well as the IMF's $300 million.

``In essence this is a one-year $900 million facility aimed at supporting the move toward dollarization,'' said Michael Henry, economist for Latin America at ING Barings in New York.

``The total $2 billion package hinges on Ecuador's ability to follow through on reforms during the first year and then sign on for another IMF package. There are significant challenges ahead.''

Ecuador first started negotiating for IMF money almost a year ago, but loans were delayed repeatedly while the two sides haggled about the economic policy Ecuador needed to recover from its deepest financial crisis in 50 years.

For a long time the IMF also insisted that Ecuador, which defaulted on its foreign debt last year, step up its efforts to win a formal debt rescheduling deal.

``Solvency for Ecuador will only come when bond holders take a haircut in an upcoming debt restructuring, and that could take some time to be finalized,'' Henry said.

World Bank country officer Eduardo Wallentin said there would be three components to the bank's lending to Ecuador -- a banking sector loan, a loan to modernize the public sector and a larger credit to deal with social sector projects.

He said the few minor remaining sticking points were likely to be smoothed away in a week or so, paving the way for the boards of the international lenders to approve the loans.

(Additional reporting by Hugh Bronstein in New York)