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Ecuador proposes law to bar use of central bank reserves to finance spending | Reuters

Ecuador’s government has introduced a bill to the National Assembly that would bar the country’s central bank from using its international reserves to finance public spending, a change recommended by the International Monetary Fund (IMF).

The South American country last year reached a $6.5 billion deal with the IMF, sorely needed cash for the oil-producing country whose public coffers were suffering the dual whammy of a sharp drop in crude prices and the economic slowdown due to the coronavirus pandemic.

President Lenin Moreno, who leaves office on May 24, has criticized the BCE’s lack of independence, noting that the bank loaned the central government money to finance spending under former President Rafael Correa.

“The objective of this proposal ... is to give the BCE technical autonomy to avoid political and irresponsible use that seeks to use international reserves to finance the state’s spending,” the economy ministry said in a statement on Monday.

Seeking to push through reforms before Moreno leaves office, the government sent the bill to the single legislature National Assembly as an “urgent” proposal. That process means that if the assembly, where Moreno does not hold a majority, does not vote on the bill within 30 days it automatically becomes law.

Correa, a leftist, has defended the current relationship between the central bank and the government, noting that the BCE’s role is different than those of other countries’ central banks since Ecuador’s economy is dollarized.

Correa protege Andres Arauz won 32.1% of the vote in a Sunday first-round presidential election to succeed Moreno, but will face a second round. Moreno is not seeking reelection. (Reporting by Alexandra Valencia in Quito, writing by Luc Cohen; editing by Jane Wardell)

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