REPUBLICA DEL ECUADOR
MINISTERIO DE ECONOMIA Y FINANZAS

Quito, Ecuador
February 10, 2003

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington D.C., 20431


Dear Mr. Köhler:


The attached policy memorandum and annexes describe the economic policies and objectives of the government of Ecuador for the period March 2003-March 2004, in support of which the government requests a 13-month Stand-By Arrangement from the Fund in the amount of SDR 151 million (46 percent of quota on an annual basis). The government is convinced that these policies will promote sustainable growth while addressing priority social needs, controlling inflation, strengthening public sector solvency, and bolstering external viability.

During the period of the arrangement, the government will maintain close relations with the Fund, including regarding the adoption of any measures that may be needed to achieve the program's objectives, in accordance with the Fund's practices. In particular, it will take additional measures during the arrangement, including on the fiscal side, if the expected decline in the rate of inflation does not materialize, the external current account deficit rises above that envisaged in the program (unless it reflects additional FDI), or the fiscal program appears to be moving off-track. The government will not incur any new domestic or external arrears at any time during the arrangement, nor impose new international trade restrictions, and it will maintain prudent borrowing practices to reduce the debt to GDP ratio.

The government is returning gradually the blocked deposits in closed banks managed by the Deposit Guarantee Agency. This is an exchange restriction subject to Article VIII of the Fund's Articles of Agreement, for which the government requests approval until end-2003. The Government also requests that the repurchase expectations arising during the arrangement period be moved to an obligations basis, equivalent to SDR 14 million (4.7 percent of quota).

Four reviews are envisaged, no later than end-June, September, December 2003, and March 2004. The first review will assess progress under the program, including with respect to the government's efforts to focus subsidies more equitably and restarting the structural reforms.

The government is committed to maintain prudent macroeconomic policies and building further on its reform program in 2004. While at this time, the government does not envisage a need for additional financing from the Fund beyond the present arrangement, we will maintain close relations with the Fund, and for this purpose we plan to request a precautionary arrangement with the Fund for 2004.


Sincerely,

Mauricio Yepez Najas
 
Mauricio Pozo Crespo
President Central Bank of Ecuador
 
Minister of Economy and Finance



Attachment
ADENDUM CARTA DE INTENCION

ECUADOR-MEMORANDUM OF ECONOMIC POLICIES
ANNEX I (PRIOR ACTIONS)
ANNEX II (STRUCTURAL REFORMS)
ANNEX III (TMU)