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Liquidity does not improve with oil price increase

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Oil production is at 500.000 barrels a day.
Photo: ANDES

According to analysts interviewed by Andes Agency, liabilities make it difficult to recover economically.

Quito, May 16 (Andes).- WTI oil prices have reached $70 in the last months, however it has not impinged on an improvement in the Ecuadorian economy’s liquidity.

Interviewed by Andes Agency, Luis Calero said the increase is due to output cuts established by the Organization of Petroleum Exporting Countries (OPEC) and the US government’s decision to withdraw from the Iran nuclear deal after two years and 9 months of signing it.

Oil prices at $70, according to Calero, is not the average so far this year, but it stood at $51 between January and February and it must have hit $60, 19 more than what the country budgeted.

“I think that we cannot consider the increase in these prices as decisive indicators in terms of economy,” he added.

However, he said, the amount of liabilities and obligations are considerable to the point that it makes such increases not to mark a trend of improving economy.

The analyst also commented that this is due to oil presale contracts, through which the Ecuadorian State committed to exclusively selling oil for a period of time.

He affirmed that one part of Ecuador’s oil production is sold to pay loans; however, some contracts had a calculation formula that is not convenient for Ecuador.

“Such calculation that we will pay 10 to 15 billion dollars for a debt of 1 or 2 billion dollars is absurd,” he added.

He recognized that the country would be getting less than 60 dollars a barrel and that the State would not receive what it should in relation to market prices.

On this matter, vice president of the Economists’ Association, Victor Hugo Alban, considered that the country’s problem of liquidity is due to the oil presale and to the fact that 75% of Ecuador’s oil is sold by 2025. Therefore, he suggested renegotiating these contracts

He added that the State had a deficit of 8 billion dollars from which 3 billion were covered with the bond sales which might be due to a new bond emission.

Meanwhile, Marco Flores, member of the Public Finance and Economy Forum, says there is no liquidity in the national treasury in spite of current oil prices due to excessive spending by the former administration.

He added that former president Rafael Correa “covered the deficit with public debt and basically with commercial public debt at high costs. This structure remains exacerbated in Ecuador because oil was sold undervalued to the Chinese and to a Thai’s company.”

According to Flores, another element that generates liquidity is the fact that the economy has not been boosted and “that’s the current government’s responsibility.”

This week, President Moreno named Richard Martinez new finance minister. He is the third official to lead the Ministry in Moreno’s first year in office.

He affirmed that Ecuador needs 2.5 and 2.8 billion dollars a month; however, that amount is not produced and the deficit stands at between 800 and 1 billion a month.

“The 3 billion dollars Ecuador got from sovereign bonds have almost vanished this month, Ecuador faces a serious problem,” he affirmed.

On the possibility of revising these contracts for Ecuador to get real oil prices, Flores said it has been the “deal of the century” for those foreign companies and thus it will not be easy to renegotiate.

He suggested that President Lenin Moreno should intervene directly in that case and negotiate with the Chinese leader “to facilitate such conditions”, and recalled that both Chinese companies (Unipec and Petrochina) are owned by the State.

According to him, this would allow releasing 5 billion dollars.

“These 5 billion dollars would suit the country perfectly, it would mean a provision of liquidity that would contribute to public finance,” said Flores.

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