IMF'S REPLY TO CRITICISM

Dear Ms. Whitlow:

Thank you on behalf of Mr. Horst Köhler, Managing Director of the International Monetary Fund, for your email of June 4, 2003 conveying your concerns about the environmental impact of the new OCP oil pipeline in Ecuador, and about the debt burden that Ecuador faces.

As you are aware, the IMF's primary mandate is to promote international monetary cooperation, balanced growth of international trade, and stability of exchange arrangements. IMF policy advice does, however, take environmental issues into account in cases where environmental degradation has a direct effect on macroeconomic stability and sustainable growth. In this respect, let me assure you that the IMF is very much concerned by issues of environmental sustainability. In fact, the staff's latest reports on Ecuador-which are available on the IMF's website-include a study of environmental accounting based on the idea that the extraction of oil from the rainforest should be conducted with the utmost care. (http://www.imf.org/external/country/ecu/index.htm) After all, both oil reserves and the biodiversity of Ecuador, including the ability of the forest to capture CO2 as analyzed in the Kyoto Treaty, are assets of Ecuador, which should be preserved in the economic process and not consumed.

Our analysis of the oil wealth and the natural environment of Ecuador also has a direct link to the debt problem. We have found that over the last 30 years, Ecuador has drawn down its oil reserves and simultaneously increased its debt, thus gradually making the country poorer over time. In our discussions with the authorities, we encourage them to save the oil proceeds (which after all is a nonrenewable resource) and use a good part of it to pay down the debt, and thus to provide relief for the heavy debt burden the country faces.

This improved management of Ecuador's natural resources, including a careful management of the environment, should make a substantial contribution to development and establishing a pattern of economic growth that is more sustainable over time. We believe that this would provide the best basis to improve the living conditions of all Ecuadorians, especially the poor.

Thank you again for taking the time to share your concerns.

Sincerely yours,

Kathleen L. White

Chief of Public Affairs

External Relations Department