Ecuador: Wants Financial System's Liquidity Fund To Grow To $1.2 Billion

QUITO -(Dow Jones)- Ecuador wants its liquidity fund serving private banks to grow to $1.2 billion, or 10 times the fund's current assets, Economic Policy Minister Pedro Paez told Dow Jones Newswires Friday.

The minister didn't say when or how the fund would grow to $1.2 billion, but added the government is preparing legal and institutional reforms with that goal in mind.

"We want to increase it with the support of the government," but private banks will also have to contribute, Paez said.

The fund supports Ecuador's financial system, as the country's Central Bank hasn't backed it up since 2000, when the country plunged into the worst financial crisis of its history, which cost about $8 billion, and adopted the dollar as its currency.

The government started talking to banks last year to repatriate part of banks' assets overseas to the fund. According to Paez, the banks have $3.8 billion in assets outside Ecuador.

"The goal is having banks working within a safety net, because such a small fund like we have now is an excuse to have clients' money overseas," he said.

To secure the banks' cooperation, the government is planning reforms in laws and the Constitution, which is being re-written by a Constituent Assembly. In addition, Ecuador's Banking Superintendency will establish rules to guarantee liquidity margins in financial institutions and a set of incentives is also underway, although Paez declined to be more specific about it.

Ecuador also plans to create a corporation to insure deposits. The increase in the liquidity fund and the creation of the corporation are part of financial reforms that, among other goals, aim at make the financial system more efficient, reduce costs and decrease interest rates.

-By Katerine Erazo, Dow Jones Newswires; 5939-5422-490; mercedes.alvaro@ dowjones.com

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  04-11-081813ET
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