Analysis of fuel subsidies, the IMF and juncture risks in Ecuador.
Analysis of fuel subsidies, the IMF and
juncture risks in Ecuador.
(Alquinga.B- Mantilla.R)
Subsidies are public assistance benefits of an
economic nature and of a fixed duration (RAE, 2017), which aim to improve
living conditions and meet the needs of vulnerable sectors by facilitating
their access to specific goods and services. In Ecuador, the policy of fuel
subsidies was implemented in 1973 and from this year onwards, the amount
allocated to this system increased progressively due to the increase in oil
prices, despite the fact that several studies show that the greatest
beneficiaries are households belonging to the highest quintiles of the
population, generating externalities. However, an elimination of the subsidy
entails an economic contraction in each one of the households that receive low
income, in addition it would show a political repercussion and social upheaval
in the country due to the fact that the population sees the subsidies as an
obligatory right that they must receive.
Economic measures without consensus were the
detonators of social protests in Ecuador. The adjustment plan proposed by the
National Government in exchange for receiving credits amounting to $4.209
million from the International Monetary Fund (IMF) includes labor and tax
reforms to be debated in the National Assembly and a mandate via decree
regarding the release of fuel prices. Labour reforms include new contract
modalities, as well as replacements for maternity leave, paternity leave and
catastrophic illnesses, a new form of employer retirement and the renewal of
occasional contracts with 20% less pay. For the productive sector, together
with the tax reforms, the advance payment of income tax, reduction of tariffs
for machinery, equipment and raw materials, elimination of tariffs on imports
of technology goods, and the contribution for 3 years to companies that receive
income of more than $10 million per year are eliminated. Finally, the
liberation of the price of diesel and extra gasoline and ecopais, known as
decree 883, were the main causes of social discontent. The demonstrations began
with the convening of the transporters' guild, which was later joined by the
indigenous movement led by the Confederation of Indigenous Nationalities of
Ecuador (CONAIE), trade union organizations such as the United Workers Front
(FUT), the Central Worker’s Union (CUT) and civil society.
The National Government's letter of intent with
the IMF sets out objectives such as strengthening the dollarization system,
increasing the living standards of the most vulnerable citizens, strengthening
competitiveness and job creation, and being accountable in a transparent
manner. At the same time, the Government commits to reduce the ratio of public
debt to GDP below the benchmark target of 40%, reduce the non-oil primary
deficit of the non-financial public sector by 5% of GDP in the next 3 years together
with an adjustment of the public sector wage bill, optimization of the fuel
subsidy system, a reform of the tax system leading to growth, reduction of
public spending on capital, goods and services, updating the tariffs for
services to citizens of public entities and monetizing assets that will remain
under public ownership but whose concession rights will be granted to private
partners.
But why do we need to turn to the International
Monetary Fund? Public indebtedness has increased despite the application of the
austerity plan by the government, the information provided by the Ministry of
Finance for April 2019 and considering the new methodology for calculating the
public debt indicator with respect to GDP amounts to 49.17% and by August 2019
the service of the external public debt represents 4.81% of GDP (ME and F, 2019). However, these securities
must rise because in September 2019 the government issued bonds to the
international financial market in the amount of $2 billion. Similarly, capital
outflows, resource transfers and the payment of external debt have not
strengthened the dollarization system, in addition to the arrival of migrants
with remittances from Ecuador abroad and the deficient tax collection system
that is below the average for Latin America and the Caribbean (OECD, 2019), as
well as the forgiveness of taxes, fines and interest to large economic groups
that deepen this problem. In spite of this, the presidency of the republic
continues to mention spending projects, without official financing, such as:
the beach train, the university for the national police, etc. All this with an
economy that remains stagnant and that will continue in recession with growth
projections of 0.5%.
Similarly, in order to deal with the reduction
in the wage bill and the high level of unemployment and underemployment, new
forms of hiring are encouraged, but no mention is made of how the measures will
affect poverty and the levels of extreme poverty that have been increasing in
recent years. Thus, as a first measure to access the total disbursements of
credits subscribed with the IMF, on October 1, 2019, through the national
chain, the elimination of the fuel subsidy is reported, among the labor and tax
measures, a provision that, for some government spokespersons was courageous,
for others it was a political loss and, in our opinion, an abrupt one, since
optimizing the subsidy system does not mean elimination, but rather targeting.
Since Carondelet mentioned that the measure was
ordered because the subsidy favored those who have more and encouraged
smuggling, problems that can be solved by focusing the system of subsidies and
if law enforcement is sent to the borders. This decision without consensus did
not consider that extra gasoline and diesel are used by different sectors of
the economy, increasing the costs that transporters, businessmen and producers
would pass it on to consumers and in turn would generate the generalized and
speculative rise in prices.
As a result of these measures, for 11 days the
country was confronted with mobilizations, protests and paralysis that led to
riots, seizure of public buildings, looting and damage to private property. The
social pressure, the media siege and the silence of some politicians while
others promoted regionalism, racism and opportunism in a democracy without
leadership that usually blames third parties. However, after the order for a
curfew and militarization of the mainland, a process of dialogue led to the
repeal of the controversial decree 883, resulting in the maintenance of the
universal fuel subsidy.
The lack of socialization of the package of
economic measures and the lack of credibility that the government represents
were the main reasons why a large part of the population rose up in protest. As
a result of these demonstrations, the country was submerged in a national
paralysis that resulted in economic losses, since from the government's point
of view only fiscal savings were calculated without taking into account the
social cost.
The days of suspension of production during the
national strike resulted in $2.3 billion in losses as preliminary figures
presented by the Chamber of Industries of Guayaquil, affecting agriculture,
commerce, manufacturing and transportation. Delays in the delivery of goods were
caused by blocked roads in 17 of the 24 provinces. On the other hand, the
effects of the political and economic crisis led to gasoline shortages, product
shortages, speculation in food prices and an increase in national transport
fares, distorting the market.
By stopping the production of strategic sectors
for more than ten days, entrepreneurs are prevented from being able to pay
their most immediate obligations, such as salaries, suppliers, and bank and tax
obligations. In addition, the Ecuadorian Federation of Exporters (FEDEXPOR)
reported that they stopped exporting more than $300 million, so their income
decreased, including that their goods did not reach abroad, increasing not only
their reputational risk, but also the liquidity risk, since it has to cover
infrastructure damage and replacement of products lost as a result of looting.
Similarly, the warning of union leaders to initiate criminal proceedings for
acts that fragmented their production, distribution and sale, increasing their
legal risk.
The financial system did not deviate from the
consequences of the national strike, different banks, cooperatives and
institutions could not pay attention in their matrices or in some of their
agencies at the national level. The constant withdrawal of money in the face of
the panic of a violent social protest, the silence of the government and the
excess of public force left some cities of the country without a cash supply.
Without an official pronouncement by the Association of Private Banks of
Ecuador (ASOBANCA), we assume that deposits and interbank transfers decreased,
not to mention that the protests began at the beginning of the month, days in
which withdrawals of money are greater, likewise, liquidity decreased and
delinquency increased.
The rise in country risk is taking place in an
atmosphere of uncertainty following the protests. Before the demonstrations,
the indicator stood at 677 points and during the protests with a maximum value
of 777 points as a result of the curfew and the increase in violence, such as
the forced paralysis of 20 oil fields located in the provinces of Sucumbíos and
Orellana, contracting the state's permanent income. Similarly, the government
has to take responsibility for finite damage to public infrastructure and the
replacement of law enforcement tools such as military vehicles, police and
ammunition; this while continuing to pay public sector salaries, foreign debt
services and state suppliers, being obliged to use international reserves
increasing its liquidity risk. Not only is the credibility of the national
government on the ground, in the same way, the brutal action of the forces of
order against demonstrators and the indigenous movement, irruptions in
universities declared as zones of peace and for limiting access to information,
are some of the reasons why human rights organizations will visit the country
to investigate violations of the same, and in other cases, to sue the
Ecuadorian state for against humanity, without adding that some of its main
officials will be sued for kidnappings, illegal and arbitrary detentions.
In order to reactivate the businesses of people
affected by looting or reduction in production, the state has allocated a total
of $300 million as a lifeline for merchants and small businesses, to offer S.O.S.
credit lines with an amount of $10,000 to 5 years without a guarantor, this can
produce credit risk, because there is a very high probability of default by
affected entrepreneurs.
The national government, as a result of the
demonstrations that led to one of the greatest social crises during the last 40
years and with million-dollar economic losses for different productive and
industrial sectors, showed that, in the face of the fixation of reforms, all
sectors participating in the economy must be socialized and involved; in
addition, civil society must have a high level of argumentation and critical
thinking in the face of measures that could probably benefit the country. While
subsidies are covered by the constitution, they should be targeted and limited
in duration, as well as foster international cooperation between Colombia and
Peru to curb smuggling at the price level. Similarly, improve the collection
system and, if the objective is to condone taxes to large corporations at least
ensure that those values are reinvested in those industries by improving their
technology and increasing workplaces. Improving the credibility of the
government is indispensable, since policies given by the executive affect
different risks that harm the normal development of the economy and its actors.
Bibliography
RAE. 2017. "Subsidy." Dictionary of
the Spanish language. Digital edition. URL: http://dle.rae.
en/?id=YZe7hh6
OECD, 2019. Tax statistics in Latin America and
the Caribbean.
After a political decision as controversial as the total elimination of fuel subsidies, a rejection reaction by many Ecuadorians was foreseeable, that is why before making such an important decision in the country, it was necessary to talk with all the economic groups that make up the country to reach an agreement where each of these economic groups of a sacrifice for the good of the country.
ReplyDeleteNow my economic point of view of the decision taken by the government is that it was necessary not a total elimination of the subsidy but rather a focus that allows higher economic groups to pay more for fuel which could have been achieved with the information that It provides the SRI as it has information on the income of people belonging to the highest economic groups.
Now a criticism of the blog is that it focuses only on monetary losses, which are obviously important, but do not talk about the fact that many human lives were lost, lives of both civilians and representatives of the armed forces. In the same way he does not speak of the so blatant way in which the national media hid what was really happening in the country.
Finally, I consider that the path to be taken with the new decree must go on the side of subsidies, but in a way in which all economic groups agree with the sacrifice they will give for the country. Obviously we cannot allow the government to continue borrowing to cover other debts since doing so is only postponing the real problem. In short, what is desired is that there be peace in the country and for this it is necessary to reach an agreement where each and every one of Ecuadorians sacrifice a little for the economic good of our country.
A lot of things need to considerate for this analysis. The new economic measures adopted by government like to the liberation of the subsidy to the prices of the extra gasoline and diesel, was to ensure subsidies are not exploited by people who smuggle fuel to neighboring countries. First of all, an analysis of the causes and effects of the new measure along with a possible mediation should have been carried out.
ReplyDeleteSecond, the union of transporters at national level decide to call a paralysis of its activities, leaving without public transport most of the national territory this action was not justifiable. Blockages were observed in the roads burning tires and groups of drivers demanding the immediate repeal of the economic measure imposed by the government. Repression with violent acts should not be allowed, because it demonstrates spread to the press. The very act of explaining the problem did can, be eoungh to solve it. With the repealed law, end fuel subsidies like initial deal, allowed to stop protests
After the terrible consequences the, the S.O.S. credit agreement was a good decision, because this credit will help to all citizens affected with the emergency situation and allow their productive reactivation. The communication help to resolve problems, not violence. These acts affect the financial markets. Now, the preoccupation will be the economic growth, the reduction joblessness and the poverty.
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ReplyDeleteEcuador had one of the strongest events in the history of the country, due to economic measures, twelve days were paralyzed by violent demonstrations that prevented the free movement of people and there were many acts of vandalism. The consequences of this measure were price speculation.
ReplyDeleteIn addition, President Lenin Moreno took steps to end the protests, such as curfew, abuse of power by the national police that generated more violence was notable as they are in charge of ensuring the safety of their citizens and even, the media did not transmit what was really happening as acts of violence towards people, so through social networks reality was observed and even the international media were judged by the government minister.
It is also necessary to deepen the analysis of the economic and social consequences of inappropriate government public policies that do not favor poverty reduction. In addition, the florist sector had losses of $ 350 thousand, that is, around 700 thousand roses could not be exported to the United States, Russia, China and some countries in Europe. All this led to large losses in other sectors, but in this case the government through the financial institution BanEcuador (B.P) made credit disbursements for the benefit of those affected to help restore Ecuador's economy.
The subsidy in our country has been a fundamental pillar of the fiscal policy of the governments since 1973 considering that it is not a social loss but a transfer so that it benefits the poorest, but the subsidy has not been targeted, so it is inefficient . For a subsidy to be good, it must be temporary, focused, and have sufficient resources to maintain it. However, none of these three concepts has been analyzed in Ecuador.
ReplyDeleteI agree that with a correct analysis the demonstrations could be avoided for 12 days, since I left economic losses of millions of dollars to the country, clashes between the public force and the protesters, which left fatalities, injured and detained.
Finally, I consider that the analysis that is being carried out on the new package of economic measures is an issue that must be analyzed in depth with the support of social organizations, academics and unions to seek alternatives for the benefit of Ecuadorians. Considering that the fiscal policy is to efficiently administer and spend resources, so that the money that the state takes from citizens returns to us through quality works and services that benefit everyone and preferably those who have less.
I agree that subsidies should be a measure of limited duration and, especially, should be focused, consequently avoiding dependence on this measure and smuggling. In keeping with this last aspect, I think it is necessary much more than the use of public force to face this problem, it needs exhaustive control from public regulatory institutions.
ReplyDeleteOne of the main problems in Ecuador is the lack of trust that makes society doubt each one of the government actions. Besides, the corruption that has had an increasing tendency has been an aggravating factor for this situation.
I consider that the text refers only to the economic, financial and reputational costs of the strike. But social costs are not taken into account, that is, all the lost lives in this process and not only of protesters but also of members of the public force. The costs generated by damages to the heritage are omitted too and this is related to economic losses in tourism.
Finally, it is important to identify that beyond analyzing whether or not the elimination of the subsidies that are requested should create an atmosphere of credibility towards the government and stop blaming previous governments and the most important fact is ensure the interest of less favored economic groups. In my opinion, it is pertinent that the academy takes place in the development and implementation of economic policies.
First of all, it should be borne in mind that the subsidies are intended to meet the needs of some vulnerable sectors to facilitate the use of certain goods and services, which according to the requirements of society, state capacity and political management can be aimed at sectors such as: housing, employment, health, education, transportation, energy consumption, etc. On the other hand, it is known that there are different kinds of subsidies, but the basic characteristics that must be met are: transience, targeting and economically feasible (Montesdeoca & Acosta, 2012). That is why subsidies must be economically sustainable and have a rigid base of resources on which it can be maintained for a period of time until it meets its objective. Now for the Ecuadorian case, subsidies do not meet any of these three characteristics, although these have been an important instrument since 1979, being recognized in the 1998 and 2008 constitutions, since for more than 40 years, they have privileged an application spectrum universal rather than a focused one and, as a result of the problems of its application, deficits in domestic production and growing demand, have been the occasion of significant fiscal imbalances. This scenario is further complicated if three problematic areas related to the current subsidy policy are considered disaggregated: the social, the ecological and the fiscal. In the first place, by observing in general a universal and non-focused nature, the current fuel subsidy policy has led to the social problem that the major beneficiaries of the incentives are the well-off classes rather than the vulnerable layers, since the former have the possibility of consuming subsidized goods in a greater volume and indiscriminately (Gould, 2018). Reason for which, a new subsidy policy must be constructed in such a way that all the affected groups intervene and thus try to meet the three characteristics already mentioned to avoid future confrontations among all citizens.
ReplyDeleteAs we know, Ecuador spent around $ 54,269 million on fuel subsidies between 2005 and 2018, which is equivalent to 50% of GDP. In this way, I consider that great importance has been given to the elimination of the fuel subsidy, making it practically the main solution of the current external debt.
ReplyDeleteHowever, I think it is of great importance to analyze and evaluate which quintiles are benefiting from this subsidy and this is how, according to the newspaper, trade through the interview with Dr. Marco Naranjo shows us that the highest quintiles are benefiting . In a clear example we can see that people with high resources benefit because they are the ones who use this subsidy for both kitchens, tempering pools and jacuzzi, calculating that on average a person with high income consumes around USD 100 per week and the State employs a USD 200 subsidy for this quintile.
At this point I consider it important to remember that among one of the main characteristics of a subsidy is that it is not generalized and it is here that I emphasize the targeting of the subsidy, for example and as a proposal: it would be appropriate to propose a computer system that through of the identification number, it is possible to verify to which economic quintile it belongs and to assign or not the respective subsidy.
With regard to the situation of the latest events in the country, it is important to remember that diesel is mainly used for artisanal fisheries, agricultural production, cargo and public transport. That is why I do not consider the only compensation that these sectors could receive the increase of 1000 places to acquire from the human development bond. If we take into account that this system is not efficient.
Finally, I consider it essential to carry out a subsidization targeting project. It is only in this way that laws can be proposed for the benefit of minorities, because the economic transmission mechanism does not simply remain at 0.01 or 0.02 USD, because the problem of adjusting these items is really that everything becomes more expensive, in addition of social damage over the lowest quintiles.
The elimination of subsidies can be an optimal path, since many times these are responsible for fiscal deficits in countries. However, it turns out to be somewhat difficult to achieve. The elimination of subsidies would produce clear economic and environmental benefits, helping to meet the climate objectives established in the Paris Agreement. However, possible adverse effects on vulnerable households can make reforms politically difficult.
ReplyDeleteA possible solution would have been the one that mentions the international experience that highlights the importance of eliminating subsidies in a pragmatic way and with mitigation measures focused on the most vulnerable groups and those most affected by the reform.
When talking about solving economic problems, a country has three objectives. The first and most important is employment and economic development, the second is to return to fiscal balance and the third is that external accounts and balance of payments are well. The difficult thing in economics is to do things that help all three objectives. In Ecuador, it only concentrates on one, at the expense of the others.
Perhaps that would have prevented the high costs that led to the direct elimination of the subsidy.
One of the important events in Ecuador has been this social upheaval for which there were great problems where it is clear that among one of these problems is the loss of millions of dollars generated in trade. We have already seen what the origin of this problem was likewise, people have been informed of different means of communication, however the use of social networks was very important since it reached more people among which the abuse of force stood out publishes but the consequences came little by little. the different types of risks began to raise their indexes in an abrupt way which evidenced the fragile economic system the country increased risk which would generate losses to small and large producers, likewise the operational risks of the different entities come to light You publish, although one of the government's measures is to encourage small producers, which is fine, it is not possible to help at all because evidently the use of other resources is essential, this event finally revealed many operational risks and increased other types of risks.
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ReplyDeleteI consider that the elimination of the fuel subsidy had a background and form problem, because it was not necessary to take such a drastic measure, if not rather, it could have been done what the academy suggest to have targeted subsidies and so maybe; social and economic losses could have been avoided. In addition, this blog mentions the loss of government confidence that is extremely important, because now society will doubt every decision it makes. The country risk was also mentioned, which measures the probability of non-compliance with the financial obligations of a nation due to economic, political and social factors. For the reasons of decree 883 there were paralyzes of social groups, abuses of political power towards society, economic losses and this caused the country risk to increase to 823 points according to the JP Morgan company. This would mean that foreign investors run a high risk of loss, so the only way to encourage investments will be to compensate them with more profitability.
ReplyDeleteIn conclusion, the subsidies must be focused and not generalized, since in the course of time they will become unsustainable. Likewise, economic measures must be taken in conjunction with all economic sectors that participate in the economy of a country, in order to avoid future destabilizations or future risks.
For five decades the Ecuadorian Government has subsidized gasoline, diesel, liquefied petroleum gas (LPG) and electricity by up to 85%, according to information from the Central Bank and the IDB, which means in percentage terms around 7% Annual public spending and, given the current economic situation in the country, it is very difficult to maintain the gasoline and diesel subsidy, so the Government intends to recover these values by eliminating said subsidies and strengthening the productive sector.
ReplyDeleteThe current economic situation in the country is not in a position to maintain these subsidies, in addition Ecuador is among the six countries in the world that sell the cheapest gasoline and diesel. On the other hand, subsidies will always be a problem if the international price of oil plummets sharpening internal economic problems.
Although, the elimination of the subsidy affects many Ecuadorian families, a more efficient alternative for targeting subsidies should be sought so that the low-income people who really need it are not harmed.
National government faced strong protests presented in October not only began a series of reprisals by vulnerable social groups detonated as a resoult of subsidies elimination because these are the most affected, the logic that the rich are the ones who benefit most is only a perspective because pople with lower income from the consumption of fuels is subcidia in greater, in monetary terms , amount than for a rich person because for this it does not represent the same amount of benefit. However, despite the fact that the productive and commercial sectors benefit the most, they only represent 20% of the self-driving park in Ecuador. Main trigger for the protests was not the stoppage of transporters but the series of measures little focused on social welfare with a tendency to improve the conditions of the private sector starting with privatization of companies in strategic sectors and the degradation of the forms of contracting.
ReplyDeleteAs we know, the last protests registered in Ecuador were the result of the disagreement of several social groups with the package of economic measures announced by the President of the Republic, which sought to comply with the request of the IMF to grant the loan of about $ 4 billion to our country, the result of these protests was the repeal of decree 883 where the subsidy to diesel and extra gasoline and ecopais was eliminated. For a decision of these to be carried out, I consider it important to carry out further studies by specialists in the field, as it was clear that not only those with higher incomes would be harmed by this measure, this is how this subsidy should focus. After these protests it is important in addition to analyzing the economic situation, also analyzing the social results that they left since there were not only economic losses as mentioned in the article but also human losses of both Protestants and members of the public force, it is so as a great difference has been created between these groups, when what the country needs is the union to face these problems.
ReplyDeleteIt should be noted that all subsidies must be focused on a depressed sector of the economy, having a push so that stability can be generated, especially at the most vulnerable points. It should also be considered that subsidies can be an incentive to consumption for the lowest income quintiles, especially if they are necessities. All subsidies must be temporary and with a specific sector to which it is effected. Taking into account all the aspects involved in generating a subsidy policy, it should be ensured that the beneficiaries of this policy are those that were planned at the beginning and the distortion that could exist, by means of speculation or contraband, is avoided. In addition to the controls that exist, they go through a very rigorous process
ReplyDeleteFunds destined for fossil fuels, do not allow the development of technological industries or focused on improving the environment, can have a constant growth. In this way, the withdrawal of the subsidy of these fuels generates a significant contribution to the ecological economy and improves the quality of life. Since it allows solar panels, wind power, electromagetiso and other sources of ingenuity, they provide the necessary energy
As recommended, have the perspective of all the sectors that could be related to a policy. Especially when it affects the level of consumption of the lowest quintiles in the economy and holding the agents with more social, economic and political weight.
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ReplyDeleteThe government says that due to the current situation in the country's economy, subsidies have become an important burden on state spending and their elimination would reduce the fiscal deficit. The decision comes because the Ecuadorian economy needs a restructuring of fiscal expenditure, with a large debt to cover and fiscal deficit whose gap is increasing.
ReplyDeleteThe elimination of subsidies is an important decision of great social cost that must be rigorously analyzed to avoid what happened in the last march against the economic measures adopted by the government.
Eleven days in October 2019, Ecuadorians will not forget, society was not in accordance with the economic measures that President Lenin Moreno posed at the beginning of October, consequently there was a rejection, by different social groups and organizations, towards decree 883. Well, the country was paralyzed and consequently the losses are social, economic, international, financial and humanitarian. But decree 883 was the trigger for the reality that Ecuador is going through, on the one hand, unemployment and underemployment, the humanitarian crisis of foreigners who arrive in the country and settle, payment of foreign debt and insecurity are causes that the Government take austerity measures. There was a bad intervention by the president and his team because there are other alternatives before Ecuador decided to borrow from the IMF, that for a loan granted by this entity implies a series of agreements or measures that the beneficiary of the money must apply, such as minimize state intervention. Finally, subsidies are a very sensitive issue that the president ignored because he did not take into account what kind of consequences would trigger these decisions. Before applying a measure that had such a great impact, it was necessary to dialogue with social groups and organizations. A pending issue is the low existence of social responsibility, that is, each citizen is involved with the reality of the country so as not to allow the government to make hasty decisions.
ReplyDeleteThe imperialist countries in the search to strengthen their economies discharge their capitalist investment obligations in underdeveloped or developing countries, such is the example of Ecuador, being a primary level country, They propose and impose policies to be applied as requirements mandatory for the granting of a loan by the IMF, such is the example of tariff protectionism to prevent and limit the entry of foreign production to the country, likewise depressing prices of raw and agricultural materials with the aim of keeping the country in the Primary sector as a supplier of raw material and buyer of industrialized goods at high costs.
ReplyDeleteThe economic measures adopted and applied by the Ecuadorian government in September 2019, generated dissatisfaction with the Ecuadorian population, since it promotes stagflation, that is, they produce economic stagnation and inflation due to rising prices and declining wages. This adoption of measures was due to the request of a loan to the IMF in which this financial entity among its requirements for such granting, asked the Ecuadorian government to reduce public spending, salaries, precarious employment with a new modality of hiring and rights labor, also the decrease of the main subsidy such as fuel, a measure applied without regressive focus affecting the vulnerable sectors and from the middle class society to the poor, because this good is used in the productive sectors of goods and services throughout the country.
It is for this reason that citizens generated a paralysis of mobility and productivity at the national level, with the request for the overthrow of decree 883 that covers the measures. This produced an increase in the country risk causing international investment to decrease due to the inadequate management of the situation. In addition, it would cause an increase in financial risk because, if the level of productivity is reduced, an economic stagnation is caused, the country's debt will increase, and it will have difficulties in payment. Therefore, the government should carry out an exhaustive analysis regarding the financial risks involved in complying with the requirements of the IMF financial institution and look for mechanisms to maintain them in a sustainable state that does not affect the economy and the standard of living of the citizens.
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ReplyDeleteIn Ecuador it is evidenced once again that the economically viable, would not become the politically correct, because it is well true that the subsidies are generally true of more than being an economic aid that a person or entity receives from an official agency to to meet a limited need, they aim to improve the living conditions of the most vulnerable families.
These can be direct and indirect, they require an adequate administration to avoid their bad application aggravates the inequality and that in the long term if they are maintained and can harm the General State Budget with the increase of the cost, since the subsidies according to experts, must be applied for a certain time. In Ecuador, subsidies are part of a rentier culture, which aims to live on income that is not the result of work. When subsidies benefit the poor and rich alike (poorly targeted), a distributive injustice is committed, because the wealthiest do not depend on this subsidy to stay afloat.
This is what happens with the gasoline subsidy, where it ends up privileging social groups that do not need it, while those who do not have vehicles or have never visited a gas station, do not benefit from cheap gasoline. ; on the contrary they are destined to suffer a public transport system that is a catastrophe, as well as those who benefit and will continue to benefit from this low price are the smugglers. SOLUTION? DIVERSIFY SUBSIDIES IS AN OPTION!
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ReplyDeleteI believe that seeking sources of financing, both national and international, is very important for the development of an emerging country, especially if there is a deficit in the budget of that country. However, I think that Ecuador's negotiations with the IMF did not have an adequate study, as this entity imposes several conditions to ensure the payment of the credit granted to the country. These conditions imply several changes in the economic and social structure of the country, changes that caused dissatisfaction on the part of the population within Ecuador, non-conformity that fell in massive protests around the country, which had as main trigger the elimination of the subsidies of the fuels.
ReplyDeleteOn the other hand, I believe that the elimination of subsidies is inevitable in the context in which our country is currently located and developed. However, the sudden elimination of them can negatively affect the well-being of the population, since, as is known, the increase in fuel prices will affect all sectors of the economy causing prices of all goods are more expensive, and this will cause great discontent with people. Likewise, prices will also be affected due to the speculation of sellers. That is why I think that, although subsidies must be eliminated, this must be a progressive process, with the objective of reducing the impact on the most vulnerable sectors. Additionally, I believe that it must be a focused process so that resources are allocated more efficiently and without harming the lower social classes.
The deterioration of the Ecuadorian economic situation in recent years led the current president to seek funding from international agencies in order to continue with the stability that the country had. However, Ecuador is in a latent political and economic crisis, since the government of Lenin Moreno manifested an economic adjustment plan with some other measures that put an end to the 40 years of financial aid to maintain low prices of gasoline and diesel, which caused a negative response from the population, as they held street demonstrations as a result of the elimination of fuel subsidies.
ReplyDeleteHowever, the elimination of fuel subsidies forms the central part of the reforms agreed upon by the government and the International Monetary Fund, which reversed the economic policy of the previous government, so that gasoline and diesel subsidies with extremely expensive, beyond an economic, social and environmental perspective, as they represent more than 3% of the country's GDP and 22% of oil exports, which could be allocated to certain sectors together as education and health.
It is important to understand the main reason why the gasoline subsidy was to be eliminated, it is sad and worrying that Ecuadorians only get carried away by comments or what they see only on social networks, and by The indigenous communities were present in disputes, fighting, damaging the heritage of Quito, for not paying fines or many of them for knowing Quito, bringing their minor children or their women and exposing themselves to such a situation is quite sad. The problem is not that the subsidy was set aside and we forget everything and nothing happens, the country is too high in debt where it can no longer remain indebted because there are also limits and that is why the IMF was acclaimed It was also not the best alternative that there are empirical studies that show that this entity is not always the best option to incur. The elimination of the subsidy was with the idea of giving money to smugglers and increasing development projects but it was very difficult and there was too much deviation from the information. In addition, the useless subsidies make private investment move and is what we least need in the critical economic ditution in which we find ourselves. An alternative exit is quite difficult but it is to attack the citizens controlling the tax payment and because a clear example are threats such as closings of premises if they do not comply with the payment of taxes, the country's situation is critical but it is very difficult for people react since we live in a decade of much expense and the contraction of the economy is quite difficult to assimilate, the lowering of the price of oil one more blow to our country which must seek new alternatives but fast to avoid falling into a more serious crisis.
ReplyDeleteCurrently, in Ecuador there is policy management linked to the traditional political sectors, which through their mandates have caused the country to suffer economic crises and the most affected have been the poor people who are the most affected in these citations.
ReplyDeleteThe IMF is an organization that is preceded by many economic and political interventions in many of the countries of the world, historically in Ecuador, it has often interfered with economic management, establishing its own policies, and giving orders to the rulers on what It may or may not do.
This is very convenient for the power groups since the recommendations by the IMF are to reduce taxes, make the labor market more flexible, reduce public spending, especially in education and health services. For this reason, debts of payment of taxes for more than 4000 million dollars were forgiven, an attempt was made to promote a labor reform, and also the subsidies for fuels were eliminated.
It is clear that the policy proposed by the IMF is a neoliberal policy, and that it is worrisome given that the interventions it has carried out have ended up in deeper crises than those it has tried to "rescue".