Part
3 - Economic Reforms: Capital Over People
On June
21, at the request of the executive branch, Ecuador’s National
Assembly approved the Productive Development Law, a law rejected by
economists and activists for threatening social services and
violating the 2008 Constitution.
The law
prohibits the approval of the country's annual budget with a primary
deficit. A provision that according to Ecuadorean economist Andres
Arauz, who worked in Ecuador’s planning agency and the Central Bank
will adversely affect social spending.
“Every
year there must be more revenue (taxes) than expenditures (education,
health, security)... There are only two ways to make the numbers
match. You either increase revenue or reduce spending,” Arauz
explained.
However,
the same law includes tax reductions and exemptions for foreign
investors for up to 15 years, as well as exemptions for all new
investments on paying the tax on currency sent abroad.
Economists
have warned that eliminating the second tax could gravely affect
Ecuador’s dollarized economy by allowing the extraction of large
sums of money.
The law
also includes debt forgiveness for private companies who have failed
to pay their share of taxes to Ecuador’s Internal Revenues Service.
Economists estimate the country is giving up at least US$2.2 billion.
Instead
of increasing public revenue to sustain social spending, the law
corners the state forcing it to give up revenue and cut public
spending.
In
adherence to International Monetary Fund (IMF) recommendations, one
of the law’s articles bans Central Bank loans to the Finance
Ministry, which helped the former government to cope with lack of
liquidity without affecting social spending or halting large
infrastructure projects.
Sociologist
Jonathan Baez has described these decisions as “self-sabotage
with the aim to access multilateral loans as the only possibility for
financing.” During Pence's visit, Moreno thanked the U.S. VP
for his “willingness to support Ecuador’s financial needs by
strengthening dialogue with multilateral organizations.”
Finally,
the law brings back the unconstitutional Bilateral Investment
Treaties (BIT), which allow foreign investors to take legal disputes
to international arbitration bypassing the country’s courts.
Article
422 of Ecuador’s 2008 Constitution prohibits “treaties or
international instruments in which the state relinquishes sovereign
jurisdiction to international arbitration agencies.”
Moreno
presented these reforms as inevitable to avert an alleged economic
crisis. However, economic indicators such as rising oil prices and a
sustained economic growth of around three percent contradict this
narrative of inevitability.
The aim
is to make Ecuador attractive for investments, disregarding the cost
to national finances and to the people who rely on the state’s
social services. It’s a mad race to the bottom all over again.
In a
recent interview with David Suarez, spokesperson for the Center for
Economic and Social Rights (CEDES for its Spanish acronym) explained
that “austerity must be understood in its ideological, political
sense as spending cuts for the people and advantages or subsidies to
private capital.”
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