Why this question? Why are there many doubts? Why the magazine did not come out from the month of December? Because we were in a period of political campaign and we did not want it splash the magazine. We wanted the editorials were not impregnated with any affirmation or wrong denial. We have finished September, 100 days passed of the possession of Lenin Moreno, and thank God we changed from aggression to dialogue. Many things have been done but not enough, the economy is still paralyzed and the Government is still contaminated by correistas; we talk about corruption but the guilty have not been convicted, we expect the signature of the decree for the popular consultation which is so necessary to get the carrion out of the presidential circle. It is urgent to stop being inhabitants and become citizens, that is, that we are assigned the rights that correspond to us. It is necessary to begin to breathe transparency instead of discretion. It should be understood that under the dollarization system there should not be a Central Bank, what is necessary is to strengthen competitiveness, remove barriers to exporters so that more dollars flow and the economy is activated generating more jobs. It is necessary to have the popular consultation as soon as possible to begin again to have certainty by separating the rats and strengthening those who believe in the country. By Joyce Higgins de Ginatta, Eng. Guayaquil, October 2017
PROJECT: THE NEW GOVERNMENT: TOURISM AND EDUCATION, THE KEY TO GENERATE WORK OR OPPORTUNITIES
XVII F.IE. CONGRESS: "FOR A PROSPEROUS COUNTRY: Dollarization + Employment - Corruption"
September 11, 2017 / Hilton Colon Hotel in Guayaquil
The Board of Directors at the opening of the event which took place at the Hotel Hilton Colon in Guayaquil. From left to right: Giovanni Ginatta, Eng., F.I.E. Executive Director; David Lemor, Eng., former Ministry of Production of Peru; Joyce de Ginatta, Eng., F.I.E. President; Fabian Corral, Dr., columnist for El Comercio newspaper.
From left to right: Fabian Corral, Dr., Mauricio Pozo, Economist and Fernando Aguayo, BA.
A group of students from several cities of the country attended the event.
From left to right: David Lemor, Eng. and Joyce de Ginatta, Eng.
From left to right: Pablo Lucio Paredes, Dr., Joyce de Ginatta, Eng., Giovanni Ginatta, Eng. And David Lemor, Eng.
GREAT PANORAMIC VIEW OF THE GRAN SALON ISABELA OF THE HILTON COLON HOTEL.
Final panel: How to reactive the economy in Ecuador.
From left to right: Abelardo Pachano, Ec., Giovanni Ginatta, Eng. Mauricio Pozo, Ec., Joyce de Ginatta, Eng., Carlos Julio Emanuel, Dr., and Alberto Dahik G., Ec.
DOLLARIZATION By: Pablo Lucio Paredes, Dr. Dean of the School of Economics, USFQ Behind dollarization is the fundamental debate about the role of money in the economy. This debate, in a certain way, appears already when the societies switch from barter to the use of different forms of money and especially metal coins. With that they make a huge profit: the space of the future opens, because you can save, wait to do exchanges, make intertemporal decisions. A huge positive step of humanity. But, at the same time a great problem is present still today, hundreds of years later, being the same: the temptation to replace real decisions by monetary decisions. And this goes deeper 500 years ago, when the banking system of fractional currency is created where it is clear that you do not need someone to sacrifice their present consumption so that another can receive a loan that allows him to spend it today. It breaks, with the appearance of money, something that seemed and seems obvious: wealth, and therefore the improvement of the quality of life, it can only be fruit and result of real decisions. Savings, postpone present decisions, that is, to sacrifice, investment, productivity, etc. The discretionary handling of money by (and in it) the banking system as a whole (Central Banks and private banks), generates us the illusion that we can put aside those difficult decisions because the manipulation of fees of interest and the amount of money is another way to allow us to grow. This happened in the Rome of the emperors (and was one of the causes of the fall of the Roman Empire), and much more recently in Japan since the 90s and in Europe and United States since 2008, based on the famous quantitative easing, which is nothing but that: print money massively to stimulate the economy. And the debate is there. There are those who believe that these mechanisms have operated (for example, in Spain it is estimated that 1.5% of the GDP increase these years is due to these mechanisms), and it have allowed, although slowly, to get out of the crisis. And there are those who believe that they have come out of the crisis despite this monetary manipulation, but above all they clearly state that even assuming that something has helped, this is due to two serious phenomena in the medium term: on the one hand, they are favored by the manipulation of interests, economic activities that are not necessarily the best for the community (in the sense of being the most productive and those that best tie offers and undistorted supply and demand); and by on the other hand, price bubbles are kept alive that carry in the same previous direction, that is, bad allocation of resources, and that at some point they burst (it's strange to see how people talk about Injections of money that have not generated inflation, when they do keep inflation in assets alive). The debate is current, and will continue to be present in the future. Dollarization is at the heart of this dilemma, because it fundamentally takes away from the Central Bank the possibility of issuing money (the secondary multiplication still exists).It removes power to those who can use the monetary mechanisms and change them to favor. The government is in the first place, of course, but also other groups, especially the exporters that with the devaluations they achieve a hidden transfer of resources from the other citizens towards them. Because the monetary
mechanisms are that: hidden forms of transferring wealth via inflation, devaluation or quantitative advantages. Ecuador has set aside those negative options, and that is why it has achieved a series of advantages with dollarization: • Focus on productivity • Greater equity because everyone is covered by the same monetary umbrella • Longer term stability and horizon • Monetary freedom. Undoubtedly, like all economic and social phenomena, dollarization also has cons (evaluating pros and cons is the good secret of any analysis), and this goes in two directions: • The loss of monetary sovereignty, which is important for some people, and therefore is a valid argument. • The possibility that other countries continue to devalue their currencies, which takes away or gives us price competitiveness without having influence on that process, and the phrase "that is compensated with productivity" is certainly real, but in some cases far from the options of real life. According to me, there is no doubt that the pros are more important than the cons in an undisciplined society like the Ecuadorian one. There is no doubt that, if we still have it in our hands, we would use the monetary and exchange instruments to replace real decisions, not only to adjust levels of relative prices, and that would take us again along the path of uncertainty, shorter-term decisions, inflation and devaluation and lower growth in productivity, that is, a less development of our potential. But of course, dollarization by the very nature of its rules and its contras, requires that some decisions be made: relative fiscal discipline, savings funds when there are very marked cycles of the economy (inevitable in economies based on GNR), flexibility in the markets, and above all (the most important thing ) that no parallel currency is compulsorily introduced (as the Government probably tried with electronic money in the hands of the Central Bank). For the rest, dollarization defends itself and is positive for the country.
REPUBLIC AND POPULISM PREMISES AND QUESTIONS Fabiรกn Corral B., Dr. Diario El Comercio columnist PREMISES AND QUESTIONS Dictatorships, whether frank or disguised, populism and that plebiscite and manipulated democracy that has prospered in Latin America, propose whether it will be possible for a Republic in these lands to prosper or be rebuilt. They raise the consideration of whether we have a vocation for legality, or if our inclinations go by the strong hand, and by the secret admiration towards authoritarianism. That is, if we are people aware of our freedoms and responsibilities, or if behind the faรงade of "citizenship" we hide the lags of old easements. CHARACTERISTICS OF POPULISM Populism is a political pathology and is the greatest adversary of the Republic. It is not a left or right doctrine; it is a way of being and exercising power. It is characterized by: 1. The personalization of authority; 2. The induction or aggravation of the institutional crisis; 3. The instrumentalization of democracy through demagogy, clientelism and propaganda; 4. The transformation of the law into the act of the caudillo; y, 5. The adaptation of the Constitution and the legal order to the aims or ideas and styles of the boss. RETURN TO THE PRIMARY LEADERSHIP Populism implies the rebirth of the primary leadership, understood as the charismatic power, covered with almost magical conditions, which would make it possible to achieve hypothetical glories for the country and extraordinary demands for the poor. THE LINKAGE WITH PEOPLE This leadership is linked to people through: 6. The sentimental policy, which, refined with propaganda, is articulated in all kinds of mostly unrealistic offers. 7. The exploitation of popular expectations. 8. The political exploitation of resentment and frustration. 9. In addition, populism is connected to society through the principle of "efficiency or political pragmatism," which translates into repression and the gradual suppression of freedoms. 10. It is strengthened through the "invention of the enemy" and the disqualification of the adversary.
11. All in order to create the impression of general militancy for the regime. 12. Clientelism as a tool for relations with the people. PEOPLE, COURTIERS AND CORYPHEAS 1. Besides the caudillo, populism has unconditional subordinates, whose crusades are also articulated through propaganda. 2. The disarmament of the "bourgeois institutions" takes place under the euphemism of the execution of the "project". 3. But, there is no populism without "people", without voters influenced by propaganda and discourse, which tune in with sentimental politics, that is, without a mass that projects its frustrations on the caudillo, which identifies authority with a strong hand, political action with retribution, economy with gratuity and subsidy, and patriotism with militancy.
DO WE BELIEVE IN THE LIMITS? 1. We have taken for granted, and we work under the assumption that the people are democrats, and that they also believe, live and work for the Rule of Law. 2. Are these assumptions correct? The Rule of Law presupposes a reasonable level of political culture, implies subjection of authority, of the law and belief in legality and political politics. It implies limits marked not only by legal norms, but by a network of values that place individual rights over authority, so that there is no excuse, nor abuse of right nor direct action, nor the authoritarian thesis, nor the dictatorial inclinations. 3. The nature of the Constitution. The great difficulty is that in a hyperpresidentialist state, like the one designed by the 2008 Constitution, the real limits to the exercise of power, in practice, are diffuse, to the point that the Republic has become a vaporous concept, indeterminate and susceptible of interpretation, a kind of empty mention. A Republic of words. THE CONCENTRATION OF POWER A fundamental characteristic of the republican system is the effective division of State Functions, and the existence of a system of checks and balances, under the concept that there is no function superior to the others. The modern idea of the Republic was born, precisely, against the concentrating absolutism of powers, against the interference of the "sovereign" over the judges, against the absence of control, and against the dependence of the assemblies regarding a single subject with power. From that perspective, populism concentrates powers and neutralizes, in practice, the division of functions, and is a sui generis regression to the times before the liberal republics. And precisely because it is so, instead of strengthening the institutions, it deteriorates them, obscures the limits of power, eliminates alternability and seeks to prolong the regime.
Instead of upholding the rule of law as the guiding principle of public action, the populist assumes legislative powers for himself, either by delegation, or by adapting the legal order to their projects, through legislatures lacking independence. In Ecuador, the legislative delegation in favor of the Executive has been extended; the regulatory powers have been strengthened (just read some legal reforms), and the public policy regime has been propitiated, whose strength is such that, according to the Constitution (Article 148), the disobedience to the government plans that such Inspire policies, can serve as a foundation to apply "cross death." CAN A REPUBLIC BE BUILT? A political reform should not lose sight of the fact that the task of rebuilding the rule of law must be based on an objective diagnosis of the situation of the institutions, and based on the nature of the Constitution and the legal system, that except for specific exceptions, they do not strengthen the Republic as an idea and form of political coexistence.
ECUADOR AND THE SEPARATION OF POWERS By: Hernan Perez Loose, Dr. El Universo newspaper columnist Despite its longevity, the idea of the separation of powers continues to be very popular in contemporary societies. Along with the ideas of popular sovereignty, human rights, political representation, the supremacy of the constitution, the separation of powers is one of the axes of modern constitutionalism. The discussion on this key element of the democratic regimes has generated great debate in a good part of Latin America, and particularly in Ecuador, after the authoritarian experiences that they have lived for the last decade. The dictatorships that have flourished with the beginning of the 21st century have been based on an almost total erosion of the separation of powers. At the core of the separation of powers lies a tension that seems inherent in democracy. We refer to the tension that exists between individual freedom and democratic self-determination. On the one hand, democratic societies have as their basic principle that their governments, and, therefore, their public policies, are the expression of the will of the social body. This will of the social body is manifested through periodic electoral processes. On the other hand, however, those same democratic societies have individual freedom as the fundamental axis of their organization. Freedom both against the limitations that the State may impose, that is, in a negative sense, as well as freedom understood in a positive sense, that is, as an option to develop unhindered the potentialities of the human personality. These two principles axes - individual freedom and democratic self-determination are called to conflict. Both, it is worth clarifying, are legitimate principles and deserve their protection. Not even democratic (collective) self-determination can erase individual freedom, nor on behalf of the latter can the first be impaired. The way in which such conflict has been processed through the history of democracy, has been through the concept of the separation of powers. The legitimacy that enjoys the separation of powers in constitutional law arises precisely from the fact that this system seems the best equipped to achieve a coexistence between both points: that of individual freedom and collective freedom. The judiciary has been conceived, in general, as the one that best responds to the need to preserve individual freedom. While the legislative power does it with respect to the democratic self-determination. The executive power is the best it moves between these two saucers of the balance; implementing the decisions of the legislature, but subject to the control of the judiciary. A system that does not guarantee a separation of powers will end destroying the legitimacy of democratic institutions. The separation of powers is not a monopoly of American democracy and it is not a concept that was born together with the Constitution of that nation.
Depending on their historical experiences, Western democracies have developed in their systems different versions - and in novel cases - of the separation of powers. What unites them all, however, is their adherence to the principle. If there is a lesson we can draw from the dictatorial experience that Ecuador has had during the last decade, it is the importance of preserving and strengthening the separation of powers. To the extent that such separation of powers is strengthened, there may be a better balance between individual freedom and the principle of democratic self-determination.
ECUADOR PROSPEROUS : YES, IT IS POSSIBLE Alberto Acosta Burneo, Dr. Analisis Semanal Editor In 2015, the collapse of the oil price burst an expansionary bubble driven by excessive public spending. Thus ended a boom that was characterized by: abundant liquidity, reduction of interest rates, significant increase in investment and, above all, higher domestic prices. Economic boiling increased the demand for inputs and capital goods and boosted their prices. Import substitution policy also played an important role here, which restricted domestic supply by further increasing prices. In the last decade, domestic prices increased 23% more than the United States. When the boom ended, it was evident that many of the investments made would not have the expected return. Gradually the cases of bad investment decisions were made public and, in the case of those of the public sector, overprices and bribes. The government's response has been to try to sustain economic activity via aggressive external debt. Despite the efforts, in 2016 production fell sharply (1.5%) and employment. Only in the first semester of 2017 it begins to register a slight convalescence in some economic sectors. LIFEGUARDS TABLE This is not the first crisis in Ecuador. For example, in the crisis of 1982-1983 the economic correction saw the side of an adjustment in prices as a result of the devaluation. This implied a generalized reduction of all internal costs of production, including wages. Now dollarization is the lifeline table of citizens. The State can no longer reach into our family budgets, reducing, at their whim, our purchasing power. YES, THERE IS AN EXIT The way out of the current crisis requires abandoning the "medicine" of public spending, because that was precisely the cause of the "disease". By trying to inflate liquidity again from public spending and borrowing, the seed is being sown for future imbalances. What to do? We do not have to content ourselves with growth rates of less than 2.5% in the next four years, as the official estimates predict. The economy could grow again quickly if public policy promotes the process of economic correction, instead of preventing it through more debt and public spending.
The basis of the adjustment is to achieve a reduction in domestic prices that makes production profitable again. This is achieved by boosting productivity and competitiveness. Here is a proposal to put this policy into practice: 1.
The external sector is a strength. We must eliminate the import substitution and allow competition to reduce prices in the domestic market. The new productive investments must be competitive from the first day, and consumers have the right to buy goods and services at reasonable prices.
2. Aggressively reduce production costs. We have to dismantle the state interventionism that has plagued us with requirements, permits, procedures ... 3. In tax matters, it is necessary to analyze the tax burden on the productive sector compared to our competitors. The taxation of the main productive sectors of the country should be competitive with those of neighboring countries with the same productive offer. 4. It is necessary to transfer to the entrepreneurs the benefits of investments in hydroelectric generation by reducing electricity rates for industrial and commercial use. Between 2007 and 2016, reduced by 24% the average cost of energy purchased by the distribution companies (to 4.96 ¢ / kWh in 2016), but the average price invoiced to the industrial sector increased by 27% (to 9.49 ¢ / kWh). 5. The labor market must adapt to the needs of entrepreneurs. The biggest setback in labor rights is the lack of employment. It is not about reducing wages, but about modifying those surcharges that excessively increase the labor cost. 6. Aggressively promote the signing of trade agreements that reduce the cost of Ecuadorian products to access world markets. Let's abandon the strategy of weak growth dependent on public indebtedness. Instead, let's stimulate economic correction so that a new growth cycle produces the sustainable basis of productivity and competitiveness increases.
REFLECTIONS ON HOW TO FACE THE CURRENT ECONOMIC CRISIS Carlos Julio Emanuel, Dr. Economic and Financial Consultant
To talk after excellent economists have done it, basically on the same subject, has its advantages and disadvantages. The main advantage is that as in Economy there is nothing new under the sun, for not sound repetitively I could simply say that I make the words mine of those who preceded me and proceed to take a seat. The disadvantage is that as you can not take a seat, you have to find a way to expose something that is complementary and that helps highlight what has already been mentioned. I have a common history with Alberto Dahik since about 40 years. For what we have shared, is little what Alberto could say in economic area and vice versa. The same with Mauricio Pozo and others, who studied and learned in the same texts as me. I am sure Joyce has invited us because she considers that we're not nickname economists, like the one with registration number Honoris Causa No. 666 of some College of Economists, who by their own confession do not learned Economics, because their teachers did not taught it to them. As the lawyers would say: a confession from the part of ... Let's get into the subject: With the exception of some officials and assembly members, sheeplike with their own agenda, the Ecuadorian economy goes through a recessive period. Hundreds of companies have liquidated or are in that process; the unemployment and underemployment are the agenda of the day; the people complain about lack of circulating, etc., but the figures and comments that come from the heights try to tell us another story: that the economy is growing; that there is less unemployment; that the money circulates properly; that we are in recovery. Why is there this disparity of criteria? Because the figures are not transparent. Once I heard him saying to Jacob Frenkel, an excellent Israeli economist, that many governments, for political reasons, are dedicated to massage the macroeconomic figures until they whispered to the ear what they want to hear. That's why, suddenly it is announced that the economy grew by 0.3% as in 2015, or that this year it will grow by 0.7%. To me I would be ashamed to give those figures, because the first means that the GDP at that rate would double in 233 years and with the second in 100 years, a figure more in tune with Macondo. Accompanying that manipulation of figures, the methodology has been change, for example, concerning unemployment, economic growth, inflation,
indebtedness, etc., which returns those figures incomparable. And from there the origin of the popular saying -between economists- that the national accounts become national stories, in which nobody believe. And finally, when it begins to reveal the truth when saying that the table was not served, it appeal to the refrain that: We have roads! as if before there never were. What does the technique in economic matter recommends to do when a country faces a recession? We have already heard it here this morning: In a few words: to take countercyclical measures to put money in the hands of the people. This recommendation is not new, it's from the last century, Keynes proposed it in 1936. We must lower the tax burden that arises relating to GDP, the total sum of taxes, the contributions to social security and tariffs. We have a tax burden that is too high, only comparable with countries in the Southern Cone, which are not dollarized. The lack of legal security is notorious in the country due to the proliferation of tax reforms in these last 10 years, at a rate of two per year, in average. Therefore, we must eliminate taxes such as Capital Outflow, the Income Tax advance, Land Tax, Tax on Goodwill, today enshrined in law, and modify the Inheritances tax. Let no one think of suggesting new safeguards that in recent times affected the economic performance of the country. I repeat: this is not time for more taxes, if not the opposite. The Capital Outflow Tax must be eliminated in a single act and not gradually, "slowly", as someone has proposed, because otherwise its effect on the necessary income of foreign capital will be insignificant. To delve in why it must eliminate the Income Tax Advance, which is in reality, a tax on losses, unnecessary before this select audience. The same with the pertinent Taxes on Capital Gains and Inheritances, which have negatively affected the real estate sector and the construction. When I started working for the IMF years ago, it was clear for me the importance of the monetary aspect in the economy. With its creation in 1944 the commercial wars were finished through competitive devaluations. But then I learned that the acronym FMI also meant that the Fiscal is Very Important. That's why when I listen to the "authorities", that you have to put tariff surcharges or safeguards to imports, because we are supposed to protect the trade balance, I realize that the fundamentals of Economy are not being understood. It is because imports go off course only when there is an imbalance in fiscal matters. Therefore, what must be corrected is that imbalance. It is illusory, so then, try to prevent imports grow disproportionately when the fiscal spending is insatiable, in the same way that it is inevitable when the lid of a pressure cooker explodes when it is stirred plus the fire. The fever is not in the sheets. It is then necessary to ask if those who argue against nature in economic matters, really know and understand the validity of the Approach Monetary Balance of Payments and that the Fiscal is very important.
I also ask: Have this topic being analyzed by our assembly members, who have just approved the Budget for 2017, on August 31, after 8 months of this fiscal year? Think for a moment what would happen with a private company or with any family economy, if we approve our income and expenses for this year having already passed 2/3 of same! When 17 years ago I accepted Joyce's call to help promote dollarization, I did not have qualm with the theory, because years ago I thoroughly studied a system that, emulating the Argentine Convertibility, and based on the experience of the Panamanian currency, former president Bucaram wanted to implement it in Ecuador. In retrospect, being convertibility a prelude to dollarization, if Cavallo had taken it to its logical and natural destination, another would have been the economic outcome from Argentina. From the study of history it also became clear to me that no country could develop with a weak currency. I was just worried about politics. When I was delegated by the Chambers to present the project to former President Mahuad, it was evident that Mahuad neither understood the matter nor wanted to hear it, surely advised by his economic team that dollarization would be a leap into the void. But although his personal discretion, Mahuad was forced to put in force the dollarization, which was not enough to prevent the tsunami of the financial crisis remove from the the political map together with all and each one of its seven Aymara harmonies. Actually, what Mahuad did was to bring it to legal life a decision that had already taken the Ecuadorian people. The de facto dollarization converted into de jure dollarization. It is an undeniably true that people are smarter than any Government. The preservation of heritage surely is part of the human genome, and is what motivates us to place our savings in assets whose value lasts over time. Who can doubt that the Chavism hierarchy, Maduro, Cabello, the daughter of Chรกvez, etc., have their assets, their wrong money, in dollars, euros, Swiss francs or precious metals, but never in strong bolivars? It's just that they are not fool. So expressed, when I listen -as in the case of the trade balance - that we have to defend dollarization, it is ignored that it was the people who decided by dollarization, much earlier that the government did, so that if any ruler would like to repeal it, this would only be to legal level, because people will continue to do transactions in accordance with Gresham's Law dating from the sixteenth century and which states that the bad currency always brings good circulation. Except for foolish criteria, dollarization shielded to Ecuador from the actions of bad governors. Economist No. 666 spoke and wrote permanently against dollarization, but in ten years he did not dare to repeal it. For him and other nostalgic people of devaluation, their derogatory would have facilitated expanding the expense by issuing tickets and devaluing, as Maduro has been doing in Venezuela, generating, on the way, an hyperinflationary process, the highest in the world, which always, affects the poorer classes. And all this within the vaunted concept of monetary sovereignty money that so nostalgic boast: today
Venezuela has a sovereign hyperinflation, of 176% in the first semester of this year. Dollarization saved Ecuador and prevented us from falling in the vortex that today characterizes Venezuela. But remember that this is just an anchor that grants monetary stability as indeed it has happened. His partner, the fiscal anchor, was precisely the Law of Fiscal Responsibility that we approved in June 2002, which not only limited the growth of spending as a function of GDP, but set funds for the time of the lean times, that the economist No. 666 also dealt with eliminating it. It was required, in addition, prioritize what pertains to the National Agenda of Competitiveness to reduce the Ecuador Cost. In this matter we have also lost not one but several years, when reviewing the World Competitiveness Index Prepared by the World Economic Forum. In our case, such index has been affected not only by wrong macroeconomic policies, the fiscal waste and deficit, but for the lack of independence of powers and the politicization of justice, in a few words for the deinstitutionalization of Ecuador. In this context, it is absurd to propose a fiscal devaluation to reduce business costs by decreasing contributions to social security, which obviously should cover the government, when what can be done immediately is to reduce the tax burden, and, among other measures, immediately lower energy rates to levels similar to those paid by neighboring countries. It has not been missing those, including in the sector private, who argue that we are an expensive country for the appreciation of the dollar against other currencies, insinuating that it would be convenient to get out of dollarization. This fallacious argument is evident when in the country with the strongest currency in the world, Switzerland and its franc, which is appreciated year after year, exports grow permanently, and there nobody suggest safeguards, tariff surcharges or some other ridiculous sight to defend the commercial balance. The secret to Swiss success lies in a single word: deregulate. That is precisely what we have to do: deregulate. We can not continue with more than 60 taxes, with two tax reforms per year that suffocate private effort: we must simplify our tax system, and eliminate cumbersome procedures to set up companies and facilitate entrepreneurship. As I mentioned, we must decrease and eliminate taxes to leave more resources in the hands of the people, especially now that we are facing a severe recession that according to IMF, whose figures do have credibility, will last until 2021, if we do not change the economic model based exclusively in the appetite to spend of the sector public. Remember that each tax has its own elasticity, which means that the reduction in rates taxes does not mean reducing collections. The opposite is also true: despite the VAT increase from 12 to 14% after the earthquake of April 2016, the collections did not go up, and this is not only because of anti-technicality to increase taxes in recession, but by the greater stimulus to the evasion originated in rates more than taxation. It is, therefore, necessary to reduce VAT at levels compatible with a dollarized economy, at least 10%, as proposed Economist No. 666 in his first electoral campaign.
On the spending side, it is essential to put zero base in budgeting. It is not convenient to elaborate budgets simply extrapolating figures from previous years that perpetuate the waste. Each budget line must start at zero every year, following the logic of the mistress of house that does not buy in the market what it still has in your pantry. If on the one hand it is imperative to rationalize the tax system, reducing and eliminating taxes, on the other hand, we must prioritize the quality of spending to avoid waste and the investment in white elephants like in the last decade. Until the budget is put into zero base effect, the Executive must reduce spending by 15% in every public dependency, including high officials salaries. The first steps have been already made in this sense.
The government's decision is correct to leave the "electronic money" in the hands of the private banking. For political reasons and/or due to ignorance, it was oversized a topic that is not money, and that is just a means of payment that must work with money that already exists. The intention of the nostalgic of managing this mechanism from the ECB, was to create money from nothing, and so have a currency that they could devalue. Something completely different. I have left for the end the debt issue, which should be audited, where there is a clumsy handling to be able to state that the 40% cap has not been exceeded of GDP, as if that were the core. The problem of the debt is not that, but its service as a percentage of the budget. Japan has an equivalent debt to 230% of GDP, but its service is completely manageable. As proof of that lack of transparency, for a side it is said that certain items, for example, short-term debt such as CETES, or debt with the IESS or with the ECB, are not debt. But in the budget that was just approved on 31st August, there is the service of all that they say it's not a debt. How to understand it? Debt is all that should be paid. The debt has to be restructured, because it is impossible to continue with a service that absorbs almost a third of the budget. For this, it is necessary to appeal to the financial international organisms, to obtaining, with a appropriate economic program, figures similar to the existing debt with China, of around 10,000 millions dollars, but with better terms and rates. The long-term restructuring of debt with China, demanding the elimination of the pledge of oil, is unpostponable. When I attended, on behalf of Ecuador, the Summit of the Non-Payment of Debt that convened Fidel Castro in 1985, I was responsible for putting jarring note by not supporting the Fidelista thesis. In that time we were restructuring our debt with the bank. However, two years later, when due to the 1987 earthquake we lost our ability to pay, we declare the moratorium on debt, which lasted until 1992. This is to be pragmatic in economic management. In contrast, when in the 2008, the previous Government unilaterally raised the moratorium on a stretch of debt, offering to pay only 30%, despite having enough resources, the decision was wrong, because it did not have economic foundation, but ideological. Therefore, when returning to the market,
which always rewards and punishes, the government had to accept high rates and short deadlines, with which the country was harmed. A few days ago, President Moreno said that politicians are like espadrilles, because the right is the same as the left. When the former socialist president of Spain, Felipe GonzĂĄlez, was asked recently where was the left, he answered: at the bottom on the right. I mention this as evidence that we waste a lot of time and energy with these slogans and political labels that drive to nothing and that invariably they slip into the economic area. The nostalgic and sheeplike people like to ideologize the economic measures as left (progressive) or right (neoliberal). And they have already raised alarm voices about an alleged return to the past with the measures that have not yet be taken by the current government in tax, or public indebtedness. Before being implanted, they have labeled them as rightwing or neo-liberal, ignoring that the measures will be good or bad, in whether or not they solve the problems that affect the people. And meanwhile, they conveniently forget about the expenses that Deng Xiaoping alluded to when he pulled out China from poverty by modernizing and liberalizing the economic system with capitalist patterns: thus Shenzhen and Guandong emerged. In other latitudes, Portugal, the Baltic States, Spain with Rajoy, Chile with PiĂąeira and Bachelet, Macri in Argentina, between others, adopted measures, that although branded as right, have proven to be effective in solving the people's problems. At 180 degrees are the experiences of Fidel and Raul in Cuba, ChĂĄvez and Maduro in Venezuela, Correa in Ecuador, of the Kirchners in Argentina, of Lula and Dilma in Brazil, who applied progressive or leftist measures, which ended up being a resounding failure, to the point that Fidel himself claimed that his model did not work even in Cuba. It is clear from everything I have expressed that we can not be dogmatic nor should we ideologize our act in economic matters. Unlike, we must always be pragmatic and eclectic. I conclude with what said 35 years ago a President of the Central Bank of Venezuela: that the economy should be managed with shortage criteria, because resources are scarce before the unlimited demands of the people, but that unfortunately in our countries, disrupting the concepts, instead of managing the economy with shortage criteria, we have done it with a shortage of criterion. These concepts continue to be valid 35 years after.
THE ADVANTAGES AND DISADVANTAGES OF DOLLARIZATION
Gabriela Calderon Economic Analyst/Editor Cato.org The main advantage is that the dollar fulfills all three functions of money: means of exchange, deposit of value and unit of account. The dollar is a currency of universal acceptance, given that we live in a world that is in a virtual dollar pattern. When we had the sucre, this only served as a means of change within the national territory, we were like playing "Monopoly" between us. As Ronald McKinnon explained in his book The Unloved Dollar Standard, twothirds of the US dollars are outside of that country. Most central banks use the dollar as a reserve and the dollar is 85-90% of the world's inter-bank foreign exchange transactions. Most of the raw materials traded internationally are billed in dollars. The stability of the dollar, compared to other currencies, allows it to be preferred as a store of value compared to other possible alternatives. We can remember that when we had the sucre, the multiple devaluations and/or depreciations did not allow it to be preferred as a deposit of value. This used to result in a high level of inflation that discouraged savings and triggered interest rates. In that chaotic situation the dollar became in the unit of account even without being the official currency of the country. People fled from the sucre and sought refuge in the dollar, an issue that largely explains the 1999 banking crisis. Today, inflation seems to us something extremely strange and, fortunately and in spite of the populist government of the last decade, it is still a problem of another era. The stability of the dollar makes it possible to measure the value of things and plan our businesses better. In general, it facilitates the operation of the price system and the economic calculation. Another advantage of dollarization is that interest rates fell significantly, lowering the cost of capital and making possible a number of investments. The interest rate has three components: the natural rate that has to do with temporary preference, risk and inflation. Once inflation was controlled, it stopped being an important component, which led to a low and stable rate. An important restriction was placed on the growth of public spending given that the government no longer has the capacity to monetize spending through a monetary issue. Public spending and its costs to society became transparent: it could only be increased if there were higher income from oil revenues or increases in tax collection or higher public debt. Imagine what the expense would have grown if, instead of being forced to raise taxes or debt, they could have resorted to a convenient and servile central bank with the capacity to issue money to cover the central government's financing gap.
An additional advantage of being dollarized is that we live automatically attached to a real exchange rate, given that our central bank does not exercise exchange administration. With national currency, the Central Bank of Ecuador (BCE) tried to approach a real exchange rate through the determination of nominal exchange rates, thus generating a continuous instability that made it difficult to use the sucre as a unit of measurement. There is no longer a need for a central bank to intervene in the foreign exchange market to try to fix an exchange rate between our currency and the dollar, incurring the high cost of maintaining a certain level of reserves to sustain some nominal exchange rate. It is said that a disadvantage of being dollarized is that we renounce seigniorage gains, which is the difference between the cost of printing a ticket and its exchange value. But only the significant drop in interest rates far exceeds grow the probable gain by seigniorage. Also, it also helps to compensate for this loss that there is no longer any need to incur in the cost of holding reserves to exercise a foreign exchange administration. Another disadvantage mentioned is that by not having our own currency we can not take "countercyclical measures". In the universities, macroeconomics is usually taught as if it were a box of magical and almighty tools. Things that theoretically work perfectly are a bit different in practice. Thus we see that between 2000 and 2016, among the Socialist countries of the XXI Century, the best performers are Bolivia and Ecuador, with an average economic growth of 4.28% and 3.74%, respectively. This is precisely a country whose central bank has been relatively orthodox, that is, it did not adopted countercyclical measures and another dollarized country, Ecuador. Meanwhile, the worst performers have been Venezuela, Brazil and Argentina. Having a central issuing bank does not seem to be the magic response that we are usually told about ... Certainly, dollarization does not solve all the problems of the country. There is a series of public policies that have been adopted during the last decade that are harmful, being dollarized or not. Dollarization does not completely protect us from the economic disaster in which populist adventures tend to derive. That's why among the dollarized countries Ecuador and El Salvador they look very bad compared to Panama. While the economy of the isthmus had an average growth between 2000 and 2016 of 6.20%, Ecuador grew only 3.74% and El Salvador 1.95%. Another disadvantage that is often mentioned about dollarization is that we lost sovereignty. This only if we consider that the State and the Ecuadorians are the same thing, which is not the case. Seen from this perspective, we can understand the politicians lost the sovereignty, but we Ecuadorians recovered it, who are now really owners of our money. This has allowed that over the course of 17 years, begins the development of a culture of savings and attachment to private property, both being pillars of a culture of freedom and prosperity. Dollarization is an island of Rule of Law and respect for private property in the midst of a sea of institutional chaos. We have been fortunate that this coincides with the Socialism of the XXI Century, which was limited by it in its destructive capacity.
THE ECONOMY IN THE FIRST SEMESTER 2017 Jorge Calderon Salazar, Ec. MAE; MA In the last two years there have been a continuous economic ups and downs for the country, derived from the drop in the price of a barrel of oil that significantly affected the revenues, the reduction of tax revenues, the natural disaster of 16A, the payments for the lawsuits that Ecuador lost in international courts arising from litigation with various foreign companies, among other aspects that brought with it a greater issuance of debts with high interest and short terms, presales of oil, use of international monetary reserve, use of liquidity facilities granted by the ECB, increase in taxes, etc. During this first semester, different signs are evident, for example, the price of a barrel of WTI crude oil is located in a band between 40 and 50 dollars, and at that value the punishment of our crude oil must be discounted, affecting the income from the sale of this raw material. We must also bear in mind that Ecuador received several calls from OPEC for not complying with the quota that the country has to offer to the market, since it sold more than it had set (this was derived from the need to have more income). Regarding the external sector, although the results show a positive trade balance, it is due to a significant contraction, both of exports, and especially of imports. In some way, the previous government achieved its goal of reducing imports, but that ends up affecting the productive sector because much of this restriction has to do with capital goods, which are goods used for the production of other goods, in addition the freedom to consume of the citizens was affected. We see, then, that imports (Figure 1) registered a decrease of 40% in the period 2013 - 2016 (equivalent to 10.219 million dollars), in the period 2015 - 2016 the contraction of imports stood at 23.97% (equivalent to 4901 million USD), being the imports between January - May this year of 7131 million USD; on the side of exports, they contracted in the period 2013-2016 by 32.13% (equivalent to 7953 million USD), taking the period 2015-2016, the contraction of exports was 8.36% (approximately 1533 million USD), exports from January - May 2017 equal to 7924 million USD (Figure 2). Figure No. 1: Behavior of imports Source: ECB (Data in millions of dollars, FOB) Figure No. 2: Behavior of exports Source: ECB (Data in millions of dollars, FOB) Below is the behavior of the trade balance, which shows the "improvement" in it. It should be noted that before a trade opening, it is rather the restriction that are made on the side of imports.
It tries to recover the lost time in the foreign trade, the previous government privileged commercial ties based on political and ideological aspects and not in technical aspects, the signature of the multipart agreement with the European Union was derived from the reduction of the income received by the State and the reduction of the arrival of currencies, and this led to the search for such an agreement. Moreno inaugurates the era of commercial pragmatism, privileging the needs of Ecuadorian producers and consumers, as it should have been from the beginning. Foreign investment continues to show a constant behavior, placing itself below the 800 million dollars a year, well below what other countries in Latin America receive, in this case Ecuador disputes the last place with Paraguay, Bolivia, Haiti and Venezuela; in the first semester this year it received approximately 175 million dollars, with the oil and mining sector accounting for almost 2/3 of the FDI. In the case of country risk, although it has been reduced in recent months, after the second round of elections and due to the signs of confidence that the Moreno government wishes to transmit regarding the honesty of the figures, called for dialogue with different political and social actors, among other signs, despite this it remains high compared to neighboring countries. Ecuador is close to 700 points, while the other countries (except Venezuela) are below 500 points or less (some border 100 points) which makes their indebtedness in international markets be cheaper compared to our country. This supposes a more critical situation at the moment of looking for financing because the rates to which it accedes to obtain a loan are going to be much higher in relation to other countries. It is also appreciated in the emission of bonds whose rates have fluctuated between 9 % and 11%. This is reflected, in turn, in the behavior of the debt, which reduces the ability to maneuver to this government and the next; to this it must be added the presales, arrears with sectional governments, internal debt; and as the government already acknowledged, the debt commitments are close to 60 billion dollars, well above the 40% set in the Constitution, of the debt to GDP ratio that must exist. The drastic change in the nature of the creditors draws attention since the restructuring of the foreign debt in 2008, banks and markets went from representing 30% of all the domestic and foreign public debt of the country, to only 5% approximately. Financing needs reached almost one billion dollars monthly. By June 2017, the Consumer Price Index (IPC) registered the following variations: -0.58% the monthly inflation; 0.16% annual and 0.32% accumulated; while for the same month in 2016 it was 0.36% monthly inflation; 1.59% the annual and 1.29% the accumulated. It should be noted that the reduction of prices are not necessarily improvements in the production, but rather to price reduction carried out by producers to stay in the market, given the reduction in sales that have registered in the last year. In fact, the latest INEC records show significant variations in the rate of unemployment and underemployment, registering an unemployment rate of 4.5% at the national level, with 5.7% in urban areas and 1.9% in rural areas, with growing underemployment. It is evidenced by an informal growth. It should be
noted that the type of employment that occurs in the rural sector is by piecework, that is, they pay strictly for the activity that the worker will perform. That does not involve social security, profits; being a problem that in the long term will be evident when those people do not have access to pension payments and in the short term to the benefits provided by social security. Likewise, Quito has an unemployment of 7.8%, well above the average that stands out INEC, while Guayaquil has an unemployment of 5.3%. With regard to tax collection, a fall was evidenced in 2016, compared to 2015. What was expected by the Government to 2016 was $ 14.1 billion and only 87% of that figure ($ 12.226 million), 9% less than what it received in 2015 ($ 13.371 million). It should be noted that 1,160 million dollars for solidarity contributions, product of the law issued after the 16A earthquake, if we consider the first half of this year the expected goal was 7,052 million dollars and reached 99% (6,870 million dollars) although it was 11% higher than in the same semester of 2016. The taxes that generate the greatest revenue, continue to be that of income and VAT, for solidarity contribution law, generated 438 million dollars up to when it was in force. Taxes and contributions to Ecuadorians are allocated 79% to pay salaries and purchases of consumer goods and services from public servants. It should be noted that 11 tax reforms have been carried out since 2007, creating new taxes and a hundred tax changes. The rise in taxes generates a decrease in the consumption of citizens (drop in the consumer confidence index), which implies less sales, less production and lower collection. GDP recorded a contraction from 2015 to 2016, and for this year a recovery close to 1% is expected. Everything will depend on the behavior of certain variables such as; the consumption of households, public spending (there are announcements of reduction thereof), how companies react in relation to investment, behavior of commodities in the international market, etc. The sectors most affected in the economy these last two years have been construction, commerce, and tourism. There is a constant behavior in agriculture, in fishing, excluding shrimp. Basic humanities, welfare foundations and opportunities, in this index, Ecuador fell two positions from 53 (2016) to 55 (2017), evidenced in Basic Needs that rose from 70 to 67, Opportunities went from 68 to 88 and Fundamentals of Wellbeing , from 41 to 45 (Access to information and communications, from 66 to 85). In the second half of the year, the consumption in households, a tax review is prevailing. Trying that economic activity turn around the private sector and not the public sector. This as a recommendation in the short term, but obviously we will have to to take long-term measures to sustain and improve the economy, in order to attract more foreign investment, look for new commercial agreements, among other things. And the fact is that the economic crisis affected the quality of life of the population, as shown by the Social Progress Index which measures the social progress of the countries, considering basic human needs, welfare fundamentals and opportunities. In that index, Ecuador lowered two positions from 53 (2016) to 55
(2017), evidenced in Basic needs that rose from 70 to 67, Opportunities went from 68 to 88 and Fundamentals of Welfare, from 41 to 45 (Access to information and communications, from 66 to 85). What can be done? In the short term, there must be a complete review of how taxes are spent and restructuring inefficient public programs (by debugging current spending, without affecting education, safety and health), incorporating informal commerce into the formal economy is a way to expand the tax base and collect taxes, broaden the base of taxpayers to raise revenues, reduce and eliminate taxes, and contributions (evaluate the application of the Income Tax advance), initiate process of renegotiation of public debt (better conditions both in time as in interest rate), implement an austerity and fiscal discipline plan, incorporate forms of labor flexibilization (to improve contracting conditions), transparent public procurement processes, among others. While in the long term it should be considered expanding exportable supply (also seek new markets), attract foreign direct investment (providing a stable and reliable legal framework), encourage public-private partnerships, internationalize the financial sector (to motivate a decline in the rate of interest), develop free zones trade in various parts of the country and review the current economic policy, in order to strengthen dollarization. (*) Economist, Master of Business Administration (UEES) and a Master of Management by Tulane University. Currently pursuing a Doctorate in Management and Organizational Behavior at Tulane University, United States. Dean of the Faculty of Economics and Business Sciences (UEES) from May 2014 to the present. Member of the Advisory Board of the ESAI Business School. Director of the Research Center of the UEES from January 2007 to April 2014. Professor of Postgraduate in Academic Writing, Economic Analysis Global and Methodology of Research in the postgraduate programs of the ESAI Business School Zonal Coastal Coordinator of the Academic Network of Careers of Economy of Ecuador (RAEDE). Economic Analyst in several national and international media. Article on the Conversation and Trade Magazine of the Chamber of Commerce of Guayaquil. Coordinator of several research and consulting projects in various areas, such as education, economy, finance, natural resources, labor, among others. Author of the book "The microcredit, development option", and co-author of the books "Country risk analysis: Case Ecuador and Costa Rica” and “Dollarization: 15 years after”. It has several articles from indexed journals, being its research lines: Microfinance, Expatriate, Triple Helix Model (Relationship University -StateBusiness) and Work-Family Conflict.
FALSE DEMOCRATS Alberto Medina Mendez Journalist, Private Communications Consultant Almost the entire planet fell into the trap of repeating that sequence of meaningless simplifications, as hypocritical as dangerous. This is how democracy has been idealized without realizing its real drawbacks. Obviously not all reason in the same way against this exciting debate. Some prefer to sacrifice themselves by defending everything already known. That prevents them from evaluating any other alternative that excels. Others, almost with resignation, prefer to appeal to that famous phrase that is attributed to Winston Churchill when he said that "democracy is the worst system, except all the rest". Interesting reflection, but too inconclusive when it comes to resolving dilemmas sensibly. Both positions, those of blind fanaticism that does not accept any discussion and that of conformism flooded with justifications, do not help at all to understand the complexity of the global conjuncture and the challenges that lie ahead. But, undoubtedly, the most dangerous are the ruffians that swarm in the academic and political world, those who sheltered in the alleged immutability of the current democracy, leveraged in it, without modesty, to the extent that it is functional to their own interests . These frauds do not even have the courage to say bare-faced that they abhor this system and that they only use it to, from that immaculate pedestal, reach each of their questionable ends. They do not have enough moral integrity to be intellectually honest and confess that they detest this modality and only believe in an autocracy in which a tiny group of people defines the destinies of the rest. These perverse characters wander around reciting their chant without any shame. On the one hand they are very respectful of the democratic values, those in which they do not believe at all, but when they hold the power, it does not tremble the pulse to show their worst side. Their cynicism is infinite. They know that they lie blatantly, but cultivate that "the end justifies the means." His credo says that democracy is only a bridge that must be crossed to reach the goal. From their perspective, lying is not a defect but only an instrument that helps achieve their purposes. That's why they do it without even blushing. They remain imperturbable when they say what they do not think, because they are convinced that they need to deceive their potential voters.
Their disrespect for people is of such magnitude that they manipulate people deliberately and without guilt. They believe they are the chosen ones, the enlightened ones, who have the mission of guiding their people towards their fraudulent top. The scam is essential in that great mounted parody. The important thing is not the "meanwhile", but that the collective is imposed on the individual. Anything goes in that game where it will end up leading that shameless display. It is true that every political system is always a mere gear and does not constitute an objective in itself. Any form of elected government has as its maximum ambition to favor a harmonious civic coexistence. It is good to remember that authoritarian regimes have been born, many times, under the protection of these permissive democratic rules. The treacherous socialism of the 21st century and each of its regional variants have been developed thanks to the virtues of a system as fragile as obsolete.
This has happened in the framework of a process in which hundreds of intellectuals prepared the perfect breeding ground for society to buy the idea that the party that gets the most votes does what it wants with society, without any restriction. They have fed this twisted mathematical scheme in which having a vote more than half means representing everyone, while when achieving only a figure that does not reach half, that is equivalent to zero. Their routine is simple. While all this serves they use it. When they no longer have the majority support they turn quickly and they promote insurrections, sowing chaos in their way, to fulfill all the teachings they learned from their ideologues and inspirers of the past. The idea of questioning democracy is very healthy. It is extremely dangerous to cling to any system using the weak argument that everything was always like that. This logic is very weak and can lead societies towards an endless blind alley. If humanity behaves in the same way in other daily aspects, progress would be unfeasible. To improve something, you have to have the courage to leave behind what no longer works, replacing it with another model with more attributes, obviously assuming the risks of that transition. It is vital to take care of the serial tricksters who disguise themselves as lambs to take advantage of any circumstance that may favor them. These fundamentalists only want the power to plunder the community and destroy those who do not think like them. In the places where they have governed they have done it without contemplations. Testimonies abound in the present that can attest to their cruel adventures. It does not matter how the people prefer to label them. On one side and the other, they always defend interventionist ideas in the economic sphere and justify the concentration of power in order to establish a systematic fascism.
The difficult task of a mature society consists of questioning everything, reviewing it to the point of exhaustion, but always looking for new possibilities and discussing honestly and without falsification. The world needs an exchange of ideas that allows finding an intelligent solution to this contemporary dilemma. We must be very attentive because in that itinerary, as always, the professional impostors will appear, the same ones that today emerge as false democrats.