The new government, with the president of Ecuador at the head and his Minister Correa as spokesman, interpret the popular feeling against the IMF, when they include in their communication strategy, an aggressive speech and with confrontation with the credit international organizations. Several media, in the new role they have assigned themselves, in which they openly take part for determined causes, have lost objectivity in information and have created a public opinion environment, which makes responsible to the credit organizations, of a great part of the bad things that happen in the country. This way, it is popular for the rulers in turn, to announce that they will drive the country, far from those who offer one of the few financing sources for the Ecuadorian economy.

In spite of the costs that it implies, a strategy of this type is easy to use for the country; but the government will soon understand that instead of increasing the available resources for the social expenses, its strategy reduces them. If this is the cost that they are willing to pay, for a little momentary popularity, cultivated in base of a demagogic and popular speech, it is their option. But the new government cannot make a mistake about the need of having an organized and wise handling in the public finances. Because of the stability that the country lives since the dollarization, it has allowed that all the social indicators improve; that the poverty decreases in an important way (without pretending that it has disappeared), that the migratory movement stops, and more than that, that a great number of Ecuadorian return to the country, attracted by higher salaries; and finally that people live nowadays in Ecuador, a little better than five, ten or fifteen years ago.

To loose the economic stability would have a tremendous social cost, with unpredictable social consequences. This would affect without doubt, the early presidential aspirations of Minister Correa; so finally we can see a common interest between the Ecuadorian community and the new public employees.

THE REFORM OF THE FEIREP REDUCES THE RESOURCES FOR SOCIAL EXPENSES

At the governments’ beginning it seemed that the new authorities had not realized how damaging it was, for the acting of their own functions and for the country as a whole, the result of the deterioration of the atmosphere of trust on the Ecuadorian economy and the closing of financing sources that provoked their confrontational and populist speech. The immediate reaction of the international financing markets, was to launch signals of alert, about the risk that Ecuador could fall again in a debt moratorium, which would affect the production credit lines, both for the private as for the own government.

But this first impression of naivety from the new government vanishes with the presentation of the economic equipment in the Parliament, in order to plead for a reform of the Tax Responsibility Law. It is amazing that in the Parliament, the members that attended to the Ministers’ presentation and saw the figures couldn’t understand them, and at the end they gave him a warm applause, because they thought he had planned a reduction of the public expenses, when they really believed that he was proposing an increase of them

The need to make basic arithmetic calculations in order to project a government cash flow, will surely have allowed to the new economic team, to finally understand that for the country it is GOOD that the price of the public debt has increased. It is incomprehensible that great part of the media are convinced of the contrary and in their information sources, not in the opinion spaces, they give for a fact that the country is in harm with an increase in the price of the markets’ debt bonus. With this type of “information”, we shouldn’t be surprised that a great part of the population considers appropriate to make a reform to the FEIRIP or stop paying the debt. The truth is that if the country has a tax deficit that almost reaches $500 million dollars for the current year, it has to increase the figure of this debt, in order to fulfill with all the agreements of expenses that where assumed in the budget. If the maturity of the debt of approximately US $1.500 dollars is included for the time that remains from this year, Ecuador would have to go out and sell debt bonus, both in the internal market as in the foreign one, of around $2.000 million dollars in the next months. Therefore, as it also happens with the banana , shrimp or potato producers, when they go out to sell their products, the country is interested that the price of their debt bonus increase in their price, in order to obtain bigger quantity of resources with a less expensive financial cost.

To have the guarantee of the IMF, in this context, is an element that allows that the debt bonuses are sold in a higher price to benefit the country, but it isn’t essential; it is simply convenient for the country or any shift government. But to fall into an unwise and messy handling of the public finances, is another thing. The single fear that this could happen and put in risk the dollarization and the economic stability that the country has reached, will close the financing sources of the private productive sector and will generate LESS work posts. Therefore it isn’t true that the economy can be activated in a permanent way, with more public expense, as it was announced by the new economic staff. Likewise, the fear of instability will provoke a bank deposits withdraw which could be a risk for the stability of the financial system.  In spite of the change in the Ministers’ speech about the convenience of maintaining the dollarization, a chaotic handling of the public finances would drive without doubt towards the end of this system, which has proved its goodness precisely isolating the economy from the chronic politic instability that affects the country.

* President QUANTUM, This article was published by MiPYMES magazine, May – June 2005.