The government of Ecuador has nothing left to offer. There are no resources to finance the internal war against terrorist groups that President Daniel Noboa ordered on January 9th. According to Treasury calculations, $1,020 million is needed annually to maintain the operations of the armed forces, which have carried out more than 75,000 sorties in almost a month. The government does not even have the resources to pay civil servants' salaries, which have not been paid since January, to municipalities or state suppliers. The deficit is around $5 billion and funds have been exhausted. “Behind this deficit are pensioners, police and army retirees who risk not receiving part of their pensions, and on the other hand, the state providers who have also not been paid,” explained Juan Carlos Vega in a press conference. , Finance Minister.
The executive asked lawmakers for a lifeline, with whom they spent their honeymoon and strictly adhered to a governance pact, the details of the negotiations of which are not known, but the assembly was surprised by the harmony with which they reigned received the principal authorities without argument or shouting, and approved two laws proposed by Noboa, which received almost unanimous support. But good relations were strained when the latest draft law to deal with the internal armed conflict and the social and economic crisis arrived. In the document, Noboa proposes a temporary increase in the value added tax (VAT) by three points, namely to 15%, with which he aims to raise $1.3 billion per year to finance the internal war. However, this Tuesday he received rejection from his allies in the Citizens' Revolutionary Movement and the Christian Social Party and the project was not approved.
The opposition is not convinced of “digging into the pockets of citizens”, eight out of ten of whom disagree with the VAT increase, according to a survey by Opinion Profiles. For those who are experiencing the war first hand, increasing the VAT would be a double taxation of security, because they are already paying for the so-called “vaccine” or extortion. “It's two dollars that we paid every Sunday for eight months,” said Silvia, a woman who lives locked up at home out of fear and takes care of her seven grandchildren. The fact that the military is on the streets hasn't changed his life much. He lives in the Nueva Prosperina sector, which brings together hundreds of neighborhoods in northern Guayaquil that lack everything. Water, sewage, paved streets and of course security.
It is the most violent district in the city, with 537 murders last year alone. Every home and business in the area is being extorted. Every Sunday, two people knock on the door of their house to collect the “vaccine” that they believe will give them security, explains Silvia, who had no choice but to pay. “We know what they can do if we don’t,” he added. Nevertheless, he prefers to pay VAT on some products rather than to criminals. But even if a tax package is adopted, the revenues will not be used to change the situation around them, since so far none of the anti-crime proposals include social investments.
The legislature's counterproposal to finance the war is to raise more taxes on private banks and cooperatives, including on the profits of the largest companies, and to increase the tax on the outflow of foreign currency, but in total it would raise just under half the money. What they would receive with the VAT increase in one year would be a one-time tax. Ecuador's economic problem will not be solved in a short time, analyzes José Hidalgo, director of the Development Studies Corporation, Cordes. “We've gotten used to this kind of tax reform, which involves temporary taxes that somewhat help tide over the situation for a year or two, but then we end up in the same situation again. The situation must be structural and other permanent measures must be considered,” he added.
The finance minister warns that the budget situation is serious. “For every dollar of tax money, there is $25 of debt. “We have a similar deficit to the pandemic,” he adds. This puts the entire chain of government services at risk, especially in the most sensitive areas such as health and education for those who cannot pay. “The social impact is very worrying because it leads to unemployment, poverty, inequality and insecurity, which is what we are fighting against,” said Vega.
Without wasting time, within a few hours Noboa vetoed the proposed law and sent another bill in which he accepted the MPs' proposal and insisted on an increase in VAT. Lawmakers must debate again in a maximum of 30 days, otherwise the document sent by the president would be automatically approved and it would be a way out to maintain internal relations between the parliamentary benches and maintain the pact for longer.
The economic adjustment would not remain a tax package. The government is also looking at touching fuel subsidies, which amounted to $3 billion in 2023, but another front would open with indigenous movements, which are the measure's main opponents. It would be the third attempt to eliminate this subsidy in five years; former presidents Lenin Moreno and Guillermo Lasso faced intense social protests that eventually led to the measure being repealed. But Noboa has an advantage, explains Hidalgo: “The president has a popularity of 80% and it is not the same to face a government with an approval of 15%, as was the case with Moreno and Lasso,” in addition to the fact that the measure would apply in the context of a state of emergency due to an internal armed conflict.
Options are limited and with each passing day, the deployment of the 15,000 soldiers on the streets and in prisons incurs costs, as do the 6,127 people who have been detained and will jostle for space in the prisons where there is one high pressure gives degree of overfilling. Debts are piling up and there are no funds to pay them off.
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