The Government of Ecuador no longer has anything to draw from. There are no funds to finance the internal war against terrorist groups that President Daniel Noboa decreed on January 9. According to the calculations of the Ministry of Finance, 1,020 million dollars are required per year to sustain the operations carried out by the Armed Forces, which in almost a month have carried out more than 75,000 operations. The Government does not even have the resources to pay the salaries of public officials who have not been paid since January, nor to the Municipalities, nor to the State suppliers. The deficit is around $5 billion and the funds are exhausted. “Behind this deficit are retirees, retirees from the Police and the Army who run the risk of not receiving part of their pensions and on the other hand the State providers who have not been paid either,” Juan Carlos Vega explained in a press conference. , finance Minister.
The Executive asked the legislators for a lifeline, with whom they were spending their honeymoon and who were precisely complying with a governance pact, of which the details of the negotiation are not known, but the Assembly has been surprised by the harmony with which they have received the main authorities, without fights or shouts, and approved two laws proposed by Noboa, which had almost unanimous support. But good relations were strained when the latest bill arrived to confront the internal armed conflict, the social and economic crisis. In the document, Noboa proposes a temporary increase in the value added tax (VAT), of three points: that is, to 15%, with which he hopes to raise 1.3 billion dollars a year, destined to pay for the internal war. This Tuesday, however, he received rejection from his allies in the Citizen Revolution movement and the Christian Social Party and the project was not approved.
The opposition is not convinced by “reaching into citizens' pockets,” among whom eight out of 10 do not agree with the increase in VAT, according to an Opinion Profiles survey. For those who live the war closely, the increase in VAT would be a double tax on security, because they already pay the so-called “vaccine” or extortion. “It's two dollars that we have paid every Sunday for eight months,” says Silvia, a woman who lives locked up at home out of fear, taking care of her seven grandchildren. The fact that the military is in the streets has not changed his life much. She lives in the Nueva Prosperina sector, which brings together hundreds of neighborhoods in the north of Guayaquil, which lack everything. Water, sewage, paved streets and of course, security.
It is the most violent district in the city, there alone were 537 murders in the last year. Every house and business in the area is extorted. Every Sunday two people knock on the door of her house to collect the “vaccine” that, according to them, gives them security, explains Silvia, who had no other option but to pay. “We know what they can do if we don't do it,” she adds. Still, she prefers to pay VAT on some products than to criminals. But even if a tax package is approved, what is collected will not be used to change the situation around them, because so far none of the proposals to combat crime contemplate social investment.
The legislators' counterproposal to finance the war is to collect more taxes on private banks and cooperatives, also on the profits generated by the largest companies, and increase the tax on the outflow of foreign currency, but between the three, barely half of the money would be collected. what they would obtain with the increase in VAT in one year and it would be a one-time tax. Ecuador's economic problem will not be resolved in a short time, analyzes José Hidalgo, director of the Development Studies Corporation, Cordes. “We have become accustomed to this type of tax reforms that incorporate temporary taxes that somewhat help to overcome the situation for one or two years but then we fall into the same thing again. The situation must be structural and must consider other permanent measures,” he adds.
The fiscal situation is serious, warns the Minister of Finance. “For every dollar in fiscal cash, there are 25 dollars in debt. We have a similar deficit as in the pandemic,” he adds. Which puts the entire chain of State 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 generates unemployment, poverty, inequality and insecurity, which is what we are fighting,” Vega said.
With no time to lose, in a matter of hours, Noboa vetoed the legislative proposal and sent another bill in which he accepted the assembly members' proposal and insisted on the increase in VAT. The legislators 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 Assembly benches and sustain the pact for longer.
The economic adjustment would not remain a tax package. The Government is also evaluating touching fuel subsidies, which in 2023 amounted to 3,000 million dollars, but another front would open with the indigenous movements who are the main opponents of the measure. It would be the third attempt to eliminate that subsidy in five years; former presidents Lenin Moreno and Guillermo Lasso faced violent social protests that ended up revoking the measure. 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 acceptance of 15%, as was the case of Moreno and Lasso”, in addition to the fact that the measure is would apply in a context of a state of emergency due to an internal armed conflict.
The options are limited and with each passing day the operations carried out by 15,000 soldiers in the streets and in prisons generate expenses, as well as the 6,127 people who have been detained and who are going to push for space in the prisons that have a high level of overcrowding. Debts accumulate and there are no resources to pay them.
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