UNWARY, WIZARDS OR ABSENT

It has been worldwide demonstrated that border opening regularizes the informal and benefits the consumer’s pockets. Obsolete processes such as increasing custom duties or impose instalments, are the ones to push the informality, weakening the formal economy. To be discretionary is the most malignant part of the equation of corruption, and even more when demanding quotas and/or permissions they do it in a discretionary way deciding who yes or who not, when precisely the logic part is to eliminate the corruption creating a real competition that without quotas and low custom duties, will benefit the people’s pockets, otherwise ¡good for smuggling!

As a civil society we demand to make the difference but not backwards, always forward or maybe in this country there isn’t a civil society at all? Perhaps this country is only a board in which the chips are arranged to obtain from the benefactors the best and nicest favours for each ones pockets?

The result of the “Chavez” system is nothing else than a patronage formed by this character covering sectors that during decades has been forgotten by the leader’s classes. Until when are we going to shove the smuggling, the malpractice or the indolence which instead of constructing a country for everybody, it strengthens the castes near to power?

Until when are we going to allow the smuggling, to be discretionary and having unlucky election campaigns? Why is it that we allow this situation? Let’s stop this slipping down, because it is absurd to think that we can fall into a precipice with the hope that we will survive.

Argentina collapsed, wore make-up and though that the recovery was real. Nowadays, and with a galloping corruption and a strengthen poverty is at the point to collapse again.

Let’s form a capable civil society to prevent that an unprotected middle class and innocent vulnerable sectors continue being banged. ¡Ecuador doesn’t deserve it! The future is “now” Let’s not waiting year after year for the Messiah to come. The citizen’s revolution is in ourselves and can only be achieved as we look and observe, and when we hear and listen. When the times come and understand that things mustn’t be designed for a parcel, but organized and strengthened for the country, for everybody. Not for the right or for the left, for the COUNTRY.

Eng. Joyce Higgins de Ginatta

Investors in Ecuador

The Federaciòn Interamericana Empresarial (FIE) organized a tourist agenda for some foreign businessmen which came to our country to find possible investment sources. Many scenarios received our tourists, confirming once more that our small country is so complete and full of amazing things, just as it was stated.

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The best way to receive them was taking them to the Enchanted Islands where they were able to observe the richness of its fauna.

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Without doubt a special welcome to our city,” The Pearl of the Pacific”, from our Mayor, Jaime Nebot

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Of course the visit to Carondelet in Quito, our Capital couldn’t be missed.

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Mayor Auki Tituaña from Cotacachi in the Province of Imbabura welcomes them.

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The tourists were smothered with attentions in the Convent of San Francisco’s Refectory (Quito) as the scenario. Local businessmen gathered to enjoy an evening with the investors. We can see from left to right: Jaime Carrera, Jorge Maldonado, Alfredo Arìzaga, Joyce de Ginatta, Bernarda Mena, Bernardo Espinosa and Santiago Samper.

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Jacchigua Ballet, was a strategic allied to show them the Ecuadorian mountain folklore.

Siguiente pàgina

Zeineb Solah de Peñaherrera, Elsa de Mena, Blasco Peñaherrera, Diego Ordòñez, Marcelo Merlo and Joyce de Ginatta.

Foto arriba derecha

Elsa de Mena, Jaime Carrera and Giovanni Ginatta

Visit of the FIE’s President, Joyce de Ginatta, to Pope Benedict XVI at the Vatican, on February 11th 2009

Lessons from the Poors

Alvaro Vargas Llosa

In the last two years, I’ve directed an investigation project about the undertaking spirit in developing nations. The result is Lessons from the Poor, book which I published for the Independent Institute. It contains five investigation works about individuals or small communities in Peru, Argentina, Nigeria and Kenya which went through from poverty to prosperity in a relatively short period of time, thanks to an undertaking impulse, besides of a comparative study about different States of the United States. Lately, the studious of undertaking spirit in fall behind countries, have concentrated in the not performed potential of the informal inhabitants whose illegal assets represent an economic promise, but not to the ones which have overcome the system from the inside to generate prosperity for themselves and for a lot of people as well. The extraordinary stories which started our investigation, deny the preconceived ideas about economic development and free commerce. Many consider that the richness transference, both, from the rich to the poor countries as from the wealthy citizens to the ones which aren’t in underdeveloped nations, is a condition to take out the masses from misery, even those which understand that the managerial spirit stimulates the economic development and tend to believe that to transform the poor into managers, requires the distribution of substantial amounts of capital under the form of cheap credits and public education. So much in the prosperous countries as in the unsuccessful ones, the intellectual elites identify the free markets with the big corporations whose abuses, facilitated by their political connections, tend to concentrate wealth. And from there on, the attractiveness for populism, either in the elections in the United States or in the Venezuelan poor quarters starts. We usually associate the capitalist businesses to a pathological greed, corruption and abuse of power. In poor countries, that idea association is so powerful that the word “business” is used when referring to a criminal activity (this dreadful word usually comes accompanied by an eye blink). Our investigation turns upside down the idea that the programs for foreign aid and redistribution programs are the best way to help the poor, that cheap credit and controlled Estates education is a condition for businesses to arise among the inhabitants’ quarters and that capitalism of free market is intrinsically immoral and oligarchy. Two decades ago, the Añaños earned their living in a small poor Andean farm in Ayacucho, which was being terrorized by a terrorist organization of Maoist inspiration. They saw an opportunity in the fact of being attacked by terrorists which hindered the trucks that transported soda, to supply that zone in an efficient way. When Jorge discovered a creative formula for a new beverage, the family began to produce it in

their back yard. They didn’t look for or received government’s aid, and either from any NGO. They reinvested their small profits and little by little, they began to progress. When they were ready to expand beyond their neighbourhood, they could sense a disagreement between the production cost and the one to which the product could be sold. In different moments, they discovered the way to minimize costs derived from the regulatory Peruvian labyrinth system and be smarter than their big competitors, which had influence upon authorities. Using the “direct sale” system, the Añaños invited the unemployed Peruvians which had old vehicles, to buy the Kola Real in the bottling companies and resell them afterwards in their neighbourhoods. They didn’t pay attention to the massive advertisement through the media, and opted for promotions such as the exchange of the Kola Real lids, for products which would be useful for low income people. The Añaños are currently the biggest producers of non alcoholic beverages in Latin America, with sales estimated in millions of dollars. They have 8.000 workers. Once more, the undertaking spirit before any cheap credit, the capital transference or a formal education, allowed Aquilino Flores, who immigrated to Lima from a miserable region in Huancavelica (Peru), to ascend in the social scale. He began washing cars to earn his living. At the request of one of his clients a clothing merchant, he began selling and offering loudly, cotton T shirts in the Central Market zone. Many clients suggested improving the design; he subcontracted the pattern of the drawings on the white T shirts. In 1996, the Flores family established their first shop with a sewing machine, and gradually they started to be street sellers and designers. Their extraordinary achievement came as they received an exportation order of $10.000 (dollars) from a bordering city located between Peru and Bolivia. To be able to fulfil the orders, they asked for the collaboration of all the neighbourhood shops in which Aquilino used to work as a street seller. They soon were able to open more shops. It didn’t took too long before Aquilino discovered that cheap manpower, a factor which many people ascribes as the biggest advantage for competitiveness which poor countries have, was an obstacle to grow. It was the moment to make investments of capital and hire specialized manpower. The Flores family, purchased very modern machinery, created their own factories to dye and the production rose notoriously. For 2007, Topy Top became the biggest Peru’s textile exporter: it manufactured 35 million pieces of cloth per year (many of them are sold in stores such as Old Navy, Gap and Nike in the United States), generating annual sales of more than 100 million dollars and employing 5.000 people. Even more, they offered credit cards to their customers. The Stories about the Añaños and the Flores inflict a powerful denial to the managers’ idea as an expression of an unfulfilled potential. Their success made them operate legally in their costs since the beginning. Without joining the formal economy, they wouldn’t have been able to expand, passing from family controlled structures to

professional managerial systems and pursuing in an aggressive way, the opportunities that opened in front of them because of commerce liberalization. Afterwards we can mention the story of Adire attire, an industry of cloth dying and design which is based in the process of the elu tree leaves which grows in the region of Abeokuta, at the South-eastern part of Nigeria. In the two locations in which we made our investigations, we discovered that about 5.000 small Adire companies were functioning, and that 70% of the involved persons were women, and the fourth part of them were illiterate. A third part of them generate $16 per day in net profit, 55% generates US$ 11 daily; while the poorest, generates 11/2 dollars per day. This means that 40% of these businessmen and businesswomen earn more money than States Managers and the private business, and the 20% of the poorest, exceeds Nigerian minimum wage (US$1.4 per day). Most of these businesses began with only US$ 100. In some cases, the businessmen came to a loan association managed by co sellers which reinvest in it, their profits. It’s to be mentioned that their reputation in the community was their only guarantee at the time to receive the credit. It’s a fascinating example of a non state mutual cooperation system to allow the emerging of new businesses. Their story, not only tells about the abundant benefits of what an undertaking spirit can do and give to a poor community, in which the Yoruba culture is dominant, but also of the individual responsibility which they bring entitled. 90% of the Adire clothing businessmen assign part of their profits to a private health service. The single idea would be an anathema in many developed countries. Several of these lessons are confirmed by other of our investigations, including the one that centres in the Nakumatt’s case, an important chain of supermarkets in Kenya whose origins go back to a small store in the city of Nakuru in the decade of the 80s. The annual income of that retail business has grown to the point of reaching 130 million dollars, and it is estimated that 50.000 work posts are indirectly linked to Nakumatt. Finally, its success pushed Nakumatt to get involved more than it should have been, to the very corrupted political system of the nation. In the case of the exchange clubs in Argentina, thousands of people assumed the responsibility of their own existence at the beginning of the present decade, after a catastrophic financial crisis which impoverished the county overnight. The Argentineans, in a spontaneous way, established clubs in which people exchanged products and services to satisfy their most urgent needs. The number of members increased until it reached to 6 million people. The clubs even developed a private currency considered more reliable than the pesos emitted by the Estate, whose value had dropped in a 70%. In a case after another, it can be observed the creative businessmen power to defeat the inflation, the devaluation, the punitive taxpaying, the oppressive regulation, the limited access to credit or to initial capital and the political contexts controlled by the mercantile capitalism or “accomplices in capitalism”.

The economists, who usually defend the capitalism from the free market, generally talk about ads, curves and statistics, and they refer to the market as an efficient “assigner” of resources and a “mechanism” for capital accumulation. In consequence the capitalism of free market appears as a dehumanized and insensible process which sacrifices the individual in bigger imperative areas. These and other similar recounts reminds us of something which rich countries have forgotten, maybe because of the fact that they began their successful work long time ago: that the capitalism of free market is based in the common individual. These investigations demonstrate that big corporations are only possible if common people overcome adversity to transform the world as an answer to the imperatives of those consumers who valued what they were offering. As a consequence of the answer to their humble offers, these businessmen were capable to change their efforts into working opportunities for thousands of workers, business opportunities for numerous providers and the production in series of cheap and good quality products. Even in societies which have reached a high standard of development, the ambitious businessmen are the essence of the capitalist process. They are the ones to innovate, forcing the big companies to adapt themselves and often displacing them from the top (as Burton Klein demonstrated it in his book Dynamic Economics, three decades ago). The own rationalization process that makes a company to be dominant in a market, turns it into bureaucratic; as a result of it, the innovation has its origins in the ambitious businessmen and the small companies. That was the story of the technological revolution from the past decade to the Information Technology, generated by incipient and young visionaries. Some additional investigations which we made to consider the impact of economic freedom, confirm that the undertaking spirit is the key for development. The economic freedom explains between a third part and the half of the differences which we can appreciate in the growth rate of the economies of different countries. Even if we compare between the different states of USA, we discover a link between the economic performance and the rules of the business activities. If Occidental Virginia which has less economic freedom would have an institutional environment comparable to Massachusetts, the activity rate would be 5% higher, improving in this way its economic performance. As the governmental intervention has generated an incentive for some corporations to look for benefits through political mechanisms, the idea of an undertaking spirit is devaluated in many rich countries. In the poor nations, the opportunistic have given the private businesses an even worse name. Instead of associating the undertaking spirit with the process by means of which an idea translates into thousands of citizen’s survival and the satisfaction of millions of human desires, many do associate them with corruption, the privilege and predatory situations. Before the overwhelming evidence regarding to the determined role of the businessmen in accumulating wealth, it’s obvious that the governments should eliminate obstacles and offer sure and stable contexts so that people can develop their

business with the expectation that their efforts won’t be stolen by those who exercise the authority and neither by third parties. If all this would be true the successful stories which were found in Africa and Latin America would multiply in a stable way.

Director of the Centre for Global Prosperity in the Independent Institute, he is the editor of Lessons from the Poor columnist of the Washington Post and author of several books. Born in Peru and obtained his B.S,C. In National History at the London School of Economics. He has been member of the Miami Herald Publishing Company, Correspondent of the London ABC newspaper and collaborator of the Wall Street Journal, the Los Angeles Times, the BBC World Service and Time Magazine. His articles are published in twenty countries and gives lectures in Latin America, Europe and the United States.

The patrimonial declaration

Econ. Wilson Ruales University Professor and Tributary assessor

In several occasions the Tributary Administration has reported to the country the existence of high levels of tributary evasion, and affirming that the collected income taxes are 50% less of which they should be. Such a high level of non fulfilled tax payments implies, an enormous responsibility for the Tributary Administration, because if evasion continues that way, it’s evident that the tax duty cannot carry out its objectives, especially the ones related to equity. Besides, that problem affects the competence, because without doubt the tax duty evading businesses are in better conditions than the ones which fulfil their tax duties, which are the most. To counteract this tax duty evasion there are necessary several requirements, such as:

1. The tax duty system must be integrated by the less number of taxes to allow covering the needs of the Estates organisms. We consider that in Ecuador, there shouldn’t be more than ten taxes, because all the rest of them produce less than 2% of collection.

2. The tax system rules should be simple, clear and simplified, limiting the

exemptions which generally affect its equity and distort them.

3. The tax system must be managed by transparent, efficient and honest institutions, with a double and difficult function: to serve the Estates interests, for which rigorous controls should be applied to help the taxpayers to fulfil their tax payments obligations.

4. To fulfil the pointed out obligation which was previously remarked, the Taxpayer Administration should apply verification and control systems with the most modern techniques which the modern times offer, in a very simple way avoiding the official members to become discretionary which generally is a source for corruption. A modern Taxpayer Administration supports itself in gathered together information carefully acquired and treated in a technical way. The simplification of the formal taxpayers’ obligations is an important element that qualifies efficient administrations.

The Taxpayer Administration and the Ecuadorian society generally speaking, are frequently surprised of visible patrimonial accumulations which don’t go together with the declared income taxes. This generated a tendency which pretended to reach from the legislator a rule to allow the Taxpayer Administration to suppose as income the patrimonial increases. For this, it was required to have reliable information, which wasn’t available. For example, the

property taxes absolutely didn’t reflect the value or the properties. For this reason and others inherent to the topic, there were undertaken reforms to the Municipal Regulations Law, establishing the rules to allow City councils to start a process of improvement of the mentioned property taxes. The 12 and 13 transitory dispositions for the Reform Law for Taxpayer Equity in Ecuador, issued in December 2007, prevent that the Estate Bank will establish a credit line in favour of the city councils for them to elaborate the rural property tax and provide the information to the IRS for the effects of the administration of the rural land taxes. These rules haven’t been fulfilled until now. The New Ecuador’s Political Constitution also contains several dispositions which indicate the preoccupation for the country’s property tax system; however until now concrete actions haven’t been taken care of. Although important advances have been carried out regarding to vehicle valuation, the values which are listed in the correspondent registrations, they do not constitute the real commercial value, especially for the exagerated level of depreciation which the regulations contemplate. An adequate action valuation hasn’t been exactly the main worry of the respective authorities, and that’s why in this field, a real anarchy can be seen. In spite that there aren’t the ideal mechanisms for the valuation of goods and title values, which would have bigger importance when determining peoples’ patrimony, article 82 of the Reform Law for Taxpayer Equity in Ecuador, introduces several changes to article 23 of the Internal Tax payment Law Regulation, among them, the ones which allows the Tax payment Administration to do a supposed determination of the income tax in the case of an “unjustified patrimony increase”. It seems that the legislator became aware that the current public registrations wouldn’t allow the Tax payment Administration to activate its determinant faculty in the supposed case for the patrimonial increase, but erroneously decides to pass to the taxpayer the cost to determine and declare its patrimony. For the effect, by means of Article 95 of the Reform Law for Taxpayer Equity, introduces in the Internal Taxpayer Regulation, Article 40-A, which establishes the obligation to presenting the patrimonial declaration under the appointed conditions of the regulation. Article 65 of the Regulation for the application of the Internal Organic Law of the Taxpayer Regulation, says that the patrimonial declaration must be done by all the people which have $100.000 or more in assets and that they perform or not an economic activity. It also orders that the above mentioned declaration must have the patrimony balances at January 1 of each year and patrimony must be understood to the difference between the total assets and total debit sides. As you can observe, there isn’t in any part of the law or the Regulation, the obligation to declare in detail about assets and passives.

In the O.R. No. 497 from December 2008, the Resolution No 1510 is published, emitted by the IRS General Director and by which various aspects of the patrimonial declaration are ruled, exceeding the foreseen by the Law and the Regulations, because it is set out in a very clear way that only the natural persons must declare in detail the assets and debit sides. It has come to an extreme that all the goods of “significant economic value” must be declared, such as household items. The rule set out that the values which have to be listed in the declaration will be at commercial or market value. These dispositions imply that the taxpayer must be an expert in valuing different types of goods or must hire experts to avoid errors in declaring, with the consequent costs. Any mistake in the patrimonial declaration could be considered as felony, causing penalization for tax payment evasion or document falseness which includes prison according to the dispositions of the Organic Tax payment Code. However it’s worth to say that because of the lack of a data base, it will be difficult for the Tax payment Administration to verify in a massive and automatic way that taxpayers have declared all the art pieces, jewellery, furniture, household items and more, and even less than that, the approximately commercial or market price of the mentioned things. It can’t either be done through massive direct audit, because they would need a great number of very skilfully employees to do so. In consequence this information will be useful to counteract the evasion of the income tax. The verification of the pieces of information in the declaration through crossing information regarding to the household goods, both urban as rural, won’t be possible because of the lack of up to date property taxes information. The values for shares and participations won’t respond to the real value for the non fulfilment of the accounting rules of general acceptance, which hasn’t been observed on time by the respective authorities. These circumstances could determine that the Tax system Administration employees could act in a dangerous discretionary way susceptible to corruption. According to expressed dispositions of the Tributary Code and of the Creation of the Internal Revenue Service, the information obtained from the IRS of the taxpayers declarations or other sources, must be kept aside to be used by the administration exclusively for tributary determination purposes. It is pities, that the taxpayer’s information has been disclosed, even the results of audits which are controversial, pointing them out as tax evaders and affecting their good names. This experience makes taxpayers’ suspicious that the information by them given about their patrimony declarations isn’t kept confidential and may be used for other non tributary purposes. Such information in hands of

delinquents could severely affect the citizen’s security. There is to remember that the IRS was created to serve the Estates interests and also to serve the taxpayers by helping them to carry out their obligations through simple systems technically awarded. There are citizens which are afraid to present the patrimonial declaration because of the above mentioned and prefer to pay the fine for not doing it. In this respect it’s necessary to point out the last part of Article 349 of the Organic Tributary Code, which expressly says that with the fine payment you are exempted of presenting the declaration. The repetition of such disobedience could cause worse consequences for the taxpayer. The problem must be confronted with the purpose that this measure should be cancelled. Of course evasion has to be fought, but controlling and suppressing those which perform them and not by imposing inefficient and dangerous obligations to a great number of citizens which have worked hard to achieve and accumulate $100.000 or more in assets. While writing this article, I received the notice that the General Director of the IRS through public declarations, said that the entity is in the process of checking Resolution No. 1510 and the form for patrimony declaration to try to simplify it. This gives us hope that good sense shines and that all the obligatory and controversial dispositions regarding to the taxpayers to declare their patrimony, are suppressed.

Ecuador and the world

Economist Mauricio Pozo C. Economic Analyst

Foreign Secretary of the Treasury

There are different ways to measure the economic growth sources of an economy. One of them is through the classic contribution of each variable which determines the growth, that is, consume, investment and exportations. In this case, an adequate balance among each one of the activity sources is important, otherwise it could turn into a spurious but not sustainable growth. A clear example of the above mentioned is the eventual growth over the 5% which the Ecuadorian economy would have had in 2008. There is also a supported increase of exportation activity (mainly oil) because of its price increase and for the strong liquidity as a result of an excess of public expenses. Therefore, the macro economic deterioration of the previous year because of the fiscal squandering and the inflation rise, as well as the absence of investment (especially the private internal and external), generated an economic circumstantial but not sustainable growth. This is corroborated when observing that all estimates for year 2009, point to an economic growth near to 2% annual, percentage close to the modest rhythm which the country had in 2007 and reached to 2,5%, very close to the population increase and hinders with it the options to improve occupation and employment. It’s also relevant to point out that the Ecuadorian economy, is one of the most open ones of the region, this is, more dependent of the international context and at the same time represents around the 1% of the Latin America’s GDP, percentage which shows an unable size to affect the foreign economy behaviour. In that sense, economy turns absolutely vulnerable to what happens in the foreign scenario.

These explanations offer a frame to make note that approximately since the beginning of the 90s decade, the sources of economic growth for Ecuador changed in a significant way, because before those years the country concentrated its growth in the internal demand, while afterwards and until the present time, the Ecuadorian economy supports itself much more in the external demand. This means that the international or foreign relations, both in the commercial and financing spheres, are the ones to determine mainly our economy’s growth. For this reasons, it is absolutely evident that any economic program that could be defined for Ecuador, must consider this reality to incorporate as a priority, the foreign relations. To design an economic management, unknowing this truth no matter if it’s because of political, ideological or whatever reasons, is a flagrant mistake. The need to be cautious towards these factors goes in the direction to strengthen foreign commerce with policies which support the exportations and its diversification, not through subsidies or estate presents, but with clear rules, economic stability and external signs to market openings.

Likewise, a balanced importation growth among the consumer goods, raw materials and capital goods to allow activating the economy and their own exportations. A range of emblem offers to attract enough foreign investment to allow the fiscal expenses to concentrate their efforts into which really matters, this is, education, health, security or justice, avoiding with it, the distraction of resources in infrastructure work which can be developed by the private sector without the estate necessarily loosing the property. The concessions are precisely made for that. This is another of the actions which would allow reinforcing the foreign sector and promoting the economic growth. For it, as well as in other cases, it’s essential a stable internal economic environment, with friendly positions towards the investors, with legal security and clear rules pertaining to the tributary matters and obviously to the political matters also.

As a complement of the above mentioned, it’s absolutely essential that the country keeps the foreign lines for open financing, because it isn’t only a way to nurture the economy of the necessary external financing, but of generating the necessary liquidity to allow in a continuous way to reinforce the dollarization. Therefore the previous mentioned conditions are needed and besides of it, a strict fulfilment with the foreign creditors, being unimportant if they are governments, foreign organisms or commercial debt holders. In any of the cases a situation of non fulfilment or moratorium tears up the root of foreign confidence and not only conspires with the foreign savings sources by replacing deficiencies of internal savings but is also a threat to dollarization. In addition, the relationship of Ecuador with the exterior, have been strengthened by the important contingent of Ecuadorian immigrants who are working abroad. The sent remittances have been a fundamental support in providing dollars for the Ecuadorian economy. For this source to keep open there must also be adequate conditions, not only in the logistic part but in the opening, without restrictions to foreign financial resources that come from outside the country. A limitation to free inflow and outgoings of capitals imposes a restriction to the provision of dollars, not only because of the remittances but of all nature. The current tax imposition to the dollars outgoing is an evil invitation for the liquidity not to enter into our economy, because the inflow and outgoing aren’t done with the needed freedom. According to the above mentioned, you can deduce that if the main source of Ecuadorian economy’s growth is the foreign demand, to be understood: external financing, foreign investment, exterior commerce and remittances sent by the emigrants, but not a strategy to confronting with the international community. It’s inacceptable that on one hand there is a government’s support to keep the dollarization, and on the other hand, it sends signs absolutely contradictory for that purpose. Ecuador lives from the dollars coming from the exterior, they aren’t printed in the country, for which the economic policy must be cautious that the dollars in circulation can satisfy the needs of the Ecuadorian economy. The logged explanations, invites the acting government to rectify the economic policies’ handling in the following environments: to take up again the safe principles of limits towards public expenses, because it isn’t possible that while the economy grows between 2 or 3 percent per year, the fiscal budget does it over 45% per year. That public expenses level is unsustainable even if the oil prices return to levels previous the crisis. Likewise, the public work, as it was mentioned before, can be given in concession to the private sector to avoid the Estate to finance those figures. The works begin and are finished, and the maintenance of them is guaranteed. Only by this example, a savings of more than 5 thousand million dollars can be generated. Unfortunately, the ideological burden hinders these decisions.

The country cannot continue spending more than 4 thousand million dollars to subsidy sectors which don’t need it. The oil products such as gas, fuel, diesel and the electricity subsidies which altogether consume more than 80% of the total of subsidies, benefit more the people with more resources than the poor. Those subsidies should be immediately eliminated. Finally and maybe the most important, is to start in an aggressive way, the recuperation of the country’s image abroad, because with the before mentioned economic characteristics, it’s impossible to grow and progress without a favourable external environment. The external debt moratorium, as I said before, goes against a country’s good name. Ecuador in the world must be respectable and respected and all this can be achieved with friendly, honourable and sovereign international relations but at the same time in an intelligent and calm way.

Ideas which aren’t feasible…

Dr. Pablo Lucio Paredes Economic Analyst

In these times of citizen revolution, in which the insincere promises are plentiful and rhetoric has replaced the basic economy, it’s not considered correct to be a Liberal. And it’s even worse, when supposedly the world’s crisis is another example (one more?) of the free market economy’s failures. But patience overcomes in this type of ideological debates (ideology is and must be the basis of thought), because in the long run people walk through life (and it’s recognized) thanks to the ideas and actions which are essentially Liberal (even if you don’t know it). That’s why it is worth to remember some aspects of liberalism (which is completely different to the caricature often presented to people, mainly by the left which has been able to sell an absurd and inexistent idea about liberalism called “neo liberalism” which is nothing else than a wrongly assembled prescription not of visions but of partial economic policies). And we will do it contrasting with which socialism of XXI century (and of all centuries) absurdly sells.

1. Liberalism isn’t a prescription, but the compilation of a series of practices based in how we are and act as human beings. It doesn’t offer the paradise, but only the possibility that people can act as we wish without anybody “from above” imposes us their rules of conduct. It’s completely opposed to the socialism which offers the ideal for some as a vision for the future, but for everybody and obviously tries to impose that path to others. Evidently, liberalism is less striking and glamorous, because it forces us to construct our way, while the other offers us a world of fantasy (which frequently is striking, even if it doesn’t take you anywhere.

2. Liberalism only pretends to be what people are, it doesn’t pretend to re-educate us (as socialism does, to be better than we are now over the basis of the criterion which some “from above” decide). Is liberalism selfish? Of course, because people are what they are. Is it supportive? Yes, because we are it too. Society is constructed over the basis of individualism and altruism, which is in ourselves and allows us to construct scaffolding with lots of faults but with surprisingly positive results. It isn’t the solidarity imposed by socialism, which ends destroying the real solidarity and besides ends killing human beings other potentials.

3. Is a society with many defects built that way? Of course, because human beings frequently make mistakes and we do it overall for a simple reason which is not allowing us to die: our constant creativity and the search for something else. In the opposite of a socialist society which pretends to have technocrat instruments which “from above” avoid errors, but therefore they have to

eliminate freedom and creativity. There lies the difference between liberal and socialist humanism. The first mentioned believes that people can construct the desired society (with all the defects which come with it), while the other believes in our incapacity and should be guided by a group of wise persons.

4. Is an uneven society created? Yes, of course, because the human being’s behaviours are uneven. Not everybody in a society has the same luck, abilities, capacity to take risks, etc. Does liberalism think that this is the perfect thing? No, it simply believes that it is the result of why human beings are who we are: different and undertakers. Does this mean that we cannot make efforts to offer opportunities for other people to integrate to this process of undertaking and creating? Of course, because there is our altruistic side (that we don’t need the Estate to impose and we either don’t do it because of charity but as a social and deep ethic means of support): we are willing to dedicate important sources (financial and other kind) to share potentials with other ones. On the other hand and to begin with, for socialism it’s inacceptable that people are different and obtain different results. Therefore the need to be equal which destroys our essence.

5. Liberalism sustains that people can exchange abilities with freedom. That space is called market, which in the contrary of what some others pretend, is not an “invisible hand” which is guiding the behaviours from some place and from an obscure mind, but is simply the result of our freedom exchange and is essentially “invisible”, not for hiding it, but because it’s a virtual space which only exists while there are free people. And that free exchange, which is an exchange of property rights, requires fundamental rights for property clearly established and protected.

6. Does liberalism reject the Estates existence? No, because people all times decide that there are actions to be undertaken in a collective way, and somebody is named to do it in the name of all. And way beyond semantic, that is the Estate. What liberalism definitely rejects is that this institution called Estate, uses power delegation which has been received (in particular monopoly power which comes often together with force) to impose the citizens (which are the real owners of the power) what people haven’t granted and delegated, and as a consequence it’s sited above them to impose the way of life that suites the power keepers and not the real owners which are the citizens. It is in that way how socialism creates Estates which turn into defenders of the truth which is imposed from powerful spheres.

We have come to the end. We haven’t talked about exchange rate, or fiscal and monetary policy, or anything else. These are instruments. But liberalism is more than this: it’s a way to defend the way people are and rule the society, with all our virtues and defects.

Money isn’t enough: End of Populism Economist Jaime Carrera

Observatory Technical Secretary of the Fiscal Policy The impact of the 2008s fiscal relaxation and the world’s crisis consequences has begun to be evident at the end of 2008. The Exchequer’s lack of liquidity forced to locate the bonds for US$ 700 million which were purchased by the IEES (Social Security), in spite of which the Exchequer’s deposits reached only US$400 million until December 31st; in January 2009, they rose to US$896 million because of debits to public entities and accumulation of delays in payments of the Estates obligations. At the same time, the international reserve of free availability was reduced from US$ 6.476 million in September 2008 to US$ 4.212 million to February 6th 2009. This precedent foresees extreme difficulties to support and finance the 2009s budget. In February of the current year, US$ 549 million more were sold to the IEES in Bonds to finance the estates budget. Insufficient revenues and with queries Although in the scenario of Picture No. 1 a small diminish of tributary revenue arises in terms of the GDP with a moderate growth in absolute values, its possible that the same ones, have a more marked reduction derived from the economy’s diminish, smaller remittances and importations, non oil and consume exportation fall. If the price of the oil barrel is kept at the average of US$ 30 –WTI more than US$ 45- the income for the budget could be the one from Picture No. 1, after deducting the delivery of US$ 3.000 million to Petroecuador. However, the requirement for importing products derived from crude oil could leave without income the fiscal accounts. In spite of the costs reduction, the need of flows to import diesel, gas and other derived will be higher than US$ 1.6000 million per year and the income with price freeze won’t exceed the US$ 1.000 million. It’s not clear of how much of the difference in prices, will be covered by means of the exchange with Venezuela and the value that should finance the budget; besides, the no payment of the fuel which the electric companies uses also deducts income to the budget. Higher oil prices would alleviate and if they get depressed and the payments fall, the fiscal perspectives will be more devastating. Inflexible expenses, shortage of money. The disproportionate increases about salaries, products and services, transfers, etc, have deepened the inflexibility of the expenses, which makes it more difficult for its reduction. (Picture No. 1). Even with the price freeze or a small increase to compensate inflation, there wouldn’t be enough income to support them. The deficit between income and expenses would be located near the US$ 4.000 million, GDPs 7%. In this environment it seems little viable to maintain the expenses of investment capital of the social sector –education, health, housing, economic inclusion- which in 2008 reached around one thousand two hundred million dollars. This requirement added to US$ 1.200 million for the Sectional Governments and about US$ 600 million

for the Department of Public Work, would add the US$ 3.000 foreseen million (Picture No.1). It is also assumed, that other Estate’s sectors won’t do any investments, which isn’t probable to happen.

Financing necessities The financing needs are given by the deficit, internal and external debt amortization and the unresolved payment obligations or floating debt at the end of December 2008. Those needs could reach to US$ 5.000 million (Picture No. 2). The possible financing sources are in the IEES Bonds placing, the use of the existent balance, and the rollover of the external debt amortizations. Still, the breach to be financed could exceed US$ 2.500 million.

Few financing options and future sustainability There are few options to close the financing breach. The credits of multilateral organisms are limited for the Estates free availability, in some cases they are channelled to specific work, in others cases certain structural reforms can be demanded which are obvious for the economic future and fiscal viability. The lack of financing can lead to accumulating salary payments, transferences, pre assignations and other Estate’s obligations, whose inherent social uneasiness will put in evidence the fiscal failures. Even, if it would be possible to get certain financing complemented with a reasonable level of postponement, the future sustainability to a subsistence level will demand deep structural reforms; and more, if we have to add to it, the constitutional demands, the investments in the country’s strategic sectors and growing requirements of social expenses. The IEES covers up the populism self delusion The country gets into debt when it cannot cover the estate expenses with the oil income and the taxes which the citizens pay to the Estate. For that purpose, between December 2008 and February 2009 the IEES lend to the Government US$ 1.250 million, the GDP’s 2.3%, with which that entity keeps in Estate Bonds US$ 2.500 million, which is 40% of the tributary income. The oil prosperity worsened the fiscal populism, understood as a gullible satisfaction of the shortage to the poor without the compensation to their efforts, to their economy and the society as a whole. The conviction of having magical solutions to the national bad times was stressed, related to preach of populist models. In the absurd dreams, the naive fiscal self sufficiency seemed to be everlasting under the wings of the oil income which nourished a fictitious model of viability. The oil unstable prices stripped the fiscal scarce. Without the US$ 1.250 the public expenses would have collapsed. The IEES’s savings still cover up the populism self-delusion, postponed the suffering and nourish the revolutionary blindness. The IEES’s dollars of the members do not allow seeing the cost of the destructive policies which have isolated Ecuador from the markets and have generated distrust. To obtain such sources abroad would have meant an interest rate payment higher than 30%. If the

IEES wouldn’t be captive of populism, as any individual or company, to lend the Estate, it would have demanded a fiscal program that generates a surplus of US$ 500 million per year to guarantee the credit return. The members will regret it as soon as the hypnosis has a bitter awaken. The future well-being demands a different model The collective progress and a systematic reduction of poverty cannot be achieved without a deep change in the direction of the economic model. The last mentioned must pursue a constant creation of richness, with sustained economic growth rates higher than 6% annual. This objective is only possible in a favourable environment to do business, with economic freedom and the insertion to worlds markets, with outstanding moving forward performances in competitiveness and country’s productivity, with guarantee for internal and external investment, keeping a macroeconomic stability and fiscal responsibilities. Respect and security are also needed towards property with an efficient Estate to redistribute the resources to the poorer and the private sector which generates richness and work. On the other hand, progress won’t be possible without a real and effective democracy, sustained in the Rule of Law, with an inexorable and independent division of powers, with the respect of the rights and individual freedom, with the consolidation of the national institutions.

12 questions to face the crisis

Carlos Alberto Montaner Cuban-American Writer and Journalist

1. What will happen with that input of almost 800.000 million dollars in the North

American economy? It won’t work. That enormous amount of dollars will generate inflation. United

States economy is turning into a Latin American one. 2. But will it generate employment or not? In an artificial way, many work posts will be created. Several decades ago, a famous

economist Henry Hazlitt gave an extraordinary example: Why don’t we break all crystal windows and suddenly million of people will be needed to manufacture crystal and install them. Economy grows spontaneously when companies discover and satisfy the market’s real need, generate benefits and invest part of those profits.

3. Then, are there good and bad work posts? Of course, Milton Friedman during a visit to China was shown an enormous dam in

which thousands of workers were digging using shovels. Friedman asked why they weren’t using mechanic diggers which would make the work faster and better. The answer was that there was the need to employing many people. Friedman smiled ironically and told them: “in that case, why don’t they use table spoons instead of shovels and then they will need more workers?” The rational objective of any healthy economic activity is to do the most with the less possible amount of resources.

4. But, didn’t Roosevelt increase the public expenses with the New Deal? Yes, and it was a disaster. In 1941, when the United States entered into the Second World War, it still hadn’t recovered from the 1929 depression. 5. Then, was the war the event which saved the North American economy? Neither. That is a much extended superstition, the European Countries which didn’t

participate in the war, such as Sweden and Switzerland, grew more in those years than the United States. What happened was that since 1941 the North American economy touched bottom and began to grow. Afterwards, when the war ended, being the first world semi destroyed country the United States generated half of all the things produced in the planet. Wars ruin countries, as it was proved in Korea, Vietnam and nowadays is shown in Afghanistan and Iraq.

6. What started the current crisis? What originates the entire crisis even at a personal level is that the United

States spent more than it produced. Specifically, it spent a 105% of the produced.

7. But don’t the governments tell their societies to keep spending? It is so, but since people are more cautious than the government, they measure

their expenses and start to save to confront the recession periods. 8. How long will the crisis last? According to Steven Pearlstein, who won a Pulitzer price for predicting exactly the

coming disaster, the financing crisis will last until the end of 2009 and the economic in general, once the credit lines are restored again, around two more years, but nobody knows.

9. Is the biggest responsibility of the banks and financial institutions which gave

absurd credit conditions? In great measure and the governments also, which forced them to grant

credits because they thought it was good that everybody should have a house even if they didn’t have the money to pay for them.

10. Should the banks be punished? Of course they should .The companies and people must pay for their mistakes. It is

necessary to let the market sanction those who failed with their work. This is the way in which the system pays for and improves. It isn’t the Estates function to save a company which has lost the consumers favour.

11. Then, do you support the naturalization of the bankrupt banks? Yes, the bankrupt banks must be provisionally absorbed by the Estate, even if the

shareholders lose their investments and, once the bank is re launched again it must go to private hands with new shareholders. This was made in Sweden in the 90’s in front of a similar crisis.

12. Can the crisis get worse? Yes it can. As it happened in the 30’s a suicidal wave of protectionism can

come again. When Vice President Joe Biden talks about “Buy American” and stimulates that economic nationalism he is preaching nonsense. Societies enrich expanding the free market, not restricting it. Besides, it’s an opposite act to consumer’s freedom.

My new approach for supply and demand

Ing. Joyce de Ginatta FIE’s President

A theory which has been repeated for many years in the First World’s economic processes is that when the economy enters in a process of recession, the governments in a determined country lower the interests and taxes (this is, they transfer those values to the consumers’ pockets), to revitalize them little by little. We have seen on the other hand that the technological revolution increased the supply in a geometric progression as never seen before. If we add to all the above mentioned the fact that Continental China (which before wasn’t insert in the world’s market), there have been transformations to free commerce and incentives to foreign investment, which has allowed a participation in the world’s market of 6%, and the growth perspectives of supply of products and services can be seen with a sustained increase. Its expansion is noticeable. The GDP grew a 9.7% in 2004’s first trimester. In 2003 it was almost 9.5% and the income per inhabitant had the equivalent of almost 1.200 dollars. This is how the Asian giant is entering into all markets. These are the current conditions of the economy. What happens on the other hand in countries of the First World? That theory of increasing the consume in your own country through the tax, interests and other similar figures descents, isn’t valid anymore because a family can’t absorb in each home, 20 cars, 50 washers, 30 refrigerators, etc. That is, in the same way that plastic money reaches its top, consume does it too. We can see that the topic doesn’t go in that direction. My theory is that the First Worlds countries have to change their strategic economy. They can’t keep going on with the idea that the Third World countries must be the providers of cheap raw material to developing themselves. Now the matter of their economies transformation is closely related with the demand increase of this Third World, which, as an example, only among Latin America and Africa would be adding to worlds consume around 1.400 million inhabitants. This means that there is the need to reconsider a new world economic definition which should be directly related with demand. It’s necessary that the First Worlds countries allow to under developed countries to add value to their production for them not to be only providers of raw material, but to start exporting products which have incorporated a greater add value without imposing barriers of any type. In this way we would have a demand directly related to the bigger supply which has been generated when the technological revolution began.

What happens when the production goes down in price? When reviewing tragic cases such as the steel and orange juice wars, we observe that Germany and Brazil were competitive when adding value to their steel. As an example we can mention about a factory which before needed 3.000 people to produce 172 thousand tons of steel, and nowadays it’s done with only 9 people. The technological revolution brought with it that decrease in production costs and the exportation prices became extremely interesting. However The United States closed their customs to Germany and Brazil increasing the custom duties to 30%. What is the result of this? On one side I’ll hear: “Ah, but there are 3.000 people who don’t work anymore. Yes indeed, when production costs lower the steel prices also lower, and 3.000 people are left out of this working field, but also that same amount of people and more, get employment by making houses, as an example, and now population sectors which hadn’t opportunities before, start to have them now. The same thing occurs with the topic of the orange juice. Brazil, instead of exporting oranges, starts to manufacture orange juice. The Florida orange juice producers start to complain and custom duty problems begin. If Brazilian which elaborate the pre manufactured juice could sell it in the United States, this wouldn’t only allow to have a better life level which at the same time would capacitating the U.S. people to consume the production, but would also increase man power and people would have more benefits. In this way the economic reconsidering goes by the hand of a change in the philosophy of the law for supply and demand, because what is needed is the increase of add value of the Third World’s nations and therefore obtain better opportunities. On the other hand, the theory about devaluations generating competitiveness is a fallacy which now more than ever has to be eliminated worldwide from all the texts about economy. Devaluations produce poverty, because they reduce the prices of products not by the way of efficiency but by impoverishing the workers pockets, which eliminates each time more the power purchase based in dissolving the salaries. However, the bill of receiving at a lower price really represents to the First World, a much higher cost because that Third Worlds country which offers a lower price, impoverishes, it soon isn’t able to consume foreign products (to be understood the First World) and its life level worsens. An economic nature that should be changed The assistance which countries of the First World deliver to the Third ones, are small gratifications which do not contribute creating an appropriate scenario to allow the add value to produce and be efficient. With this type of help it’s not possible that 1.400 million people entering to worlds consume exclusively between Latin America and Africa, without having in mind that to that amount it could be added the inhabitants of important sectors of Asia which are also poor. We can’t keep saying that the only ones to promote poverty are the bad governments and corruption of Third World’s countries, because it isn’t so. The economic nature or order must be changed. All the above mentioned, without doubt, isn’t to impoverish First Worlds

countries, but for countries which nowadays aren’t in “the big leagues” for them to enter, because the nature of things doesn’t allow it. Let’s analyze what happens in Japan. Taxes and interests have been reduced (these last ones almost at 0%), and however the Japanese economy is suffering 36 months of recession. We have seen that today (March 2003), so much the United States as Asia and the European Countries suffer a recession which is difficult to get out in a short term (momentarily they will but not in a sustained way). I insist that the only way out for these countries is to offer better options to the underdeveloped countries. In what concerns to the fund raising system, it’s necessary that these are standardized, so the poor income of the Third World’s people won’t be used as an advantage, but rather offer better strategic conditions, rules of law, and that each country receives the opportunity for investment and new options without any harm towards environment to allow them to compete in a globalized world in which the communication technologies moulds each day a more demanding consumer who compares each time more and knows exactly what to acquire in benefit of his family. The economic chess game, that certainly gets more complicated day by day, allows giving more opportunities through franchises for example, which aren’t First World’s countries exclusive operations but nowadays function and rise anywhere. Through communication technology, First Worlds cultures have changed. We can see that not only hamburgers are eaten but also, tacos, Chinese Food and a series of products whose origins aren’t so important while its quality design, its attitude in front of the environment and its health protection are of people’s interest. The financial system In another angle of things, some other change besides the one of the supply and demand must be done and it is the one referred to world’s financial system management. Each country’s foreign or national banking, an entity which initially generated resources with ethic costs at long term to produce new work opportunities, must stop being what it is today: speculative and patrimony usurper. Nature of things have to change for investor’s security using a global currency (as Europe does with the euro, America with the dollar and in Asia with the yen or Yuan) and have the possibility to project them at long term with their economic stability to financing or providing employment and products and services. It’s not a matter of capacitating but of change. It’s a matter of returning to certain norms which nowadays can’t be anymore blamed to the First, the Second and the Third World’s country’s tragedy.

Written on February 2003.

A young man’s thoughts: The statesman rope and the

university student’s awakening

Xavier Alarcón León, Student’s University of Miami Political Economy Sometimes words don’t go beyond as we would wish, or the numbers don’t give you a complete prospect. An image is sometimes needed or more than that, a picture to awaken us from fear. It is said that an image is worth a thousand words, because that’s the way it is. That’s why I believe that there is the need, both for young people as for adults, for an image to awake us. It seems that nothing attains to awaken the country. Economies’ red numbers are printed in the newspapers buy don’t stay impressed in the conscience of Ecuadorians. The shameless corruption which is daily reported constitutes only an ephemeral nuisance, plus the assault to freedom principles, the division of powers and private property. I’d like an answer. There is simply no proper reaction to Ecuador’s’ problems. One more drop of water is needed to spill the glass. I think that each Ecuadorian has its “drop” to spill the glass, according to their criterion. As I said before, mine, is an image or more than that, a picture. The Ecuadorian painter Eduardo Kingman, who died not long ago, left from his art life the vision of a country in complete poverty. When he spent his life painting the more unfortunate, oppressed and poor, Kingman left the images for Ecuador to rise. His paintings and his message are the needed “drop”. To be more specific, the painting which awakens me is the one with both hands tied up with a rope and which subtlety screams with pain the poverty and oppression and is called “Ataduras” (Ties). That painting, which is reproduced a lot in the country, means to me the Ecuadorians prayer. You can see in it a pair of wore out hands which symbolize the productivity and work of each one of the Ecuadorians, buy they are tied up with a rope That rope symbolizes the underdevelopment, corruption, the lack of work and opportunities, the discrimination, the oppression among other things. Kingman’s message is subtle but impressive and catches sight of the desire for social justice which so much he promulgated. However for me the most important part of the painting is what it inspires, not what it says. Let’s think about it, Kingman painted those images of poverty decades ago and it would be worth to ask ourselves: Has anything changed since Kingman painted those images of poverty which he saw daily in Ecuador? The answer is no, nothing has changed. When contemplating that painting I would like to think that it was done in another period of time, in which the discrimination and oppression were tangible and the population was rejected. I would love to think that the mentioned image caused impact on people, to the point in which they got together and said “Enough, not any more, now we are a single country and we will work towards our future”. But that didn’t happen. That’s what mostly impacts me about the painting.

Nowadays, the painting’s rope has the same or more relevance than before. It could represent several things depending of the period of time in the Ecuadorian’s History. The rope can represent since the colonial oppression which the Ecuadorian suffered many centuries ago, until the “partidocracia” (partycracy) and the “pelucones” (rich and powerful people) which so much oppressed the population until the government of the Citizens Revolution arrived. That’s why the message of anti- pelucòn and anti-partidocracia worked for them. The Ecuadorians were ready to cut the ropes and were right to do so. It’s deplorable to say that they didn’t cut anything; buy only changed the ropes, nothing else. Today we have the same poverty but with a different rope. We don’t have colonialism or party racy anymore, but we aren’t free. We are under the control of another rope, a stronger and more oppressive one. That rope doesn’t believe in democratic principles which Ecuadorian’s needed so much. It either believes in governmental responsibility, or presidential dignity. This rope is worse because it deceives. It lies and tells that this is the solution for all the Ecuadorian’s problems, and many believe in it but the only thing that this rope is doing, is squeezing more and more. This rope represents an inefficient and irresponsible government. The rope already spent all the money which the country last year obtained through historic high oil prices. Where did the money go? It went to be spending more and more. In these times of world’s economic crisis, when all the countries used their reserves and savings to counteract the effects of the crisis, we, the Ecuadorian’s haven’t got one single cent because everything is already spent. According to our president this crisis wouldn’t affect us because our country is already sovereign. Yes of course, because sovereignty will not raise the GDP. New institutions were also created and public salaries were increased in one thousand million dollars, which is probably one of the most irresponsible acts done. Everybody knows that by increasing bureaucracy, far away of diminishing corruption, it increases it. It’s inconceivable to believe that the oppressing rope still has great popularity. That’s the reason why we need an image to awaken us. The new style is to oppress us to the point of not being able to buy foreign things. Any custom duty which is more than 50% is practically prohibited or a measure destined to a determined group of consumers. In which part of a country’s humanistic and economic development there is found to limiting the consumer’s freedom to buy domestic or foreign products? This isn’t a part of developing, this isn’t the way of doing things and history proves it. However, this goes beyond the Ecuadorian’s economic freedom. This situation extends towards foreign policy. None of our commercial partners will agree Ecuador’s increase to their products customs duties. Without doubt there will be some type of retaliation. Our Foreign Secretary of State declares that our partners should understand the precarious circumstances which Ecuador is going through and shouldn’t punish us with the tremendous violations to commercial agreements because the shortage concerning this topic are obvious. Why is it that Peru or Colombia or any other country should understand and accept responsibilities? They shouldn’t be concerned about the terrible way of handling our economy and

under any circumstances they should “understand” the measures of ours. It seems that if Ecuadorians don’t protest properly about these measures, at least other countries do it for us. That rope is squeezing our hands. Nothing of the above mentioned apparently disturbs the Ecuadorian people. We have to go a little further on to see this and next year’s situation. The world’s crisis is knocking our door. The oil prices prowl at low prices and our budget deficit is already at red ciphers with more than 4 thousand million dollars. Instead of reconsidering attitudes, the government keeps on spending and wasting. Not too long ago I read about the National Foment Bank (BNF) and how their losses rose 900%. The micro credits are of great help for a countries development, but it’s also clear that it isn’t only a matter of money but of personnel capacitating, having an organized and efficient infra structure to see clients progresses and help when it’s needed. None of these were made, and the position is to lend or more than that to give away money without responsibility. The results are there: the irresponsibility, corruption and inefficiency are tangible. But even so, it seems that it isn’t enough to alarm the Ecuadorian people. The rope is squeezing our hands but we continue keeping quiet. I have to explain somehow what I mean about reaction. I believe that peoples’ criterion must be appreciated and especially their disagreements. It’s not possible that the Ecuadorians agree that the government “lends” hundreds of million dollars from the IEES (Social Security). This isn’t normal. That money belongs to the Ecuadorians, which are forced to pay through income taxes to have monthly retirement money. This isn’t trivial, people’s money must not be to play with and worse if that money will be to maintain and support those who aren’t able by age to work anymore. But I can’t see any complains about it. I have no doubt that if our government would tell the public workers that their salary will be lowered and promised to return the difference in ten years, the Ecuadorians would take the streets to protest and demand justice. I really can’t find the difference. I would never accept that with my savings, the government finances its deficit and squanders my money. We can’t pay for the financial irresponsibility, but we are doing it and the rope continues squeezing us. By any chance with the slogan “the country belongs to everybody” is it to make us accept that the government is destroying the Ecuadorian financing system? Not long ago, I was talking to an expert Latin American financing analyst and he told me about the worries in International spheres about Ecuadorian financing stability. The moratorium towards foreign debt does not help and the banking reforms question the credibility and seriousness of the current government. For the financing world, these topics are crucial and soon they won’t believe in our country anymore. That will be the day in which nobody will invest one single cent in Ecuador. We must be realistic about these topics. It could be that the bankers aren’t too honest or altruistic, or that the world’s financing system not always favour us, but something must be clear, we can’t play without them. You can’t be contrary to those who have the capital, because investment goes away and with it the work and dreams of a developed country. It seems that this topic is as fuel for the XXI century socialists. The worlds financing system seems to be the piñata of the so called socialists because the more you kick them, the more candies (popularity) are obtained. But that’s not the way to create

richness, that’s not the way of giving a decent life to Ecuadorians and certainly it isn’t the way to cut the ropes, on the contrary they squeeze more. As a university student, I think to have the right to be worried for my country. I have the right to demand to my rulers to mend their errors and I have the right to protest strongly with a threatening voice about the current policies. I get mad thinking that since Kingman painted “Ataduras” nothing has changed. That’s why that painting inspires me, because it represents Ecuador’s stagnation and the backward step which it is suffering nowadays. Our voices must be heard. We are the future and if we want to live, work and prosper in Ecuador we have to do something about it. We will inherit this country and I want to show Kingman’s painting to my children saying: “that WAS Ecuador”. Nobody wants more ropes squeezing our hands. Look at Kingman’s painting and ask yourselves: has Ecuador changed since those times? And perhaps something more important than the previous question: Are we in the right path to change Ecuador properly? If the answer is “no”, the time has come to do something. I have told you about the image which inspires me to work for Ecuador’s future and more than that, to be able to cut that rope which enslaves the Ecuadorians. I hope it will serve you, and if not, look for your own painting, your photography or any image which inspires you to help for Ecuador’s progress. After all what economy or politics don’t tell you, the painting will do

Monterrey’s Consensus, the International monitoring Conference about financing for development in charge to examine the application of Monterrey’s Consensus

and the Private Sector

Ricardo Espina

The United Nations International Consensus about Financing for Development which was held in Monterrey-Mexico on March 18th - 22nd, 2002, became a Historic milestone in the international economic cooperation, because it was the first time that governments, international institutions, civil society and private sector’s representatives gathered together in a same forum organized by the United Nations to discuss about global economy matters. The adoption of Monterrey’s Consensus to a world summit level on March 22nd 2002 wasn’t only a new association in foreign economic relations, but it also reaffirmed the advantages of this approach for the consensus construction from the international community.

This political space opening has been without doubt a key factor to the success of the Financing for Development process. Another key factor has been the continuous effort of collaboration, without precedent, which includes the Organization of United Nations, the Worlds Bank, the IMF and the World’s Commerce Organization, together with other actors of the national and foreign field. There is to highlight the compromise and participation of the organized civil society and the Private Sector, which have been active partners in this process.

At Monterrey’s Consensus, result of the Conference, bases for a new “association” were established among the developed and developing countries. The commitments adopted by the international community as part of Monterrey’s Consensus were grouped in six topics or chapters:

1. Mobilization of internal financial resources for development. 2. Mobilization of international resources for development: direct foreign

investments and other private current investments. 3. International commerce. 4. Increase of the international financial cooperation for development, among

others, through the Official Assistance for Development (AOD) 5. External Debt. 6. Solution to systematize problems.

Monterrey’s Consensus reflects an ample adopted agenda and the way of focusing it which has been a characteristic of this process. Far away of being a last topic to mention, The Consensus established a platform over which the global alliance is being built for development, including all the actors involved in the global regional and national spheres. This alliance is based in the essential responsibility which each nation

has in its own developing process and in the renewed compromise of the international community to support the efforts of the developing countries.

At this point we will only talk about the first two chapters of Monterrey’s Consensus which have in common the private sector’s activities.

1. Mobilization of internal financing resources for development.

At Monterrey’s Consensus it is understood in an explicit way that each country is responsible of its development, that the national policies and strategies are indispensable to be achieved and has to support themselves in an international economic favourable environment.

The Governments recognized the need to create the internal conditions to mobilize the internal savings (public and private), maintain an adequate productive investment level and improve the human capital; in addition to the importance of increasing efficiency, coherence and compatibility of macroeconomic policies. Likewise, a favourable national environment is fundamental to mobilize the internal resources, increase productivity, reduce the flight of capital, stimulate the private sector and attract and use in a productive way the investments and international aid. The international community should additionally support the efforts to create that environment.

Regarding to the private sector, they commit themselves to establish appropriate regulations, according to the local laws, to foment the public and private initiative, even at local level and promote a dynamic and efficient business sector.

2. Mobilization of international resources for development: foreign direct investment and other private currents for investment.

The Governments recognized the great challenge to create necessary internal and external conditions to facilitate the direct investment currents, to contribute achieving the priority objectives for development, because the foreign private capitals (particularly the direct foreign investments), as well as the foreign financing stability, constitute a fundamental complement of local and foreign activities for development. The foreign direct investments declared that they contributed to finance a long term sustained economic growth. They are particularly important for the possibilities which they offer to transfer knowledge and technologies, create work posts, and increase the general productivity stimulating competitiveness and business spirits and finally eradicate poverty through encouraging development and economic growth.

Six years after the signature of Monterrey’s Consensus agreement, the United Nations General Assembly, decided to make an International Conference to follow up the topic about financing for Development, to revise the implantation of Monterrey’s Consensus, which took place on November 29th to December 2nd 2008, in Doha Qatar.

At this Conference, through Doha’s Declaration about financing for development, the governments reaffirmed their determination to adopting concrete measures to be

applied in Monterrey’s Consensus and confront the problems to financing for development in a gesture of world’s solidarity. Once more they made a commitment to eradicate poverty, obtain an economic and sustained growth and promote a sustainable development at the same time in which they fully advance towards an economic inclusive and equal world’s system. At the beginning of this document they expressed the following:

“We reaffirm Monterrey’s Consensus in full, its integrity and holistic way to focus it and recognize that the mobilization of financial resources for development and the efficient use of all of them are fundamental elements to world’s alliance for a sustainable development, particularly to achieve the development objectives internationally agreed and specially the Millennium objectives for Development. We also reaffirm the importance of freedom, peace and security, the respect to all human rights, including the right to develop, the rule of law, equality among genders and the general commitment to obtain fair and democratic societies pro development, as it was declared at Monterrey’s Consensus. We reaffirm that each country must assume the fundamental responsibility of their own economic and social development, and that it will never be enough to insist about the importance of national policies roles, the internal resources and the strategies for development. At the same time, the national economies are nowadays related to the world’s economic system and, among other things, the efficient use of commerce and investment opportunities which can help countries to fight poverty. It is necessary that the efforts for national development be sustained in an international economic propitious environment”.

On the other hand they recognized the achievements and the found obstacles until the present time since Monterrey’s Consensus signature in 2002:

Progresses have been achieved in some spheres, but inequality has risen. We accept and approve the important increase in the public and private currents registered since 2002, which have contributed to encourage a greater economic growth in the majority of developing countries and a reduction of poverty rate at world’s level. Nevertheless, we express our deep worry to the fact that the international community nowadays confronts the supposed challenges for development with serious consequences for multiple crisis and global international problems, related to each other, such as the feeding insecurity increase, the volatility in electricity prices and basic products, the atmosphere changes and a global financial crisis, as for the lack of results until now of multilateral commercial negotiations and the loss of confidence in the international economic system”.

Regarding to chapters 1 and 2 of Monterrey’s Consensus, in Doha’s Declaration, the following is recognized:

1. Mobilization of national financial resources for development

In subsequent years to the Monterrey’s Consensus, several developing countries have achieved significant progresses in the application of development policies in fundamental spheres of their economic frames, which frequently has contributed to increase the mobilization of the national resources and raise the economic growth

level”. At the same time they recognized that: “Bigger efforts are needed to support the establishment and maintenance of a favourable environment with appropriate national and international measures”.

“...a dynamic, inclusive, efficient and socially responsible private sector is a valuable instrument to generate economic growth and to reduce poverty. To stimulate private sector’s development, we will try to promote a proper environment which would facilitate the businesses initiative and the participation of everybody in commerce including women, the poor and the vulnerable. The international community, the national governments and the regional groups must keep on supporting these efforts.

2. Mobilization of International resources for development: the direct foreign investment and other currents of private capitals.

“...the international private capital currents, particularly the direct foreign investment, are essential complements to national and international development activities. We can appreciate the increase of international private capitals currents towards the developing countries which took place after the Conference in Monterrey and the improvements in the business areas which have helped to promote them”. They made the commitment to: “...raise those support currents for development. In this context, we will reinforce the national, bilateral and multilateral activities to help developing countries to overcome the structural restrictions and of other type which currently limits its attractiveness as a destiny to direct foreign private capitals”. “...the need to give assistance, particularly, to countries which have been in situations of disadvantage to attract currents of this type...” which “...can include the provision of technical, financial and other type of assistance, the associations promotion and strengthening including the associations among the private and public sector, and cooperation agreements at all levels”.

In addition they made a commitment to make more efforts “to mobilize investments of all the human resources, transportation, electricity, communications, information technology, and other type of physic, environmental, institutional and social structures which will allow reinforcing the business environment, improve competitiveness and expand the commerce in developing countries and the ones with an economy in transition”. And they recognized that “the assistance official for development (AOD) and other mechanisms such as, for example, the guarantees and the associations between the private and public sectors, can fulfil a catalytic function in the private currents mobilization”.

They also affirmed that “the experience has demonstrated that to foment the national and foreign private investment, it’s fundamental to establish a propitious investment environment. The countries must work to continue creating a stable and foreseeable environment, in which the contracts are carried out and the property rights are properly respected. We will continue introducing transparent and appropriate rules at national and international level. Efforts must be redoubled to improve knowledge and technical capacities of human resources, improve the financing availability for

businesses, facilitate the advisory mechanisms between the private and public sectors and promote the social responsibility among the businesses.

Finally, the impact which foreign direct investments have towards development “should be increased to a maximum.” We are also aware that the technology transference and commercial knowledge is a key instrument to obtain that foreign direct investment has positive repercussions in development. We will reinforce the national and international measures designed to increase at a maximum, the links with national production activities, to improve the transference of technology and create capacitating opportunities for the local work force, including women and young people.”

A very important aspect at Doha’s Declaration and the Private Sector, is that the advances of this sector are recognized and also its impact for development subsequent to Monterrey’s Consensus signature. Likewise, that the countries members of the United Nations, in an explicit way, recognize the private sector’s importance in the countries development and poverty reduction, and in consequence they commit to foment even more its development.

As it was mentioned at the beginning, one of the most outstanding aspects of the Financing for Development Process has been the private sector’s participation through its presence in activities related to the topic. Since 2002, the private sector has taken part in all the annual events held at the United Nations which are related to this process. In the recent Conference at Doha it strongly participated, and the day before it started, a second International Forum of the Private Sector was held about Financing for Development, and the topic was: The impact of the Financial Crisis and suggested Solutions: Mobilizing Private Sector’s Resources for Development”. Two hundred people of all the regions of the world and an ample business spectrum attended.

One of the most important agreements of Doha’s Conference was to gather a “conference of a very high level about the world’s financing and economic crisis and its effect upon development”, which will be held at the middle of this year, and the aspects which surely will be mentioned are the ones related to global financial architecture; the private sector is already involved actively in the planning of its participation to this event.

More information about the Financing for Development Process, in Monterrey’s Consensus and Doha’s Declaration can be obtained through the web site: http//www.un.org/esa/ffd

Ricardo Espina Commissioner for Economic Matters Focal Point for the Relations with the Private Sector Financing for Development Office ONU’s Economic and Social Department.