What Does the Ecuadorian Economy Need in 2019?

The government needs to put more money in the pockets of the Ecuadorian people.

The Ecuadorian economy is currently suffocated by high taxes and too much government spending (PanAm Post).

As a new year begins, Ecuador still has not clearly defined its economic policies. Recently it removed the subsidies for gasoline and fuel, except for public transport, and with this prudent move the Ecuadorian state will save more than USD $500 million. Undoubtedly, this is a necessary measure in the face of the financial situation in the country, but it is insufficient.

The elimination of these subsidies is a blow to the middle class, and without other accompanying measures they will make the lives of millions of people more expensive. In turn, the forecasts of the Central Bank of Ecuador predicted an economic slowdown in 2018, and slow growth is expected for this year. Is this spending cut the only thing the country needs to improve its economic situation? The clear answer is no.

This budget cut must be accompanied by other measures such as the elimination of the ICE, the Special Consumption Tax, for vehicles, the cancellation of several tariffs on vehicle parts, and the repeal of the green tax paid on each vehicle registration. In the current context, there is no excuse for the current high taxes on cars in the country, which makes Ecuador one of the most expensive places to buy a car in South America. If the suggested provisions are applied, it would alleviate the burden that the new gasoline price hikes has put on Ecuadorian families. The Ecuadorian government has to aim to return to economic growth for the middle class, and not take half measures.

In addition, the country needs to create incentives to attract foreign investment, so that the companies that are currently here can expand their operations. These incentives will be a result of an adequate tax reform in which provisions such as the elimination of the Exit Tax on Foreign Exchange (ISD) or the total elimination of the Income Tax Advance are enacted. In this way, new investments will be encouraged and better liquidity will be generated.

In turn, the country needs to start exploiting the options offered by international markets. The government should speed up its application process to become a member of the Pacific Alliance, a powerful regional trade bloc involving its neighbors Chile, Peru, Colombia, and Mexico. It should also seek a free trade agreement with the United States. With greater commercial freedom there are greater investments and consequently more jobs, which will improve the conditions of many Ecuadorians.

Thanks to the economic waste that was experienced over the course of the past decade, this elimination of subsidies was a measure that had to be taken. However, it must be accompanied by more resolutions. The government must dispense with economic half measures. Ecuador needs to be cured of the disease, not apply mere bandaids to briefly stop the bleeding of the wound. In 2019, the government of Lenin Moreno must take a risk, and implement a bold and ambitious program of free-market economic reform. It is time for more investment to arrive and thereby generate employment for the millions of Ecuadorians who need it. Ecuador needs to open itself to international trade, and reduce the hefty taxes that currently suffocate that international trade.

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