Ecuador’s Parliament is in full swing with discussion of a major financial overhaul, a new Organic Monetary and Financial Code. President Rafael Correa presented the bill on June 24 as an “urgent matter,” which means Parliament has one month to discuss and choose whether to approve it.
While the ruling party, Alianza PAIS already has 100 seats and the necessary majority in the Assembly, some in the opposition are questioning, why the rush? Parliamentary representative Ramiro Aguilar, for example, has described Correa’s decision as “irresponsible,” since it gives the legislature so little time to analyze and discuss it.
In a period of five years, Correa has sent 16 “urgent” economic bills to the Assembly for discussion and approval. However, with 516 articles, this is the lengthiest Correa has ever submitted. By comparison, past organic codes of such magnitude have taken the Parliament up to two years to be approved.
According to Correa, this code seeks to “continue the transformation process from a bourgeois classist state to a people’s non-classist state, where the rules of the game aren’t defined by the dominant class, but by the people, the people’s power, and the legitimate ruler.”
The proposed code will replace the “neoliberal laws that drove the country to an economic crisis back in 1999,” Correa has explained. He also categorized it as “urgent” to continue building the revolutionary project.
During a speech on June 25, Correa explained, “it’s a code that finally puts the banks at the service of society unlike now, when society is at the service of banks. This is 21st Century Socialism.”
Correa’s proposed piece of legislation, that will have its first open parliamentary debate tomorrow, eliminates 31 monetary and financial laws, as well as other laws that might contradict it. However there are specific elements are raising alarm in the banking sector.
Alexandra Veloz, a lawyer based in Quito and former columnist with the PanAm Post, describes this bill as “concerning,” mainly because of the high level of intervention the state has on private banks.
“This bill is further evidence of the government’s continuous necessity to broaden and concentrate as much power as possible.”
All Hail the Monetary Oversight Board
Most notable, the new “Political Board for Monetary and Financial Regulation” is set to have independent authority, and be comprised of five government officials from the executive: the minister of economic policy, minister for production, minister of finance, secretary for planning, and a representative of the president. According to the president’s explanatory statement, the purpose is to integrate “monetary and financial regulation into one agency.”
Veloz describes the board as having undefined or “super powers,” since the bill doesn’t specify any boundaries. Instead, it establishes them as “ambiguous and highly discretionary.” The criteria for these norms, explains the lawyer, are political, rather than technical or financial.
According to the bill’s Article 13, this new board will operate the country’s national financial system and take over all responsibilities from the Banking Board, Ecuador’s Central Bank, the Federal Deposit Insurance Corporation, and the Liquidity Fund, as well as other boards that run Ecuador’s “people’s financial sector.”
Beyond powers over the state banks and public finances, the board will have a say on private banks. Representatives from private banks may be invited to the board’s regular meetings, but they won’t have any votes on its discussions or actions.
The board will also regulate on a wide range of topics that go from credit rates and credit criteria allocation to international payments and transfers. According to Veloz, by intervening in credit operations, the board will divert funds to what Correa’s government prioritizes: what he considers “productive,” without taking into proper consideration their ability to pay.
Economist Francisco Briones Rugel, a senior analyst at the consulting firm Strategic Intelligence (IE) in Ecuador, says the new board will have more powers than checks or avenues for accountability. According to Briones, so many monetary and financial attributions in the hands of a few, it can’t be healthy for the economy.
“Ecuador’s economy needs to open more to new investments and banks, that can compete among each other, and therefore reduce their credit rates and increase their service offers. This type of measure doesn’t achieve that. Instead, it scares off any possible investment in the country.”
The new board will also determine the “optimal” level of liquidity, and where the surplus will be invested according to the board’s Domestic Investment Plan. Julio Clavijo, public policy adviser at the National Congress in Quito, explains:
“The main problem is that by ‘investing’ this surplus [what would normally be held for safekeeping], the liquidity’s expansion will then accelerate and create more surplus, and therefore, a vicious circle that generally ends up in financial bubbles that cause economic crises.”
With eight votes in favor and one against, the Parliament’s Economic Commission has given first approval to the proposed Monetary and Financial Code. Now the piece of legislation awaits debate in Ecuador’s Assembly tomorrow morning.