Two months ago, the president expressed his desire to crackdown on family businesses. But now, with China’s economy crumbling and oil prices plunging, Correa has decided to launch a campaign to undo his demonization of the private sector.
He has proposed a number of incentives to attract local and foreign investment, offering 10-year tax breaks on corporate income taxes and taxes on capital outflows. He even changed his mind on so-called tax havens, demonstrating a friendly attitude toward something his government previously regarded as a tax-evasion strategy.
The president’s flip-flopping, however, has cost him credibility, and the business sector has reacted with confusion. There is concern over Correa’s apparent policy shift, and his plans to create a “private-public” strategic alliance on an unbalanced playing field.
After all, Correa maintains the power to change the rules of the game as he pleases. He controls the judiciary, therefore any “alliance” with the private sector could become a Trojan horse. The government could use this alliance to expand their regulatory controls and confiscate a greater chunk of private companies’ income.
Furthermore, the president’s proposal does not address the high cost of hiring people in Ecuador or any plans to reform the Criminal Labor Code. Likewise, the government does not seem concerned about the loss in purchasing power experienced by the middle class, which has been hit hard by the government’s new taxes.
Correa faces serious economic seclusion, and is on the brink of losing control of the situation. The loss in political capital prevents his government from applying policies that would have otherwise been possible, such as the implementation of a digital currency.
The political landscape in Ecuador has changed so drastically that the president will not even be able to raise taxes on gas, or make other adjustments to basic services that were previously planned.
Before seeking any sort of consensus, Correa must first bring his economic policies back down to Earth and make them politically viable. He should start by cutting wasteful bureaucratic spending and stop blowing state funds on propaganda, useless government ministries, and offensive agencies like the Department of Good Living, which costs Ecuadorians some US$3 million every year.
Public officials must also do their part by no longer using state vehicles for personal use, or wasting taxpayer money on luxurious dinners and overseas trips. The public must demand more transparency from their government and get a real picture of the country’s financial situation. People must also demand tax audits for the “new rich” and crony businessmen.
It’s time to show our democratic resilience.