The move to place new “safeguards” on 32 percent of the nation’s imports went into effect on Wednesday, March 11, coinciding with a sudden shortage of merchandise on supermarket shelves. Several Ecuadorian social-media users posted photos of emptying shelves alongside the hashtag “safeguards.”
— Gabriela Calderon (@gabricalderon) March 11, 2015
“Cookies section shelves in a supermarket today. #Ecuador #Safeguards”
Interior Minister José Serrano quickly responded in kind, suggesting that the situation was the fault of “speculators.” Serrano uploaded a video purportedly showing employees of major supermarket chain La Favorita taking products down from shelves.
“While the government works to protect dollarization, there are those who seek to create chaos and speculation,” he tweeted. “That is a crime that we will combat immediately.”
Miren lo q están haciendo especuladores, sacando de las perchas los productos, los cogimos con las manos en la masa pic.twitter.com/mCmGIlJOJ1
— José Serrano Salgado (@ppsesa) March 11, 2015
“Look what the speculators are doing, taking products off the shelves. We caught them red-handed.”
La Favorita responded to the video saying the company was simply replacing old shelves due to “renovations,” adding that the items shown in the video — shampoos, deodorants, and other similar products — are not affected by the safeguards. However, Serrano announced that police will be mobilized to prevent further “price gouging” by businesses.
Pedro Páez, superintendent of the government’s Market Control ministry, similarly told national broadcaster Ecuavisa that products in storage were now being sold at “exorbitant” prices “under the pretext of tariffs.”
The government announced the safeguards on Friday, March 6, in response to falling oil prices and the rising value of the US dollar, which Ecuador has used as its national currency since 2000. As a result, Ecuador is running a significant trade deficit (importing more than it exports), leading the government to try to “control the general level of imports.”
The provision will last for 15 months, increasing taxes by between 5 and 45 percent on thousands of imported items, with the government hoping to reduce its deficit by 8 percent.
President Rafael Correa justified the action by citing the need to counter the drop in the price of Ecuadorian crude. He added that as the affected products are “luxury” imports, the impact of safeguards “will be minimal” because such goods “are not consumed by the poor.”
Vice President Jorge Glas meanwhile defended the safeguards during the government’s weekly Citizen Link televised broadcast on Saturday, arguing that the measure would prevent Ecuador’s dollars from escaping the country.
“We have to take good care of the Ecuadorian economy’s dollars, because we’re facing external realities on our public policy,” he said.
Shop While You Can
Ecuavisa also reported a strong influx of buyers on Tuesday in multiple stores throughout the country.
Sales of technology products, household appliances, car tires, and other imported items were markedly higher as consumers sought to avoid the imminent tariffs.
— Ecuavisa (@ecuavisa) March 12, 2015
“Massive purchase of imported goods in Quito #Safeguards.”
Ecuadorian Experts Weigh In
In a joint interview, economic expert Luis Espinosa Goded, and Gabriela Calderón de Burgos, research associate at the Cato Institute, agreed that the tariffs will only isolate of the Ecuadorian economy, while making it less productive and more inefficient.
They argued that the problems faced by Ecuador’s economy are not caused by dollarization, and that Correa’s measures are not in reality aimed to protect it.
Xavier Andrade, an economic policy specialist at the Ecuadorian Institute of Political Economy (IEEP), told the PanAm Post that Ecuador’s main problem is not monetary. Instead, he suggested, dollarization has fixed the country’s monetary issues, preventing the government from using high inflation and devaluation to finance its fiscal deficit.
“The economy is not going to run out of money just because we are importing more than we export, that’s impossible. If people can buy more goods from abroad it’s because they have the money to do so, since currencies are entering through other areas, such as services, loans, etc.,” he said.
“The trade balance is only one part of the balance of payments. The latter is always balanced and does not need government intervention, even if oil prices drop and if the dollar appreciates,” Andrade explained.
The analyst further argued that the safeguards amounted to little more than a cover tax from the government, which should instead “take advantage of dollarization” to “integrate” with the global economy to improve its economic situation, citing the example of Panama since 1971.
“Xavier Andrade: They say safeguards are limited to not essential products, but for the importer, everything is essential for his business.”
Andrade added that a degree of price speculation was to be expected, but the chief problem lay in price controls themselves, which were likely to have disastrous results despite short-term political gains.
“First, because the additional controls cost us all. Second, price controls cause two things: shortages and black markets. And third, because it hides the root of the problem, government regulation, and ends up pointing out entrepreneurs as the culprits,” he argued.
The IEEP specialist concluded that the safeguards will harm exports from other countries, and likely make the Ecuadorian economy unpopular with foreign investors.
Edited by Guillermo Jimenez and Laurie Blair.