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    Ecuador's National Assembly during Thursday's vote. | Photo: @anitachove

Published 22 June 2018

The economic law approved by the legislature has been criticized for benefitting economic elites while defunding the state.

Ecuador’s National Assembly approved President Lenin Moreno's controversial Productive Development Law, or Ley de Fomento Productivo in Spanish, Thursday.  

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The law, which was approved with 73 votes in favor, 28 against and 26 abstentions, has been harshly criticized by several analysts and social activists for the benefits it heaps on the wealthy while negatively affecting the state’s capacity to fund social services. 

According to the executive, the law seeks to promote productivity, investments and balance the country's budget. The state has pledged to reduce public spending over the next three years while providing substantial tax cuts and exemptions for investors.

The country's current currency exit tax, which stands at five percent, will be eliminated for all businesses that purchase raw materials, or goods that are not available in the regional market. 

Ecuador's economy was dollarized after the economic and financial crisis of the late nineties. The existing tax was imposed as a mechanism to deter people from funneling out U.S. dollars from the national economy.

The law also waves rules, which stipulate investors must pay an income tax, regardless of their profit levels. These businesses could have the waivers applied for between five and 15 years if they "invest in Ecuador."  

Before voting on the bill, legislators also voted to scrap a provision to tax two yearly bonuses workers in Ecuador are entitled to for people who earn over US$100,000 a year and repealed another which excludes persons in that income bracket from then benefiting from a personal expenses tax deduction.

The Observatory of Economy and Work has voiced its concern over the law because it bans Ecuador's Central Bank from buying state bonds since this move will eliminate "the tool to stabilize public finances in times of fiscal problems.”    

The congressional debate also led to the inclusion of articles on Bilateral Investment Treaties (BIT) and allowed international arbitration for the resolution of commercial conflicts, bypassing Ecuador’s judicial system and laws.  

Legislator and former secretary of planning and development, Pabel Muñoz, reacted via Twitter. “It is incredible, but the #LeyFomentoProductivo brings back BIT disregarding the Constitutional Court’s ruling against them. Even the United Nations criticizes them. They undermine state sovereignty. Ecuador has received more investment from countries with which it has no BIT.”

Gabriela Rivadeneira, a former president of the Assembly and one of the leaders of the leftist opposition to Moreno’s government, requested the bill to be shelved. She and other legislators had criticized the signing of the law, which they claim is a deal for economic elites sponsored by the International Monetary Fund.

Outside of the National Assembly, a workers group protested against the law because it would ban workers from claiming past-years' utilities. 

 

 


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