Taking money from international reserves (IR), while not risking dollarization, endangers the stability of the financial system and its ability to expand credit. What is troubling behind both candidates’ proposals is the apparent confusion about the origins of wealth. His proposal is based on the idea that by spending other people’s money, which is apparently “parked”, the majority will get rich. But the story of human progress is a little less magical.

After a century of living in almost the same misery as its ancestors, humanity has, with much effort and sacrifice, managed to overcome the forces of nature and reach a level of well-being that was unimaginable until just two centuries ago. Countless individuals have discovered new ways to do more with less through their ingenuity. They invented technologies that enabled the industrial revolution, such as James Watt who improved the design of the steam engine. They have also made advances in medicine that have brought life expectancy to levels unimaginable in the recent past, such as the first vaccine developed by Edward Jenner.

The two finalists for the presidency of Ecuador are looking at international reserves, even though they are illegal

Each of these individuals enjoyed the freedom to experiment and their own or other people’s capital to do so. This accumulated capital – some would say “parked” – was created by the previous effort and work of others. It is not a pure coincidence that these milestones in world progress almost all happened in the West, where there was more freedom for research and accumulation of capital.

One of the founders of the United States (who was worshiped by many heroes of the future Latin American republics) – Benjamin Franklin – spoke about the virtues for personal success, among which are thrift and diligence. That is, savings and hard work.

Why is it not a good idea or sustainable to bring in $4.5 billion from international reserves as suggested by the politician?

Franklin truly believed in the power of compound interest. When he died, he left £1,000 (about $4,400 at the time) in his will to both Boston and Philadelphia, carefully calculating how much the funds would yield over 200 years at 5% interest and stipulating that they be used only to help young artisans to start their business. At the end of two centuries, Franklin’s two original donations totaled $6,500,000.

When we see wealth, we must not confuse the order of events. First was work, renunciation and saving. Then many took risks and, after numerous trials and errors, succeeded, became rich and benefited the rest of humanity with a new level of prosperity.

Consequences of spending the international reserve

One does not get rich by consuming. The foundation of modern capitalism, which is usually accused of consumerism and/or materialism, is actually thrift and hard work. Socialists of all parties and times are the ones who promote a magical solution and contrary to common sense: “We will be rich by destroying accumulated capital.”

Wherever this is attempted, what happens is that owners of capital flee, protecting their assets, to destinations more prone to wealth creation and capital accumulation. Those affected are not the richest, but those with lower incomes who have few means to protect themselves from the plunder of the political class. (OR)