The emergency project that President Daniel Noboa sent to the National Assembly received a clause for the first debate that alarmed monetary experts: the government’s debt to the Central Bank will no longer be paid when due, but within 30 years under unspecified conditions. is, never. The project is going fast. Perhaps by the time this article is published, the text will be different.

Daniel Noboa sent his tax reform project to the Assembly

When we had our own currency, the Government put the papers in the Central Bank and spent them without restraint. The consequences were inflation and devaluation. This is what Argentina is experiencing today and we were experiencing until 1999. We dollarized in order to suppress this practice at its roots. Rafael Correa, the enemy of dollarization, did not hesitate to do what dollarization prevented. He inserted the papers into the central bank and against that the central bank issued him Ecuadorian dollars and registered them in the treasury account. As the dollars in circulation were artificially inflated, the Government limited payments abroad: imports, travel dollars, ISD, etc. Therefore, the increase of the dollar in the economy turned into inflation, and since there is no devaluation, Ecuador became an expensive country, which disincentivizes business except services and in which there are comparative advantages such as agro-exports, oil and mines. . This is an important cause of the lack of employment.

(…) has good reasons, but the proposed measure is excessive. Simply extend the payment term…

In Lenín Moreno’s deal with the IMF to exit the crisis, Ecuador pledged to make the ECB’s loans to the public sector illegal and withdraw those Ecuadorian dollars. The Defense Against Dollarization Act was approved in April 2021. There is a schedule for the Treasury to pay the Central Bank the dollars it took from the “sale” of public banks, and there is an obligation to pay when due. by 2035. the papers he gave to Central. Guillermo Lasso complied and paid $2.2 billion to the Central Bank during his tenure. It is up to Noboa’s government to pay $2.0 billion.

President Daniel Noboa expects ‘agile approval’ of the economic law in the National Assembly

Noboa announced in his campaign that he would spend 1.5 billion dollars (it is said to be “taken from reserves”, but technically it is as I explained above), which would have consequences similar to those of the Correato era. He then clarified that it was “option Z”. None of the options from A to X satisfied him and he decided on the one that was included in the bill: option Y, door-to-door neighbor Z.

President Nobo talks about cutting $1 billion in 2024 and selling some of the monetary gold in reserves

The criticism is that this is not in line with the return of monetary stability and closes the door to the help of international financial institutions in overcoming the current crisis. Which is correct. But it is also true that after we signed with the IMF, came COVID-19 and quarantines, the stratospheric growth of interest rates that made the debt more expensive, the increase of teachers’ salaries by 500 million dollars without financing ordered by the Constitutional Court, the obstacles that the Court placed on any investment project, which dried up the entry of capital into the country and the obligation to close ITT, the only oil field in expansion.

Daniel Noboa: Don’t forget the week in which delinquency, organized crime and entrenched corruption in the judicial branch were attacked

In any case, Noboa has good reasons, but the proposed measure is excessive. It is enough to extend the repayment term of the paper by about five years and include a two-year grace period on the principal and interest. This avoids paying the $2,000 million it owes during its term, but this does not violate the principle that Ecuadorian dollars must be withdrawn. (OR)