Once again, as has been done since the beginning of the fiscal crisis in 2014, the problem of insufficient revenues is being insisted upon. The Ecuadorian political class therefore diagnoses every problem and in almost every circumstance: oil boom, earthquake, pandemic, security crisis, etc.

Finance Minister Juan Carlos Vega told the assembly that opposition to the VAT increase proposed by the president is tantamount to “exposing dollarization to risk, because dollarization is a closed system that depends on the entry and exit of dollars.”

The dilemma of how to provide revenue to the state: if the VAT increase is temporary, it is not enough to cover the fiscal gap and would close access to international credits

Dollarization does not depend on deficit or surplus on public accounts. Namely, in the 24 years of its validity, we recorded a fiscal surplus in only ten years. Nor does it depend on the level of reserves in the central bank of Ecuador. In fact, public finances can be an absolute disaster, even if declared default and interest rates remained stable. The same thing happens when governments try to be overthrown by national strikes.

Once again, the few who make up the formal sector are under pressure to pay even more taxes – arguably passing the cost on to other citizens through reduced prices or investment. In dollarization, politicians are forced to raise taxes, borrow or cut spending, or a combination of the three. The possibility of devaluation and inflation tax does not exist.

Company: protection and defense

Dollarization is not a closed system, quite the opposite. It is a system that strives for openness, because we use a universally accepted currency. If economic activity falls, dollars in circulation fall, automatically adjusting to the level of transaction volume. Dollarization is not falling, economic growth is falling and this is not the fault of the monetary regime, which, congratulations, is enjoying good health and wide popularity at the age of 24. The blame falls on the state structure, which is like a burst sack.

Dollarization does not depend on a positive current account balance. The value of a national currency that is not universally accepted depends on it, as was the sucre and all others except perhaps the US dollar and the euro. That is why the Argentine authorities are desperate for dollars, to revive the peso that their citizens reject. But if the citizens have dollars in their hands, the central government is not obliged to ensure a positive balance. If we believed that we would have to defend all kinds of obstacles to the movement of capital and goods and services from the time of Koreaism. However, taxes on capital outflow and customs duties or customs barriers are nothing more than more taxes, which – in our context – further discourages the accumulation of savings and investments on the national territory.

The authorities must stop confusing fiscal problems with the problems of the rest of the economy. Both the Government and the ECB – which is unnecessary in dollarization – must put their house in order. Dollarization is a system that closes the way for the machine to “cash in” its obligations and transfer the cost to the rest of society through inflation. In this sense, it is a system closed to depletion through inflation. (OR)