QUITO – Ecuador is heading to the World Economic Forum (WEF) in Davos, Switzerland, this week following a year of social and economic turmoil sparked by the government’s efforts to get its fiscal house in order and restructure the tax system.
President Lenin Moreno’s administration undertook the reforms to reduce the role of the public sector in the South American country and attract private investment.
Moreno’s trip to Davos comes following the release of the Central Bank’s first report assessing the damage caused by the widespread protests to the economy.
October’s mass protests, according to the Central Bank, caused $821 million in economic losses and damage, with $120.07 million in direct damage and $701.62 million in losses from “incomes not received.”
The damage, the Central Bank report prepared with assistance from the World Bank, had a negative impact on the gross domestic product (GDP).
As a result of the protests, Ecuador’s economic growth forecast has been revised downward from 0.10 percent or 0.20 percent to a slight contraction, the report said.
Economy and Finance Minister Richard Martinez, however, said he expected Ecuador to go to Davos in a “good position” because “the international community is finally highlighting the effort that the government and the country are making together to make a structural turn.”
“The important thing is the trend, which is a trend toward a reduction (in government spending), and this year we plan to continue with this process of optimization,” Martinez told EFE.
The Moreno administration has introduced several structural changes in recent months, ranging from cuts in government spending to fiscal and legal reforms.
The administration has restructured public institutions, monetized state-owned assets and implemented policies to provide incentives for investment and develop the private sector.
“We have laid out the development horizon that we want - a horizon open to private investment, with an economy that is less dependent on public spending, which was a model that was not sustainable,” the economy and finance minister said.
Martinez and Foreign Minister Jose Valencia are accompanying Moreno to Davos, where the officials will make a presentation on how Ecuador is trying to break with the old economic model based on economic activity spurred by high oil prices.
The large public debt that the Moreno administration inherited and the slowdown in the global economy have weighed on Ecuador, which had to impose spending cuts and economic reforms in exchange for the more than $10.2 billion it received from international financial institutions.
In October, the elimination of gasoline subsidies, a move that was later reversed, set off a wave of mass protests that left a dozen people dead, more than 1,500 others injured and caused extensive property damage.
The protests forced the Moreno administration to alter its plans to generate more revenue via taxes and cut spending by laying off workers and eliminating certain subsidies.
“Of course, the protests are not an element that is outside the analysis of investors,” Martinez said, adding that the recent sale of $400 million in bonds with international support bolstered confidence in the Moreno administration.
“It shows that the international community, both the multinationals and the investors, still view Ecuador as a country where they can invest with the guarantee that these commitments will be honored,” the economy and finance minister said.
The private sector, however, has not been satisfied with the measures taken by the government, with Quito Chamber of Commerce (CCQ) president Patricio Alarcon saying that the administration has focused too much on the fiscal aspects of Ecuador’s economy.
Alarcon told EFE that the measures, such as new taxes, were not aimed at “promoting private enterprise or investment,” adding that Ecuador was looking at an economic model that, in fact, “has not changed in the past 12 years.”
The CCQ president said the administration did not “understand the problems facing the business sector.”
Martinez, for his part, said that after staying away from the WEF for a decade, Ecuador will be going to Davos for the second straight year with a message of economic opening for investors.
The economy and finance minister said Moreno and his delegation wanted to promote “the image of a nation committed to sustainable social development and, based on legal security, attract the interest of companies so they will invest in Ecuador.”