Behind a Crime

Behind a crime or a breach there are always beneficiaries, that’s why the police in front of a violent incident investigates who could be favoured to find the guilty. In consequence, when hearing voices some time ago who talk about eliminating the dollar, I believe that they say it because their ignorance or because they will benefit themselves with this measure. For more than a year there has been a communication process which has kept saying that the only way out to have a healthy path for the future is to go back to a local currency (scrap). ¡How absurd this can be! ¡How much blindness! The damage for the poor would be impossible to estimate. It is like saying that a glass of arsenic will nourish them; taking it is possible, but at the expense of our death. Under any concept we can return to devaluations to liquefy people’s pockets and take away from them the power to decide and to improve. Who would be the most damaged? The Poorest would be and which ones the beneficiaries? Several incompetent exporters who want to liquefy people’s salaries (by exporting poverty) and some consultants which obtaining information behind the Central Bank’s scenes of when and how much devaluation will be, are able to play the roulette with 100% of certainty to speculate with the currency and get the benefit of everything. Another beneficiary would be the Estate, turning in a fictitious way into “Santa Claus” to give people a local currency each day more devaluated, and that, on one hand gives them and under the table removes it overwhelmingly. Don’t allow them to hypnotize us and make us swallow what apparently seems to be a glass of water but its poison. For months there is an organized campaign. Don’t allow them to trick us, because the most vulnerable are the worst affected (workers, micro, small and medium businessmen), this means those which depend of a domestic market or a salary as well as the young people which won’t have a future. Why does Ecuador have to be alike to an unfinished symphony which begins good thanks to dollarization and precisely when we start to receive positive results, instead of correcting the bad things, people allow to be tricked and the country is left behind? In this same edition we are publishing solutions which were suggested in 2003 so you can appreciate that in Ecuador during all these years almost nothing has happened. And there is the problem, because the population is the one who has to demand the monopoly elimination, the creation of solid institutions, protocols for foreign investment which shouldn’t be infringed, etc. The problems related to oil, electricity, highways and other public services haven’t been solved either which were the ones to shore up the country’s competitiveness. The previous mentioned would be the way the country needs to change and generate opportunities. For some years many tasks have been and are frozen (oil, investments among others). It is there were the problem is and more than that because now that things are working out well, they are being destroyed. Look around and compare. Panama is the country which is taking away the opportunities and Peru is the one to capture work posts, because the industrial and businesses growth aren’t done in Ecuador, but passing the borders, because legal security and long term inviolable rules support’s them. ¡Lets meditate and demand accountability!

Eng. Joyce Higgins de Ginatta

PREVIOUS TO DOLLARIZATION, THE SUCRE’s

DEVALUATIONS IMPOVERISHED THE ECUADORIANS

In 1999, we came to a standstill and in 2000 there was one way only to avoid a catastrophe: The Dollarization. That path took us to a monetary stability. If we wouldn’t have done it, we would be suffering the ravages of hyper inflation; meaning, a constant and fast rise of the basic products prices. For the Ecuadorians to go to the market, would have turned into a hard task to take home a basket full of notes without value instead of food. PYMES the impoverishing process

ALREADY IN DECEMBER AND AT THE BEGINNING OF JANUARY 2.000, THE BASIC SALARY OF 1.000.000 SUCRES HARDLY REPRESENTED $40.00, that is to say IN ONLY A COUPLE OF MONTHS THE ECUADORIAN’s PURCHASING POWER WAS LIQUIDIZED FOR THE POOREST.

An unfinished symphony

The Ecuadorian economy could be compared to an “unfinished symphony”; the task hasn’t been done properly and we persist to breaking down what already is constructed. Since May 2003 from the FIE’s MIPYMES magazine we made a call to attract attention for the great number of “bad practices” which should have been solved, but until now, nothing has changed. The dollarization was fulfilled giving monetary stability, but nine years after we continue without implementing the complementary reforms. Pg.6

Solutions Complete elimination of monopolies both public and private, as well as the implementation of a law for Competition, similar to Chile’s DL600 and El Salvador’s Competition Law, with which legal security is provided to give the necessary incentives to the increase of foreign investment.

Monopolies

Oil: To revitalize the reduced production of the main oil fields through a simple

process, in which the only variable to awarding should be the production percentage distributed in favour of the Estate. To reboot the new exploration activity and oil production in the block that contains the ITT geological conditions. To strengthen the Estate’s SOTE and repairs, route changes, etc. So it can work soon again. ELECTRICITY: To open the way to competition and for electricity market. Development for new options must be promoted to generate cheaper electricity (hydroelectric and gas). The abuses and inefficiency must have an end. The net owners must allow other companies to offer alternatives for service. Telephone (Cell phone and conventional): To open the way to competition. Why do Chile and Peru charge for the income minute US$ 0.02 while we cannot lower the price from US$ 0.11 and even 0.14 for the same service? This is the reason for having a black market for the so called “by pass”. There is the possibility to choose. To more competition the prices will lower. The “bypasses” would be eliminated.

We have to motivate to install cordless phones in short access areas through eliminating the charge of additional coverage. We could achieve that micro businessmen which are excluded would obtain more connection, because communication around the country and the rest of the world would be possible now. We have to facilitate the incorporation of new technologies without obstructing the process as it occurs now. The development of new technologies will lower prices, the services will be better and therefore we would obtain at short term improvement in competitiveness. Without these monopolies, the way towards prosperity will be easier and the beneficiaries will be the Ecuadorian young people who wouldn’t leave the country to other places abroad, in a massive way, because they would be able to receive a better education, better health programs and more work.

NOT ONE MONOPOLY HAS BEEN ELIMINATED AND IN SOME CASES WE ARE BEHIND (OIL SECTOR). ONLY THE COMPETITION GENERATED AMONG THE CELL PHONE SECTOR, HAS ALLOWED THE ECUADORIANS TO HAVE A BETTER COMUNICATION THROUGH CELL PHONES ON THE CONTRARY OF WHAT HAPPENS WITH THE STATIONARY COMUNICATIONS (ESTATES MONOPOLY). ¿LETS ELIMINATE MONOPOLIES AND OPEN TO COMPETITION!

TOOLS OF THE FIRST WORLD

FISCAL AND FINANCIAL SECTOR: Budget and tax system. We have to diminish

the Estate’s size. The budget must be Zero Base. Likewise the Estates General Budget cannot exceed the 20% of the Gross Domestic Product GDP). The tax system must incentivise and not be destructive

INTERNAL DEBT. It isn’t possible that the Estate continues spending big amounts of money for payments to estate companies. To restructure the above mentioned would be a great saving for the public reservoir and would diminish the weight of the Estate’s General Budget. FRESH MONEY. A Trust should be immediately created with the AGD’s funds. The approximately $1.241 million of the AGD’s funds debt in hands of the Ecuadorian Central Bank (BCE) generate annually around $115 million dollars which should be used to grant credits at a LIBOR rate+2%, to the agro industrial and fishing sector, etc, which have been affected by plague and nature diseases.

INVESTMENT ATTRACTION COMPETITIVENESS. It is very important to allow competitiveness. When somebody competes the person becomes more efficient. Let’s remember the Coca Cola’s case which had to lower the prices in the market because of competitiveness. EXPORTATIONS. We have to facilitate the draw-back, this is, immediate refund without the need of an awkward proceeding. We must promote development in Tax Free Areas as a tool for productive system development. CORRUPTION. There must be respect to the law and the Constitution. Procedures have to be eliminated. It’s essential to finish with the obstruction to the markets income and expenditure. There must be flexibility. We have to attract investors without frightening them away. LEGAL SECCURITY. Established norms of legal stability between the Estate and the foreign investors must be carried out. The previous will generate certainty to the increase of the country’s capital flows. The State of Right must also be established. These measures would generate more resources to invest in education, health and the productive system.

WHAT POLITICIANS HAVE MADE LATELY IS EXPELLING INVESTMENT INSTEAD OF ATTRACTING IT. THE LEGAL SECCURITY IS A LETTERHEAD WHICH ISN’T IMPORTANT IN THE LOCAL PUBLIC POLITICS, GENERATING A LOGIC DISTRUST OF CAPITALS WHICH GO TO COUNTRIES IN WHICH THE INVESTMENTS OF THEIR PROPERTY IS GUARANTEED. THE BUDGETARY CONTROL DOESN’T EXIST, SO MUCH SO, THAT IN SPITE OF BEING IN THE FIRST YEAR’S TRIMESTER WE STILL HAVEN’T GOT A BUDGET, AND THE DEFICIT CAN REACH CYPHERS NEVER SEEN BEFORE. ¡WE ARE IGNORING THE FIRST WORLD’S TOOLS INSTEAD OF TAKING ADVANTAGE OF THEM. IT IS TIME FOR A CHANGE FOR GOOD TIMES BUT NOT FOR WORSE!

World’s agreement in front of the crisis

Dr. Marcelo Merlo J. President of Corporation of Economic

Analytic and Social Studies (CEEAS)

The G20 meeting was of great interest around the world. Thousands of demonstrators went out onto the streets in London, directing their protest against the bankers responsible of the world’s financial crisis. One week after the Summit there are news which continue disconcerting, such as the News Week Magazine’s opinion which under the sub title of “They missed their train” points out that: in spite of the promises of prohibiting the tax haven, stop the protectionism and request accountability to the greedy bankers there weren’t progresses in the balance of world’s economy. Until the United States stops consuming a lot, and China and Germany and the rest of countries that have surplus begin to spend more, we all are going adrift. It is necessary to remember that day prior to the meeting the emergent countries leaded by Brazil proposed the creation of a big national mechanism to supervise and control the financial system. This is, the majority of the world’s public opinion aligned to punish the investment banking as responsible of the frauds and the real estate and economic crisis; however, the final decisions were negotiated to achieve consensus. That’s why, it’s necessary to point out an important achievement at the G20 Summit, which was a firm reject to protectionism, because if this isn’t restrained the tendency of the countries –including Ecuador- to limit importations and close economy towards world’s commerce, will deepen even more the crisis, considering that when you lower the demand of products and services, the factories close, the work sector decreases and the world’s GDP (in which commerce represents 55%) diminishes and crisis deepens. In the Ecuadorian case, the decisions to limit importations through quotas safeguard clauses in percentages and absolute values, and the tax exemption elimination in the Andean Community are already generating reactions of the neighbouring countries, such as Peru with retaliation in front of four Ecuadorian products and Argentina’s threat to do the same. It was the combined vision of strong pressure of the emergent countries and the flexible visions of the developed ones, which reached a consensus to defining an international model with market regulation measures of the financial system, which will have basic rules for the national Law to be supervised only at local scale. In this way the Financial System regulation measures including the Risk Qualifying Agencies would only be defined when the crisis is over because if it is immediately applied, its inflexibility would only deepen more the crisis. We shouldn’t forget that there are pressures inside the United States to leave the investment banks with problems aside and even the losses of the commercial banks which have been in any way contaminated with the previous ones, won’t be part of the estate’s aid.

From another point of view the emerging countries achievements leaded by Brazil and with the presence of the Presidents of Mexico, Argentina and representatives of India and China have been adequate because there is an important change when accepting more participation of technicians and advisors in the presidents decisions, this is, in the political group of the G20, and in consequence there has been an increase of the World’s Bank financial capacity with its new credit lines to financing negative cyclic policies in poor countries, besides of having a bigger power to vote in the IMF with more flexible criterion when granting loans. The famous Washington consensus developed by the IMF in the decade of the 90’s, demanding social sacrifices and privatizations, won’t be valid anymore as an economic philosophy. The more flexible credit lines begin their realism test with a credit of US$ 47.000 million to Mexico. A synthesis of the G20 agreements is picked up by the world’s press in the five following points:

To triple the IMF’s resources to US$ 750.000 million (total one million millions).

To inject US$ 5 billion to the economy until 2010.

To publish a black list of tax havens.

To limit the bonds received by bankers.

To sell a part of the IMF’s gold reserves to help poor countries. The G20’s decisions must be deeply analyzed by the Ecuadorian Government, above all, because our dollar model links us completely to the monetary policy of the United States. The devaluation or dollar appreciation which results from the negative cyclic measures emanated from the G20, without doubt affects Ecuador. We have to consider that the effects won’t be immediate and the crisis will touch bottom at the end of the current year and afterwards a gradual reactivation of the world’s economy could be seen. Therefore, while the crisis continues, the effects are irresistible, because there is less income to the fiscal account because of the fall of the international raw oil prices, importation decrease; there will also be taken in mind the reduction of the AVT and ICE taxes in the future because of the economic contraction. In front of this situation, the position of the Secretary of the Treasury in giving a radical turn to 2009’s Budget which seems to be valid. There was foreseen a fiscal need of US$13.476 million which was even raised to US$ 13.805 million in February, and now has been reduced to US$ 10.656 million, with which the investment expenses of the current year will lower US$ 2.800 million and the growth goal for 2009 goes from 3.2% to 2.3%. Ecuador’s basic problem is the budgetary and considering that there isn’t the possibility to enunciate any monetary or exchange policy to devaluate our currency and maintain the competitive capacity for exportations, the only policies which we can handle with autonomy are the fiscal and the tax system. Contrary to the past in which the monetary management policy allowed the governments in turn to finance the budget with inorganic emission of denominations, generating inflation and

devaluation, which now, being dollarized, haven’t got anymore the power which was historically demagogic, and that’s why dollarization has made us disciplined. For all the above mentioned, the estate’s budget reduction is the only way out to maintain the dollarized model, and that’s precisely what all the countries of the continent are doing, now including Venezuela, because devaluations are anarchic practices which neutralize automatically when they are affected by the same problem. The restrictions to commerce will hardly have effects because of the retaliations. To overcome the crisis there must be a support to the productive sector, stimulate exportations, give legal security, attract all kind of investments and provoke a national consensus, as other countries of the international community are doing.

Triangle credit system

Steve H. Hanke

The world is in the middle of a classic cycle of boom and fall. These cycles start when the central bank pushes the interests below of those established in a free market. The interests artificially lowered fixed a credit boom in which the businesses and homes assumed more debt and consumption was increased. In consequence, the debt proportion towards assets (capital or income) increases and stimulates the boom in the markets. When indebtedness reaches unsustainable levels, the boom is over and with it comes bankruptcy. At the time in which businesses and homes sell assets to reduce indebtedness, the boom in active markets is reverted (the bubble explodes).

Nowadays, the activities to repair the businesses beaten balances are being dominated. Without minding the Federal Reserve actions to affect the type of interest, the companies and homes won’t assume more debt. Instead, they want to reduce its leveraging and the debts load.

This process will come to an end, only after the prices of the assets reach economic levels and the leveraging indexes are kept up.

The current deflationary forces are strong. Since July, the Federal Reserve has been trying to fight against them. In fact the Federal Reserve’s general balance has more than doubled in less than five months (see the graphic), but this hasn’t been enough to stable the credit system.

General Balance of the General Reserve

To be able to understand better the forces at stake and the uneven involved magnitude, we use a credit triangle, whose architect is John Greenwood. Let’s remember that he was also the architect of the Hong Kong’s Monetary Board modern system. The triangle credit system represents a modern banking system of fraction reserve, in which a small amount of reserves (capital) is multiplied in a larger volume of lending and deposits.

At the triangle’s tip is the Federal Reserve, which provides of reserves to banking and not banking public. This so called “high power money” is multiplied in US$7.9 billion in

liabilities in a way of deposit in hands of the United States traditional banks. These banks are represented in the Reserve’s upper level.

Many people think that the credit story ends here, but to understand the cycle of boom and fall there must be included the no banking credits as well as the banking ones.

The irregular upstart banks are represented in the next triangle’s level. These include the investments banks, mortgage financing companies, private capital pools, vehicles of structured investments, etc. They emit credits which totalize US$ 14 billion.

These banks work on the basis of deposits granted in banks by their reserves and have less relation to the capital goods (more leverage) than traditional banks. Besides, they aren’t subject to the same level of cautious regulations as traditional banks.

American Triangle Credit System

Source: John Greenwood, “Global Insight”, November 17, 2008

The Banks and other institutions outside the United States, accept deposits in American currency (dollars), they emit debts with dollar denominations and grant loans and investments under the mentioned denomination. This segment doesn’t have reserves in the Federal and it has more leverage than its onshore counterparts. US$39billion is a big and important amount. In fact it’s a critical situation to supplying (credit line) those which don’t participate in international commerce.

The upper part of the triangle represents the “over- the- counter” (OTC) Derives. They have a nominal value of US$596billion and a gross value (the reposition cost of all the unsolved contracts in case they are solved) of US$14.5 billion.

The credit triangle is a structure of higher category. In each triangle’s higher level, there is more leverage (less capital for assets) and more credit. When a bankruptcy appears, the banks and other financing institutions fight to reduce their exposition towards the risk assets and the triangle’s level contracts, and relatively the higher levels contract more than the lower ones.

In spite that the Federal Reserve has participated in its balance’s massive expansion, the weight of leverage reduction and the compression of the triangle’s higher levels have to compensate the Federal Reserve movements.

Until the process of getting away from leverage goes on, bet for the Federal Reserve to continue a fast expansion of its balance. Then, to avoid an inflation explosion, the Reserve must rapidly reduce the leverage of its own balance. This contraction will sure be more difficult than the current expansion.

Note: 1 billion equals 1 million of millions.

Steve Hanke is a Professor of Applied Economy at John Hopkins University in Baltimore and a Senior Fellow at Cato Institute in Washington D.C.

This article which was published in Global Asia was provided to MIPYMES Magazine directly by Steve H. Hanke.

Three key reforms to grow to 7% again and put an end

to poverty

Dr. José Piñera President of International Centre for

Pension Reform

The annual report of “World’s Economic Freedom”, elaborated by the Fraser Institute in Canada, measures objective pieces of information of 42 public policies, collected by 71 independent institutions of the whole world, and covers countries which include 95% of the world’s population. The good news is that in the 2008’s report, Chile reached place # 6 worldwide, two places higher than the United States and only exceeded by Hong Kong, Singapore, New Zeeland, Switzerland and the United Kingdom. Chile’s development example is outstanding at world’s level. If one of the 42 variables of the pieces of information in which Chile stays behind, the personal marginal tax rate would be reduced from 40% to the current 17% of businesses taxes, rate which nowadays the savings of those people which give their organized services pay, then Chile would reach the third place in this ranking. Since Hong Kong is now part of China and Singapore is a state-city of especial characteristics, we could easily say that Chile is near of being on the world’s countries with economic freedom. The enormity of this achievement must be even more enhanced, if we consider that in 1975, in a similar ranking, Chile was the last but one world’s country in economic freedom level (71 of a total of 72). But that year, the Chilean Revolution which lasted 35 years, turned our country into the most successful one in our history. This Revolution consisted in a deep economic and social transformation anchored in the values of a free society and in the strict creation of the institutional infrastructure to democracy. The political and economic change was indeed so deep that it generated the mentioned revolution which President Pinochet had established and was followed by the four presidents governing Chile after him. That’s how the project of free society constructed during the 70’s and 80’s was legitimated by President Aylwin, who governed with a model which was the antithesis of socialism; also President Frei, expanded privatizations towards new areas such as the public health and expressways; President Lagos, signed a treaty of free commerce with the United States; and President Bachelet, who maintained intact the pension system of individual capitalization and even extended it to independent workers’ system.

The specialists have confirmed that economic freedom, among other positive effects increases the income per inhabitant, the life level of the poorest and the political rights and civil freedom. Since now, Chile has improved in all the previous mentioned areas in a substantial way. It tripled the inhabitant’s income (with a constant purchasing power) till 15.000 dollars per year, occupying nowadays the first place in Latin America, and also reduced poverty in a drastic way. The new challenge is to accelerate the close down breach in being the sixth in economic freedom but with only 45 of income per inhabitant, and in this way accede to developing and ending poverty. Since the growth rate average has fallen from 7.6% annual in the period of 86-97 to 4% annual in 98-08, we must change this tendency if we want to achieve a possible goal of turning into a developed country by 2018, which is the bicentenary of our independence. Therefore, it’s essential to move forward with the conviction to improving education quality, which is the rock over which a society with equal opportunities is constructed. Employment must be increased substantially, because unemployment not only deprives from income but hurts people’s dignity. Another point is to increase productivity of the estate’s companies because it improves Chilean well-being. “It isn’t the same to get out from poverty through a decent and well paid work thanks to productivity which gives a quality education, than coming out from poverty as a passive individual with estate subsidies”. There are three key reforms to achieve these objectives. First of all, an integral reform in education must be done which includes replacing the current Teaching Status for a coherent one with an absolute freedom to teaching and the correct incentives to improve teachers’ performance. In second place, to promote employment which is a fundamental priority for a fair society, there must be a change for new workers, and a legal dismissal system for a strengthened unemployment benefit. The current protection system against unemployment, created in 2001, is based in the individual capitalization model introduced in 1980 in the pension system and has the correct incentives. The older workers have to receive the respect to their current situation and allow them to negotiate with their employers the change of the expected value for a contribution bond to their unemployment benefit account. This would be the way to end for the future, the greatest distortion which makes intolerant the labour situation which is probably the main cause that people who are at age to work haven’t got employment. The dismissal compensation system produces many negative effects such as: deteriorating the relation worker-employer (for example workers who try to be dismissed to collect the compensation and employers which don’t want to raise the remuneration by the effect of the liability compensation), and hinders the labour mobility, threatens the existence of many businesses (especially the small and medium ones) before any decelerations in the sales and overall, it blocks the employment creation.

In third place, it’s necessary to increase its productivity and prevent being captured by created interests and therefore the need to incorporate real independent directors to manage the estate’s businesses, through opening them gradually to private capital participation, which besides of the pension funds, would turn the Chilean workers into their owners. Even if there would be a decision (at society level) to maintain the estate’s businesses, those would be so much productive, transparent and honest if in their direction would be that representation. We have to highlight that copper has been privatized in Chile through incorporating new mining deposits which made possible The Constitutional Mining Law which today is CODELCO (the estate company) only produces 26% of the Chilean’s total copper. Besides of the own effects, these reforms are so powerful that would create a virtuous dynamic in this fields and would allow to return to growth rates of 7% per year. This bigger growth jointed to a special effort to improve competitiveness and hinder all the monopolist conduct, would be intensive in generating employment, which is fundamental, because it isn’t the same getting out of poverty through a decent and well paid work thanks to productivity which delivers quality education, than coming out of poverty as a passive individual with estate’s subsidy. It’s time again to assume the task of building a free and fair society as an intellectual adventure and an act of moral courage. I invite you to confront with civic friendship and happiness this new challenge, because I declare myself guilty for believing in Chile. He studied Economy at Chile’s Catholic University and is Master (1972) and PHD in Economy at Harvard University (1974).*

Where to go to reform the economy?

Dr. Manuel Hinds El Salvador’s Former Secretary of the Treasury

The free market enemies observed the global financing crisis as an opportunity to blame the economic freedom for all the risen problems not by itself but of bad economic and financing management at global level, and promote its change for interfering economic models, in which the government defines what must be or not produced, which sectors can be successful or not, where do people have to work and how much money should they earn. This idea came to fit like a glove in what has been a traditional Latin American prejudice, which, against all evidence, tends to believe that the estate’s intervention in economy is “modern” and “socially responsible”, and to obtain development we must have governments to manage the economy. The promotion of these ideas forgets that the fall of communism at the beginning of the nineties was thousand times worse than the current crisis which affects the world. And also the current crisis has emerged not from problems inherent to the market but as a consequence of an excessive monetary amount created and insufficient regulation and supervision of the financing sector. To suggest that free market has to be given up because of a crisis, is just like suggesting all flights to be cancelled after a plane crash. This suggestion also forgets that what has been successful in the whole world is not the estate’s intervention but the economic freedom. We can say that the direction of the reforms in the advanced countries has been towards more freedom and not less, both in countries governed by the right or the left wing. This can clearly be seen in Graphic No. 1 which shows the relation between economic freedom (measure in the horizontal axe by the Heritage Foundation and Wall Street Journal at 2009) and the per inhabitant income (measure in the vertical axe), for each one of the 134 countries. We can observe that the richest, more developed and modern countries are the ones with more economic freedom, which denies the previous mentioned ideas. Reality contradicts the Latin American prejudice.

Economic freedom and income per inhabitant

It’s also noticed that the Christian Democrat more developed countries are among the richest and with free economy. These include some countries marked in the graphic-such as Sweden, Iceland, Denmark and the United Kingdom- and others which weren’t marked because they wouldn’t have fit in the graphic, such as Finland and Germany. These countries understand that the elimination of market freedom only brings more bureaucracy, more opportunities for corruption and less development. There, socialism isn’t defined in economic terms. England in times of Tony Blair and Gordon Brown, two first socialists Prime Ministers, is even freer than Margaret Thatcher, the first Conservative Prime Minister who liberalized the country in the 80’s. Graphic No. 2 shows that the Christian Democrat more developed countries not only enjoy more economic freedom than the fall behind countries but also have begun to liberalize as time passes –meaning, that the trend is having more freedom, not less. It has also showed the variations in economic freedom levels in socialist regimes more developed in the world in the last three decades, compared to the United States, which is a symbol of market’s economy. As it clearly can be seen, the developed countries which have had socialists governments, such as Sweden, United Kingdom and Israel (known by having the Kibbutz of socialist production) had at 1975 much more estates’ controlled economies than the USA’s ones (this can be seen because the curves of these countries were lower than the ones in USA at that date). There has been a change since 1975 until now. That change however, hasn’t been in the sense which the Latin American prejudices suggested. Instead of increasing the government’s economy control, what has happened is that the mentioned control has been diminished and economic freedom has been increased.

Evolution of modern socialist countries

The market freedom in countries with modern socialist governments, compared with the United States in 1975

As you can observe, Israel is the one which changed the most, and as it happened with other countries, change has been done towards economic freedom, capitalism, in such a way that (as the plain line shows), the average of economic freedom of the 15 developed countries with, long socialist periods is equal to the one which existed in the United States in 1975. This however, doesn’t imply that these socialist countries have stopped fighting for their ideals. This is simple, because being intelligent they have noticed that the economic progress produced by economic freedom is much better for social progress than the stagnation produced by theories of estate’s control, which were new by 1917 but old and with loss of prestige nowadays. They were aware that with their ideals, they weren’t able to achieve control in their economy but took advantage of the created richness for economic freedom to promoting better programs for education, health and social well-being. This reflexion has taken to create the modern socialism. Not to killing the goose that lay the golden eggs, but using the gold produced by her in the search of its ideals. People who believe that Latin Americans should be more open minded and not follow models of “neoliberal” countries economies (such as USA), but more socially advanced models such as the Nordic countries, and you would be surprised if you knew, as seen in Graphic No. 3, and following their advise, we should turn to be a little more “neoliberals” because the economic freedom average in the Nordic countries (Sweden, Norway, Finland, Iceland and Denmark) is higher than in our regions. This is, these socialist country’s economies are more “neoliberal” than ours. Only two of the freest

countries of the region (Chile and El Salvador) have a freedom level comparable to the Nordic socialist countries average. The irony presented by reality is even more acute to those who believe that modernity is increasing the estate’s control. The socialists have in Latin America a country which can be shown as an example for success in their political trends: Chile. This is the most advanced country in the region and is also the one which has been governed more time by the Christian Democrat party. It would be marvellous to show it as an example. The irony is that Chile is also the most “neoliberal” of the region. Its level of neoliberals is as high as the Nordic ones and almost as high as the United Kingdom’s socialism.

Latin America and modern socialist countries El Salvador, Chile, Latin America and Finland; economic freedom level

All the above mentioned leaves clear that accusing “neoliberals” of being old fashioned and of going against the more advanced socialist’s thoughts is, in the best of the cases, a sample of ignorance, and in the worst, a lie. This point shows the problems coming to the region in the way in which economic problems are discussed: without ciphers, without information, without any reference to reality. Anybody could begin talking about anything and people believe because they aren’t used to ask for evidences. This is the way in which they believed that economic freedom is old fashioned. This way of discussing things are fine talking about art or Literature, but not about something which depends so much to economic reality. Next time you hear that economic freedom is old fashioned, ask why is it that the most advanced countries have more freedom in their economies while the ones with less freedom are the poorest and less developed. It’s the third world the one which intervenes.

The new Constitution and the Economy

Econ. César Robalino G. Economy Analyst

The National Constituent Assembly approved a new Constitution and the Ecuadorians confirmed it on September 28, 2008, Magna Carta which contains the new concepts and bases over which the Economic and Financing System must be reasoned. What has been read and heard in different media, through declarations of respectfully members of the Congress (of governments majority), of human groups allied to “Acuerdo Paìs” and other people lined up to the so called “XXI Century’s Socialism”, is nothing new in Ecuador or any other place in the world. What was discussed and approved in the Assembly are a series of dispositions which will weaken all the market economy institutions. The private property over the production means will be weakened to open the way to other kinds of property which will be promoted with force from the Political Power. The “New Political Leaders” aren’t friendly or either sympathizer of private property; this institution is for them, an instrument created for exploitation of the weak groups, which are supposedly the workers. The communal and estate property are more in tune with the mentioned political rulers. They aren’t neither interested in the essential and undertaking role which the businessmen play in the private economy management as an innovator, as a creator of ideas and initiatives to combine factors and elements which are necessary in the process to crating wealth. They aren’t interested either in the risks that must be taken to investing capital and private technologies to serve the community and produce products and services in an increasing and good quality way, and at the same time satisfy the consumers growing and diversify needs, which are the Ecuadorian citizens. The new and respectable citizens in an erroneous way think that the governments and bureaucracy can replace the private businessmen and the markets in tasks such as: how, what and for whom to produce. It seems that the mentioned citizens don’t remember cases such as Cuba and North Korea. But also other institutions will be weakening by the country’s new political forces. This is the case of the market and the prices as more efficient elements to assign limited resources to society.

The discussion of more Market and more Estate or vice versa which the left wing has promoted around the world, has had certain success to provoking confusion and disconcert, as well as trying to prove that economy market and its institutions don’t solve the citizen’s problems. Market and Estate are complementary. The market requires of a strong, small in bureaucracy but highly efficient and competent Estate, to help having an efficient operation. The Estate is necessary for many factors which are known in the political theory and to avoid and control abuses of the economic agents when it happens, but not to destroy private businessmen or their institutions. The Estate must supervise and promote competition, the transparency, the market freedom, but it is also required by means of the law, to regulate monopolize structures and the ones which aren’t in all the markets to avoid for the consumers to be affected with practices that would harm them with high prices which aren’t justified. The Estate can’t or shouldn’t replace the markets or the private businessmen, because historically it has failed in the tasks of organizing the production processes. When the Estate irrupts directly in production, we can observe inefficiency, shortage, rationing, bad quality, poverty and corruption. But, the Estate has to commit to economy, supplying of public services such as: first order highways, electric energy net and others. Only in special cases must the Estate intervene directly in productive and financing processes. On the other hand, the Estate through the economic policy has to mould or having influence upon the economic agents. The taxes, the common public expenses as well as the monetary policy are and must be powerful instruments to avoid and/or counteract macroeconomic phenomenon such as inflation and the economic and financing crisis. The stability, the certainty and incentives to investing must be scenarios promoted by the Estate in its contribution for the growing creation of wealth. More wealth must be created in Ecuador. The economic growing rate of the GDP can’t be of 3% or 4% annual. The goal should be to have a growth rate bigger than 6% annual per capita. If we make the mistake of not creating more wealth, but giving out the existent one, we will be condemning not only the country but the poor people to continuing being poor. The economic and social stagnation will be Ecuadorian’s destiny, even counting with the oil sources. If the Public Power would only adopt distributive policies, the Ecuadorian middle class people will disappear and the high income groups will stop doing investments. The stagnation, informality, unemployment and the governmental policy for aid with the oil resources will become a reality. Ecuador’s new conductors can’t or shouldn’t lead the country to these types of things referring to economy. The current distribution problems of the Ecuadorian society can’t be solved only by distributing the existent wealth. When talking about distribution we are referring to income and wealth inequality problems, as well as the extreme poverty indexes which the country has. But these problems can’t be solved by taking away from middle and

high income classes part of their wealth to transfer them to poor people. These Robin Hood’s policies have failed in history. We must remember again about Cuba and North Korea. We also have to be aware that the market institutions which have started to operate in countries which before were communists (such as: China, Russia, Vietnam, etc.) are allowing to rescue from extreme poverty to hundred of million human beings. Here is a lesson of how to do things well. It isn’t a matter of discussing that the market economy doesn’t have deficiencies. But this outline represents the most powerful machinery that men has created to generate growing and diversity production, of high quality levels as never seen before. Distribution problems and extreme poverty must be solved in a different way as the ones which are desired by the current Ecuadorians ruling th

IMF: The return of the alive

Mr. Alberto Medina M. Argentinean Journalist

It’s difficult to understand that after having so many frustrations, evident mistakes and more than enough proof not only for its inefficiency, but for its immorality, the world insists to using a wicked and absurd formula. The International Monetary Fund (IMF) and other multilateral organisms, have failed for decades. Its histories are riddled with all types of errors. Not only they have been brutally inefficient, but have destroyed everything as they passed through. They damaged who pretended getting benefits in a thousand and more ways. They gave inappropriate advices, recipes which don’t resist the most elemental of the common sense, infringing almost any serious economic theory; with the aggravating circumstance of a disproportionate operative cost under the control of technocrats, which tried to offer a wisdom halo, demonstrating to be against reality. Without clear concepts, they only were doing mistake after mistake. These evident mistakes, its inefficiency and those hypertrophy policies only made things worse and is the result of its creation. In times of directed economies, the same people who thought knowing everything about the world’s needs, also believed that this sort of financing mega manipulator entity could decide what was best for each country. This was another serious mistake, among so many. Its creation is immoral. It’s badly conceived, both the IMF as each one of the institutions which simulate being near relatives. All of the international organisms have only established big bureaucracies. It’s an enormous business for the exclusive benefit for diplomatic, political, academic, technicians and intellectuals. This is a great business buy only for the above mentioned. They convinced the world that an organism on top of everybody, could handle it all. That it could avoid the crisis, it could solve all those things which they didn’t even prevent and at an insignificant cost. Nothing of the above happened. The immense majority of the crisis which the planet went through couldn’t be object of their predictions, in spite of having expensive technicians with all types of degrees, PHD’s, and sophisticated specializations. Neither could they cooperate in the recovery of their economies. In the majority of the cases their victims collapsed even more, with their pretentious and their real possibilities.

They can show very few successful cases. Even with this supposed background, there is still the doubt that maybe these nations would have recovered anyway. In the great majority of the cases they only delayed the recovery, with brutal consequences which jeopardized the people’s future. In many other occasions they only complicated more the situation, and many of these countries are still fighting against the fatal consequences left behind by them. On the other hand, the developed country’s citizens and taxpayers, financed in several cases, to dozens of irresponsible and aimlessly countries conducted by dictators, demagogue or immature democrats. They were accomplice of countries which got indebted in an indiscriminate way; the economies destroyed from both sides, and the ones to pay the consequences are the future generations. With such a peculiar scenario, it’s hard to understand that the current world leaders wish to use this tool in front of the present crisis. To trust such an international organism the responsibility to taking ahead an international cooperation process, managing AGAIN the developed countries funds which this time are in crisis, and lend them AGAIN to the before mentioned, means that the lesson wasn’t learnt. It’s evident that history hasn’t left any lesson. The world continues believing that the IMF is able to solve problems in an intelligent way. The enormous amount of irrefutable proof which demonstrates the opposite seems not to be enough. Definitely it’s not understandable. The civilized world pretends believing that this imaginary construction is formed by astute technicians and adequate policies. There is something conclusive. They weren’t able to foresee anything which happened. However, the whole world seems to believe that now, they KNOW what they are doing. It is like if hope would have exceeded rationality, the one which derives from unhidden results that rise after hundreds of attempts. The estate’s intervention has failed. It caused the current crisis and has produced disasters all over the planet. This new version of “world’s order” preside over reigning ideologies, are a promise that the stories will be repeated again. Only public squanders can be foreseen, caused by irresponsible monetary emissions and taxes imposed to the private productive sector, which is the only one capable to generate wealth. As usual, taking advantage of the “milk cow”, to give in once more those funds to demagogue conductors of emergent countries which have demonstrate

for decades its unscrupulous way of managing the peoples’ resources, wasting them to condemn future generations to paying debts originated by their ancestors. Organisms such as the IMF haven’t generated any positive thing in their trajectory. There are more than enough proofs. Neither the most orthodox socialism, nor the most genuine liberalism can even approve their existence. It’s only necessary to continue talking about it, for the interested look of those politicians which find in these organisms, the cradle of their power, the endless economic source to which they turn to, supported by obedient and functional intellectuals, technicians and academic which survive thanks to the convenient programs and projects which hire and finance them in the same organisms. All of them are part of the same circus. They get their feedback to justify and make indisputable what hasn’t explanation for its existence, continuance and renewed reinvention. When it seemed to be overcome, when the world began to entry in the register of death, this international crisis found the way to reviving it. The IMF is back again and seems to remember that frightening cinematographic saga. This time it’s about the IMF and “the return of the living dead”.

The Ecuadorian landscapes

Dr. Santiago Gangotena Chancellor

San Francisco de Quito University (USFQ)

There is a country smaller than the State of Colorado with a population as the Chilean, which has two Chambers of Commerce (compared with USA which only has one with 5 million members), it has two Stock Exchange Markets (in USA there is Wall Street for 300 million inhabitants) and if I continue with the story, I would never come to the point: the Via del Sol, (the Sun Route), a proposal which was brought out by the San Francisco de Quito University some time ago, to put together that small country, really, those two countries. You could think that there are four countries if you take in mind some islands which are two hours away from the coast and the jungle which is located behind the Eastern Andes. Ecuador is a small country with a complicated Geography and a great diversity as well as the people which live in it. It has around 14 native groups with its respective languages, in which Spanish is the native language. The topography has defined defensible niches and own ways of being. The accent of people from Cuenca hasn’t been copied and very little influenced by the ones of the mountains or the coast. You are even able to distinguish the different tonalities between the coast provinces or the ones from the mountains. The variety of species is unique in the world, as well as the animals and insects. We are really in front of a unique country in the planet because of its biodiversity. These advantages which don’t come from the landscapers but are a gift from nature have been useless to improving the life quality with activities such as tourism or commerce. They are rather factors of mental underdevelopment, of indolence, of conformity, of living building up hopes, characteristics of ignorance. Ecuador can be divided into four countries and if it is desired, in a dozen. Looking these landscapes from the sky we can see that they aren’t connected. In the past they weren’t connected by telephones because the estate’s monopoly didn’t allow it; the telephone was to ask for the impossible, meaning that it wasn’t a nature’s gift. The mobile phones which came out of nowhere, improved the situation; nowadays we have more cell connection than USA. ¡Be careful! This happened because of the telephone shortage, not because of a technological vision. Looking from the sky we will watch that the countries are crossed by hundreds of dirt small roads which mysteriously disappear from the landscape when it rains. But you won’t find roads to join them together. Not even the main cities are joined by roads. It takes longer to arrive to New York by plane than going from Quito to Guayaquil by car, being the distance to New York around 5.000 Km. and between the two cities, about 300 Km. (which should take 3 hours in a developed country). The enormous Roman

Empire had its roads because they were constructed by their legions. There is a saying: All roads lead to Rome; but a person who is from Riobamba won’t be able to get out from Quito. This is an example of what is happening in our country. Have you asked yourself how much the local economy improved since we have the mobile phones? The answer of course is: in an immediate way businesses can be made. The carpenter or bricklayer could be able to get work with a single call. It improved the poor people’s life level. Transactions became simpler; it took less time to solve problems. Ask yourself what would happen with a fast route, or a highway to join the two most important cities? It would be a way to developing: it would increase commerce and tourism; it would create unity and reduce the fact of being provincial. But politicians aren’t interested if we are united or separated, not even if we argue. They want a continuous quarrel. They don’t want us to be educated but to live building up hope, meaning by it, to be ignorant. In spite of all this, the government period of former President Gutierrez, took control over the road and organized an entity to give Ecuador the possibility of having routes through financing a loan with Brazil. But (this is the third one) tradition was stronger; the landscapers decided to reinvent the country for the tenth time and that was the end of our hope to having a route to join us.

Information about the route

These are three route alternatives for the highway which must join Quito with Guayaquil. They were defined by the San Francisco de Quito University based in satellite views of Ecuadorian territory. This work was done for the first time in Ecuador. *x1,4 means that the cost of the route through Santo Domingo is 1,4 times more than Calacalì and respectively with the other ones.

AGREEMENTS

Ab. Dalila Gómez de Santos Businesswoman

Since January 21st, 1996 Ecuador appears as a member of the Worlds Commerce Organization (Organizaciòn Mundial del Comercio, OMC), which replaces the GATT with the signature of new agreements, among them, the up to date GATT. But what is the OMC? It’s an organization at world’s level and the head office is in Geneva-Switzerland, established on January 1st, 1995 and its main operations are: to managing the commercial agreements which are subscribed with the countries; establish commercial forums; to fix the countries’ disagreements in this area; supervise national commercial policies among others. The Ecuadorian Estate -considered part of the international agreement in the occidental hemisphere, placed in the world’s community- subscribed this agreement in full use of its sovereign power, represented by a government. The Andean Nation Corporation (ANC) is formed by four countries, whose common objective is to achieve a better, balanced and autonomous development through the integration among them and with several Latin American countries. It started with The Cartagena Agreement subscribed in May of 1969 and their members are: Bolivia, Colombia, Ecuador and Peru. Other institutions such as the Sistema Andino de Integraciòn (SAI), (Andean Integration System), which was known before 1996 as the Pacto Andino (Andean Agreement), integrate this group. It counts with some associate countries and others which have the role of observers: Chile and Venezuela have been in a temporary way. Once more the Ecuadorian Estate using its sovereign power, and represented by its Government, decides to be a member of this organism and subscribes the Cartagena Agreement, which among other things, regulates the commerce relations between the ANC members. Why is it that I emphasize the subscription of various agreements with the above mentioned organizations? Because in them there is the implicit will of our estate. This decision isn’t forced, it’s a governments act which our country, commits legal and in an international way. These agreements are completely legal, as soon they are constitutionally recognized as superior to the signature of the estate’s legislations, which allows for example that the ANC, to monitoring and intervene their members commercial policies. They contain rules and procedures which must be fulfilled by the signing countries. If a country because of a state of emergency (which is generally mentioned in agreements) needs to take measures which are opposed, they have to carry out an established procedure so the other members are informed, that the competent organism makes an evaluation of the impact which will have over the economy and commerce of the involved countries, and even for the ones which are in state of emergency. For example the GATT’s protection agreements shows in articles 3 and 4 an expanded procedure which includes a public notice, reasonable for all the interested parts, as

well as the public audiences, besides of the motives that drives to make such a decision. This procedure has been ignored by the competent organism, the (COMEXI) (Governments Foreign Commerce and Investment Council) which after obtaining the constitutional resource without any effort from the Presidents side, hasn’t got even one representative from the Private Business which in an unexpected way (with some exceptions) received the notice of the taken measures. On the other hand, there are prohibited practices, as the measures for non-tariff customs which are nothing else than multiple obstructions to importing processes which are a veiled prohibition to import. These measures are usually decided inside the governments such as taxes or costs for processes or administrative bureaucratic permits, which increase the costs of imported articles, they hinder the importing process (by different means), they make notorious differences(at the administration’s on turn criterion) and sometimes come with different practices to paralyze those types of importations. These measures are more difficult to identify by the international control organisms and have been applied skilfully by the COMEXI in many items especially and in a harsh way in areas such as flat ceramic. The execution has been in charge of two organisms created by the COMEXI which are: the Consejo Nacional de la Calidad (CONCAL), (National Council for Quality) and the Organismo de Acreditaciòn Ecuatoriano (OAE), (Ecuadorian Authorizing Organism) and a third existing one, the INEN. Under the justification of quality control, they began to use a non-tariff malevolent procedure in addition to the protection and the custom duty increase, consisting in a series of requirements, some of them impossible to fulfil. For example: to be unaware of international quality norms asking for quality certificates and even laboratory tests for each group and the containers in which it’s embarked; they demand the exportation company’s accredit over and over before the OAE for each permit that is sought to get out; they even want especial labels for the products which are sent to Ecuador. To put quotas without considering the particularities of this procedure, pretending for an importer to fill half of a container, because that is his quota, and if he completes it, he has to re export the other half; this of course has damaged thousands of formal commerce businesses. We can also observe numerous dismissals of personnel and reduction of their investments in that sector, especially the small and medium businesses. It’s more than evident without analyzing this problem, that the OMC’s and the CAN’s foreign agreements have been violated in a flagrant way and that the efforts of some businessmen which supported these measures are doing lobby in other countries to justify the violations (unjustified because some procedures had to be done) which are wasted in a useless way, because the injured countries have reacted prudently and firmly by different means. It’s deplorable that these violations have caused lose and damages to the Ecuadorian businesses, which in spite of doing “lobby” cannot find real answers to their claims and even less, a position to understanding about the commerce dynamic and assume the responsibility of the caused damages by the appropriate organisms.

But what we have to confront and can’t ignore is that in front of the violations to Inter Nations Agreements, of the commercial legislation in force, of the rights which Ecuadorian have to work in freedom, respecting our productive activity and not be accused or slandered, this sample of the impossibility to go towards administrative and justice organisms, in which we could trust for their impartiality and obtaining restoration of our freedom and rights to work honestly, under clear rules and not in a discretionary way by the staff members in turn and provide us of legal and administrative security which every civilized country has in its productive sector. In front of all the above mentioned I do ask: which are the basis and criterion for agreements to be done? They surely have nothing to do with the Ecuadorian society’s well-being, and less than that with the respect towards international agreements or the fulfilment of the Ecuadorian laws.

Corporate Social Responsibility (CSR) in times of crisis

Econ. Carolina Pozo D.*

“A company’s social responsibility reflects the way in which the companies consider the repercussions which their activities have upon society, and in which they affirm the principles and values by which they rule themselves, both in their own methods and internal processes as well as in their relation towards the other actors. The ESR is a voluntary initiative which depends only from the company and refers to those activities which are considered exceeding the only fulfilment of the legislation”. Organizaciòn Internacional Del Trabajo (OIT) (International Work Organization) The crisis arrived, and it seems that it will stay quite a while. As enterprisers, parents or governments we have to be aware that it’s time to confront reality. Priority isn’t useful anymore, but security is. The global economic crisis hasn’t come to Ecuador with the expected intensity or it also could be that the foreign crisis hasn’t come to us with all its strength. Anyway, it’s about time to understand how the crisis in Ecuador, presents big risks for everybody and which is the way to support each other being socially responsible. As enterprisers, the accounts and expenses adjustments are a challenge and in many cases, could mean salary adjustments or even reduction of their personnel; but there are also other alternatives. There is to remember that the unfavourable environment in which Ecuador is living because of the bad and disorganized way to managing the economy, has caused a considerable increase in the dismissal. According to the INEC and the Finances Ministry, in the last year, approximately 140.000 people have lost their jobs, which is a dismissal increase of 7% to 10%. Our countries savings squander joined to protectionist policies leaves Ecuador and its less competitive industries. There must not be forgotten that Ecuador is a small country and open towards the world which depends on its exportations. The importation restrictions and the breakup of diplomatic relationship with commercial allied have only caused more obstacles to our industries’ growth and the country itself in front of the world’s crisis. In this environment, companies must remember that in times of crisis you can’t neglect investing in Enterprise Social Responsibility (ESR). Many could think that in times of crisis the last thing companies would think of, is to put together strategies of enterprise social responsibility. The following arguments approach the opposite:

Motivated Personnel = Productive Personnel The unrest caused by the crisis not only causes financial restrictions in the company’s pockets, but also in the people’s purchasing power. That unrest can be reflected in the will to work. For a company’s personnel not losing its stimulation to turning into less productive, the managers must look for alternatives to allow protecting their people and keeping them motivated or at least satisfied. The permanent dialogue or cost

reduction in other type of fix expenses might help to impact with less strength the matter about wages. For example the environmental protection policies are valid alternatives inside a company. The electronic means of information dispatch as well as the paper recycling are simple but good examples to saving costs.

Non financial support to the micro businessmen The investment for personnel must go further than protecting their wage. The value of a company’s human capital must be the tool to transmit knowledge to those who haven’t got it. The big companies can and must be the key actors for development strategies. In times of crisis the micro businesses have the tendency to be more vulnerable and need the support to survive the crisis. The role for the medium and big businesses in front of this problem must be to creating training programs in which the department heads, as an example, can create a training program for the micro businessmen. These trainings must be part of the ESR’s strategies, in which the main objective is being protection agents of the smaller in front of the crisis risks. There is the need of more trained and motivated people to work in difficult times, trying to keep the necessary productivity levels for the companies to stay afloat. This must be a cooperation effort with institutions and companies at all levels for a specific industry or the ones related.

Cooperation nets before the crisis

The cooperation nets in this case are indispensable, not only to maintain a constant dialogue about the problems that threatens an industry, but to determine the opportunity spaces to strengthen the companies and have support of the associations and public and financial entities, which are keys for industry development. In times of crisis we have to change our way of thinking oriented towards profit and focus the efforts to common efforts of cooperation, which aren’t obligatory but are strategic to reach the common well-being. An example of the above is the importance of keeping relations with the government, so the joined effort won’t allow more regulations to pass, as the importation restrictions which threaten our industries instead of encouraging them. We must join to reject the ideological agendas and promote others of public policy to boost the productive development.

Individual Social Responsibility The ESR is important, but it doesn’t arise by itself. It must emerge from one which could be called individual social responsibility, ISR. The companies don’t decide by themselves, their managers and directors are the ones to take the initiative to transmitting the staff and other businesses about the importance of implementing ISR strategies, by creating strategic cooperation alliances with other public and private entities.

The numerous ISR agreements signed under the OIT describe the different existing mechanisms to apply ISR strategies in the companies. There isn’t a unique recipe, but there are many tools, not only financial, to be responsible towards the environment and the involved businesses actors. To investigate, enquire about and transmit these mechanisms of ESR, is the enterprisers ISR and is indispensable to protect ourselves against the outwardly moments which we are living and the ones to come. The uncertainty in which the Ecuadorians live attempts against our well-being; it’s everybody’s responsibility to express our disagreement to the current situation. Ecuador’s stability isn’t only a necessary good; it’s a common good which is taken away from us. For more information about the ESR visit our Web site of the Organizaciòn Internacional de Trabajo and look for the “Guide” of resources for companies’ social responsibility http://www.ilo.org/public/spanish/support/lib/resource/subject/csr.htm In Ecuador: www.redceres.org *Economics studies in York University of Toronto, United States and Master in Public Negotiations of SDA Bocconi School of Management, Milano, Italy.

The Necessary Revolution

Giovanni Ginatta H. FIE’s Executive Director

Revolution is a trite word. It became famous in the 60’s after the socialists revolutions which “liberated” Latin America from the imperialist oppression. The iconoclastic image of Che Guevara was spread out, a still deified character by generations which use T shirts with his logo, without knowing his history, his acts and his inheritance. After decades in which the revolutionary left wing was crushed by the economic freedom success, it remerges precisely in front of an assumed failure of the right wing promoter with the invisible hand of the market as the solution of the economic and social people’s problems. Nowadays, the revolution trend comes together with anguish to changing. Some Presidents have been successful under the agenda for a change. For example Obama, capitalizes over the North American people tired from Bush’s era, and others as our President Correa which capitalizes over a society which insists in radical changes tired of the abuses of the parties or groups which took the economic and political power by assault. In a recent article in the Journal Leader to Leader, Peter Senge wrote a very interesting article titled: The Necessary Revolution. It isn’t about political revolutions. It’s about the revolutions which have changed the economic and social life of the human being. One of them was the Industrial Revolution which changed a lot the planet’s way of living but at the same time generated environmental and also social damages. From it the differences which induced to communism began. Senge says that the Industrial Revolution lead us to a fundamental contradictory path towards nature, both to the eco systems as well as to people (against human nature) and that it was impossible to continue (it isn’t sustainable). The Industrial era was an exploitation era, quotes Senge. The nowadays necessary revolution isn’t only for environmental reforms; the social unbalances are more than ever showing us people which live with less than one dollar per day, and those people can’t have the burden to saving the environment, because their priorities are others. This human unbalance risks the planet’s stability and is the beginning for many wrong things such as terrorism, drug trafficking and corruption. We only need one example as we see the Mexican drug cartel as they besiege Mexican and North American authorities. The necessary revolution and changes must now establish a new order of things among rich and poor countries and inside the under developed countries there must

be established an adequate environment to fomenting development. The rich countries far away of being moneylenders or development consultants should have a less hypocrite vision and get really interested for these countries to get through or on the contrary they will be severely affected. In Ecuador’s case, these promises for change have been left out until now as a political marketing feast which during two years now, has filled us with slogans, songs and videos, but the account is still unpaid. There aren’t signs of deep changes of an authentic and endemic system to national developing. Only promises, lyricism, war shouts and mermaid songs. Poverty is the same if not worse, the highways aren’t finished, schools are deficient, the hospitals are badly managed, corruption as cool as a cucumber and what about delinquency? And besides all the above, it can’t be seen which will be the strategic axes of products and services which would be the mainstay to generating national richness. The distribution when richness and wealth isn’t generated only distributes more poverty on a long term. The necessary revolution must start by telling us which is the most convenient way for development. Is it possible that such a small country as Ecuador continues internationally isolated? Can it continue imposing prices controls, new custom duty tariff in absence of a policy to productive foment? What are Ecuadorian’s going to work on in the following years? In tourism, forest, aquaculture, services or logistic? What will it be? This isn’t said. The necessary revolution must build bridges to unite the Ecuadorians, both as a region as well as at social business, workers, ethnic groups, associations, cooperatives, union’s levels and a big etc. All this sounds impossible and even worse if each one of us has the trend to look only at our parcel and not the whole or national interest. This is a big leader’s challenge. The necessary revolution must have the priority to a big efficiency and educational modernization reforming, as well as in health area. We wish the demagogy and the out of date ideologies to be left behind, assimilating what has worked out well and eliminating all the bad. It doesn’t matter to copy the good things from Cuba, Chile, Canada and many other countries with positive aspects without minding if they come from the left or the right wing. Ecuador needs pragmatism, less studies from brilliant consultants and more execution. The necessary revolution must take up again the path for decentralization and autonomies. Ecuador isn’t only a bio diverse country but a multi cultural one with diverse regions. This makes absurd and impossible having a unique and centralist model. Only the blind don’t want to see the positive examples of regional development in zones such as Salinas de Bolivar, Cotacachi, Loja, Guayaquil, Manta, etc. The administrative power should be closer to the users and beneficiaries of the services.

The necessary revolution must interweave a new economy of small owners. There isn’t a way to progress in a sustained way in a country with a very little democratized economy, of big capitals and too many employees. The middle class is constructed with employments with add value, with good salaries and a small booming company. The revolution for the change must establish credible, serious and sufficient institutions. It’s clumsiness to creating so many governmental ministries and agencies when the before existing ones didn’t work or didn’t have credibility nor the people’s acceptance. The public offices shouldn’t exist to bleed Ecuadorian dry but to giving them a clear and efficient service. Do Ecuadorians perhaps feel well assisted? Are we secure? Is there good education? Do we have good health? Is there a good public registry? Bureaucracy shouldn’t exist only to ask for papers and steel our time. Neither must it be as a supper society controller. Isn’t the new Constitution supposed to be one of the perfect ones? What I can see are only obligations and very little real rights.... Then, for all those which thought that a change was coming and waited for a Messiah to make the revolution à la carte, I have bad news for them: “Nor the change has come and won’t come without everybody’s effort and dedication”. It’s not a matter to do magic or of little time. It requires an upright leader, a strong one and with the wisdom to set the courses of a chaotic country. The hope which we still have is that now that the curtain of the several campaigns is to the point to drop we could see a new executive and coherent leader. If this isn’t the case, we confront another lost decade. As Einstein quoted: “We can’t solve the problems using the same thinking as when it was created”...And with this I only want to conclude that for now the supposed changes and the supposed revolution is nothing else than a bit more of the same....painted with another color.

Dollarization at the countryside

Mr. Paul Olsen P. President of the Association of Stockbreeders

At the coast and the Galapagos

Talking about dollarization at the countryside is about the same as talking of the one in the cities which is synonymous of stability, savings capacity, planning capacity, confidence at long term investment, purchasing power, accessibility towards credit, among other benefits. That was a measure and nowadays is the currency which has offered the Ecuadorians benefits when reinforcing its economy against the governments in turn, which is the effect of their bad economic management as well as taking irresponsible measures (generally demagogic or political) when using at free will that machine to print money each time more devaluated. Nowadays there is no doubt that the dollar improved the Ecuadorian’s life standard, especially for the poorest, finally the dollar became socialist and isn’t anymore the privilege of an important sector which is the exportation and is now at the reach of all the Ecuadorians. With it we inherit stability; the farming agricultural producer now is able to sow with the confidence that the value of its currency will be the same. The stockbreeding producer will also have those advantages, but his business will be at long term; if we talk about meat after two years; if it’s milk, from three to four years. In the same way, he knows that the value of his money won’t change unless there are unforeseen events which aren’t manageable. This currency improved the life standard of those who work and have the possibility to earn a salary. For example a worker which received his minimum wage in sucres and turned it into dollars, was $40 per month, with which he only needed two months of his wage to be able to buy a blender. Currently with a fraction of his monthly salary he is able to buy the same blender and he still has left over US$ 138.00 for food and others. In addition, the above have access to credits, and therefore they are able now to buy electrical appliances such as refrigerators, TV’s, Cellular phones, motorcycles, etc.... which isn’t anything else than increasing their life standard. This makes us feel so much better and should make us aware to who promoted this idea and obtained for the dollar to be our economies’ official currency. Today it’s a task of few, and must be done for everybody.

SUMMARY OF THE DOCUMENT PRESENTED BY DOCTORS JORGE ZAVALA EGAS, ALEJANDRO PERE CABANA, JULIAN PALACIOS CEVALLOS, BYRON LOPEZ CASTILLO, JAIME DAMERVAL MARTINEZ AND OTHERS, IN WHICH THEY REQUEST TO THE JUDGE OF THE CIVIL THING IN GUAYAQUIL A PROTECTION ACTION TO VOID THE PATRIMONY DECLARATION WHICH THE ECUADOR’S IRS ASKS FOR: 1. CONSTITUTIONAL PROTECTION ACTION

Ecuador is a constitutional Estate of rights and justice, according to the definition of article 1 of the Constitution of the Republic (CR), fundamental rights which guarantee in an effective way the same supreme normative as an Estate’s prime duty (Art.3.1. CR) and which besides are legally guaranteed, among others with the protection (Art.88 CR) which can be proposed by any person to which a fundamental right has been infringed or has been threatened, as Art 88 of the Constitution regulates, according to articles 46 and following to the Procedure Rules issued by the Constitutional Court, RPCC (R.O. No. 466 –s- of November 13th, 2008). In consequence, from the protection point of view in which the action is pretended, it could have a repair or preventive nature, the first one when the fundamental right has been violated; and the second one, when upon the right there is the threaten of a real danger and near to be forced attributed to the conduct of power or also of a private one (Arts.88 CR and 46,47a and 48 RPCC) and is pretended with that action to avoid the conclusion of the threat. In effect: Article 46: Fundamental principles- Without detriment of the general principles which are common to all the jurisdictional guarantees of the rights, the protection action in particular will be of tutelary, direct, indictment, preferential, immediate, inter cultural and corrective or preventive nature, depending on the case. In this second case, we are the ones to appear, and, understand that thousands of Ecuadorians and foreigners living in Ecuador, by a decision of the country’s public and tax system administrative and public power which has set out in a unilateral and discretionary way, that the citizens which have assets valued at more than two hundred thousand dollars or in case of conjugal partnership which have goods with values over four hundred thousand dollars (according to the reform of art. 65 second row of the Organic Law for Internal Tributary Regime. R.O. No.554 of March 23, 2009), must present a patrimonial declaration, at the dates shown in Resolution No. NAC –DGERCG09 – 00089 of February 3rd, 2009, reformatory of Resolution NAC – DGER2008 -1510 of December 23rd, 2008, published in the Official Register –s – No. 497 of the same date and year, using excessive legal authority from the IRS and has been a constant, certain real and imminent threat to people’s intimacy invasion, which is a fundamental right of each person as it is prescribed in the Constitution of the Republic in numeral 20 of article 66.

Article 66.-People will be recognized and guaranteed: 20. The right to personal and family intimacy The purpose of this patrimonial declaration is the own control of the Tributary Administration according to article 8 of Resolution 1510 of December 2008, reformed by the Resolution 0089 of February 2009. What is sought is the exercise of the control to the tributary administration, invading the personal and family intimacy of the Ecuadorians and this objective is reported and condemned by us as a clear harmful prejudice to fundamental rights of each natural person who has more than two hundred thousand dollars in goods, and constitutes the cause for which we appear before you to give notice of appeal, a preventive protection action against the threat of violating our personal and family intimacy specifically guaranteed, in a previous, clear and categorical way in the supreme disposition above described. The threat is configured in an objective way by the public announce and the validities of the before mentioned Resolutions, issued by the IRS, required from May 10th, 2009, and if they get executed, would cause a serious violation to the fundamental right to personal and family intimacy for all the people which live in Ecuador. II. SPECIFIC PRETENTION Our pretention is that in motivated judgement, the appeal for legal preventive protection is declared against the threat to violating our fundamental right to intimacy, setting out the prohibition to declare in an obligatory way, the amount of goods and personal or family assets and that they configure material home elements without a direct relation to the source of income or rent. III. LEGAL FOUNDATIONS III. 2. THE FUNDAMENTAL RIGHT TO INTIMACY THREATEN BY IRS’s ADMINISTRATIVE VIOLATIONS A) Administrative acts which invade the economic intimacy of people

It’s unconceivable, from the constitutional optics, that an administrative act issued by the IRS pretends to rule acts or conducts invading or restricting the fundamental economical people’s right to intimacy. This is expressly prohibited by the Constitution when it imposes that: Article 11. - The exercise of the rights will be governed by the following principles:

3. The rights and guarantees established in the Constitution and in the international instruments of human rights will be direct and immediately applied before any public, administrative or legal server by official letter or the parts petition.

For the practice of the rights and constitutional guarantees there won’t be conditions or requirements which aren’t established in the Constitution or the law.

B) The essential subject matter to personal and family intimacy The right to intimacy, as a constitutional category, is a private individual’s right, joined to “a person’s dignity” which also entails the existence of a private life sphere which has to be safeguarded from strange interferences, implies an own and private ambit which has to be protected from others actions. You Mr. Judge, will have to declare that the economic intimacy is part of the personal and family intimacy and that there is an excess in the competences that is conferred to the Regulation to the Law of Internal Tributary Regime and the respective IRS’s Resolution when demanding declaration of the personal and family goods, without direct relationship with the rent, and that the development of these legal authority can’t invade the private economic intimacy of the inhabitants of Ecuador. The right to private and family intimacy proscribes the arbitrary interferences as they derive among others, of Article 12 of the Universal Declaration of Human Rights, Article 8 of the Convention to Safeguard for Men’s Rights and the Fundamental Freedom (Rome November 4th 1950), Article 17 of the International Pact of Civil and Political Rights (United Nations, in force since March 23rd, 1976) and Article 11.2 of the American Convention about Human Rights San Jose de Costa Rica’s Pact”. C. The consideration of protected goods by means of regulations It’s called this way to the characteristic method of this theoretical construction, to determine in a specific or abstract way, how, when and at what measure must hand over the fundamental right which collides with other or with a legal good (Ignacio DE OTTO Y PARDO). The conflict finds a solution when you settle the possibility to justify the preference of one of the legal goods in dispute once considered the circumstances which meet in each case. There aren’t choices or previous priorities of the constituent, it’s a judges attribution for them to value all the aspects and data, if they are or not fictitious without selection rules foreseen in the Constitution. We said before that it will be necessary to demand that the private and family intimacy interference shouldn’t be arbitrary, that they pursue a legitimate purpose, it should be given in and that it should be properly justified. In this case, the obligation to present the patrimonial declaration is: (1) an arbitrary interference in people and their families’ economic intimacy, as we will demonstrate afterwards, because it hasn’t legal protection derived from any valid and effective legal regulation. It’s an administrative performance enforce. (2) The interference in the private and family life hasn’t a legitimate purpose, because there is a clear power

diversion, as we explained in the subsequent section. (3) The measure taken by the IRS isn’t given to the proposed purposes, as we can see in the third subsequent section, and as we said in (1) it hasn’t got legal support in any of the legal regulations. C. (1) The patrimonial declaration is an arbitrary interference in people’s and family intimacy and is an administrative de facto action. In the patrimonial declaration case the idea is to implement a supply of information about a person and families own goods imposed in an arbitrary way, because it hasn’t legal protection, because not even the Regulation to the Organic Law of Tributary Regime covers it. It’s important to observe that until this phase of the long stages to creating rules for the patrimonial declaration there aren’t yet interferences to people’s or family economic intimacy, because, the obligation was to declare the patrimony linked to the generation of income which represents a rent for those. This is, the understanding was to declare the patrimonies which generate income or rent, without exteriorizing, under any circumstances, people’s, family, their children’s goods and which represents the material part of a home, being as it is, a fundamental right which is guaranteed by the Constitution of the Republic. To conclude:

1. The obligation to declare goods or assets belonging to persons and their families, from everybody’s homes and are not related at all to income or rent, hasn’t got legal protection derived from any valid and efficient legal regulation, and is an arbitrary decision of the IRS:

2. If they pretend to apply that invalidated regulation, we are talking about a de facto administrative action, of a typical de facto administrative channel, because it hasn’t support of a legal regulation in its application.

C. (3) The de facto measure taken by the IRS, isn’t given respecting to the pursued purposes.

From the expressed at the end of the previous chapter it can be fluently deduced that the demanded patrimonial declaration from the IRS doesn’t fit or is given to the pretended control purposes. To tyrannize people’s fundamental rights, the right to people’s intimacy sheltered in their homes, to give birth to the audacity to inspections and verifications in homes, to exert control over the tax payments, is absolutely out of proportion, and even more than that it’s to be repudiate. The public organism in its control activity as we all know, has more than a dozen of means to determine the correct tax payment for people in the country, and however, pretends the extremes, without any consideration to people’s dignity and Ecuadorian homes. Just there, the patrimonial declaration isn’t necessary nor is given in respect to the damages to fundamental rights of people, families and homes established in Ecuador. In consequence it’s imperative that the fundamental right to

intimacy is protected to all the ones which live in this country and are called constitutional rights. Finally considering or balancing the purpose which the administrative actions pursue, which is the tributary control, adding one more to the dozens of actions which for those effects the IRS has, it’s inexcusable postponed and prohibited by the respect which must be exert, the intangible fundamental right to people’s and families intimacy of our country, which defends over all the constitutional hierarchy.

IT’S JUSTICE,

DR. JORGE ZAVALA EGAS REG. 888 C.A.G. DR. JULIAN PALACIOS CEVALLOS REG. 887 DR.ALEJANDRO PERE CABANA REG. 128 DR. FRANCISCO NUGUE HILL REG. 071

Bajo la Lupa

Objective Analysis for Productive growth

“Phrases and important figures”

Which are interview by the Lupa Ing. Joyce de Ginatta

Economist Elsa de Mena, former Director of the IRS Topic of the program: ¡Towards....! “For a country to moving forward it’s very important to have a well oriented fiscal policy and a tributary administration which carries out their objectives. You can’t manage economics from a tributary policy; it is necessary to assemble a balance among economic politics, the incentives to production and on the other hand what is the collection and tributary administration”. Ing. Sixto Cuesta, former member of Ecuador’s Central Bank Directive Topic of the program: “Don’t push us towards a crisis”. We are under the impression that the adoption of measures is a style to cover situations a little bit here and a little bit there. However they aren’t in the context of an integral plan which should include: fiscal situations, reforms to stimulating the productive system, to focus the subsidies and a series of other measures with the purpose to prepare the productive system to react as soon as the world’s economies starts to overcome the current conditions. The country is in the best conditions to take advantage of the opportunities which the market offers. ¡Let’s Start now!” Economist Carolina Pozo, Academic Coordinator of Governments School, IDE Topic of the program: “To Govern, Democracy and Prosperity” “In times of election campaign it’s important to be aware that governing is a tool to creating a net of cooperation among the estates, civil society and private sector organizations, to determine that common good and the objectives of a public agenda”.

Economist Vicente Albornoz, CORDES General Director Topic of the program: ¡Until when does squandering last?” “During the period of 2007-2008 the growth reached to 70% which had never been seen before in the public consolidated sector. In revised historical pieces of information, the country never had such a situation. In the 70’s there was a public expense increase (around 40%), but besides the mentioned, we never saw such an enormous growth. Obviously the additional more or less eight thousand million dollars which the public sector spent in 2008 in relation to 2007, means an increase in the public expenses never happened before in the Ecuadorian History”. *Bajo la Lupa” (To be scrutinized), is an Economics, Business and Political program which is conducted by Ing. Joyce de Ginatta and produced by reporters Joffre Garcia and Angel Matamoros. It’s broadcasted every Saturday at 19h30 and on Sundays at 10h30 through Cablevision Channel 3.