Freedom and Development YES, parenthesis NO

Now it seems that those who stand for Freedom, Development and Democracy are wanted to be classified as opponents. As they say “A confession of parts, relay testing”; and therefore they categorize the opposition, to those who defend work, freedom and democracy. In consequence they are categorized in the opposite side. No democracy, no employment, no freedom, no future…

It’s time that this government marginalizes those who distill poison and bitterness to stop harm and cross the border to change confrontation for dialogue, the backwardness for modernity, and the separation for agreements.

As stated in the magazine’s cover we are still in the circus, the poisoned lead the baton to guide the attention towards the irrelevant, which turns Ecuador into a circus, putting it in a parenthesis; the investments and opportunities pass over our borders towards countries politically boring but economically active, seeing results such as in Peru, that in 2010 had a surplus of $ 6.400 million in its commercial trade balance. This is, managing to sell more than buy, in exchange for our circus rather than easily achieve a surplus in the trade balance, for being only politically active and economically passive, they now want to manipulate the balance of trade imports in a discretionary way (how much and what can be purchased abroad). Can you imagine the volume of corruption that will be generated and the amount of work to be eliminated, by increasing the prices to the middle-class pockets?

While all this happens without the civil society being aware of it, the fields will be abandoned, when in their hands lays the possibility of increasing the sales abroad; many products are currently frozen in their prices and that’s why it’s said that “the ignorance is bold”. ¡Until when will we allow that haters or lovers only of chalk and blackboard make wrong decisions that are the opposite of what was offered in the electoral campaigns!

The big ones aren’t affected. If they don’t grow here they do abroad. Poor young people; poor consumer’s pockets; poor Ecuador…

People are tired of so much political blah blah blah. The young want and need opportunities and what we have experienced in the last 20 months is just the opposite.

If it is as expected, that before the end of the year Colombia and Panama will sign the Free Trade Agreement (FTA) with the United States, Ecuador will remain as the only country of the Pacific Coast outside it. Poor Ecuador; poor middle-class; poor small and medium businessmen, and if we talk about sovereignty, that was lost long ago when we became a Cuban-Venezuelan colony.

What are we waiting for? NO REFERENDUM, ECONOMIC ACTION YES.

Ing. Joyce de Ginatta

Guayaquil, February 2011

The obsession of the names

Mr. Alberto Medina Mendez (Argentina)

It’s remarkable how the political debate prefers going towards the domestic. It’s like the ownership of the names, of men, would occupy the center of the stage and the ideas would be put aside. Society seems to be interested in scrutinize the lives of the political characters; find their flaws and weaknesses to finish dealing with it as it were a magazine Showbiz, of a television show, or a contemporary reality. It would be good understanding that we aren’t governed by politicians but by their ideas. They are only circumstantial intermediates in this game of running the community’s demands. Furthermore, if we tried to go a little beyond, we should say that they send ideas to people, to the whole society, that afterwards are perceived and interpreted by the populist side of politics, the one that doesn’t respect its own vision, but making other’s desires in principles and then turn them into partisan slogans. However, there is a paranoiac trend that makes us focus in politicians more from the account and beyond the necessary. And it’s not that we don’t care about their personal conduct, their moral standards and the absence of values; of principles abandoned in front of each decision. They matter but aren’t more transcendent than their ideas, than the paradigms that underpin their actions; that this whole set of contradictions that brought into power and exercise it daily. Often calls us who have taken the decision to express publicly what we think, that we report corruption, give names to expose the worst, to remain in evidence, uncovered, for society to know, no longer poses and have more details, more certainty. Actually that mechanism is valid, but clearly insufficient, and in great measure only acts as an accessory mechanism, functional to the system. It makes us believe that the problem is men and distract us from the main objective. When the whole attention is still concentrated in specific events, when the entire political debate rounds the anecdotal and superficial, aside are left the important, the relevant, and the significant things.

Corruption falls when the corrupt are individualized; not even when they are imprisoned, but when the structural conditions that give rise to, that makes it possible, making it repetitive and one of the pandemics of our time. It’s not about detecting certain human beings in isolation. They only act according to their moral standards, but essentially to a system that allows and invites daily and incentives to cross the line. The systems should be against corrupts and not the fragile schemes failing prey to any improvised with few convictions. The same thing happens with the political decisions. It isn’t about more or less ability, or talented; it’s simpler, much simpler. It’s about correct ideas or the absence of them, of adequate paradigms or wrong parameters. Societies that evolve are the ones who chose correct precepts; the ones whose systems are prepared to resist the worst kind of people in power to counterbalance mechanisms; with unlimited power and with effective citizen control. We will have to stop it kinking in the names. Human beings as individuals are circumstantial in history. People don’t govern us; at any rate, they impress their mark, some additional attribute, a special talent, even the worst of themselves. But don’t get confused, the political decisions respond to the system of ideas adhering to the party, and almost all the time to demagogy, the way in which politics prefers interpreting the community’s vision. Not to fall into the game proposed by the naïve and the wicket. Some for offering themselves to an evident simplification to awarding bad ideas just to imperfect executers, and others for pushing us to the abyss making us believe that we haven’t chosen bad ideas but only inadequate interpreters, continuing insisting towards the infinite in the unlimited search of talented, when the fact is about continue worshiping mistaken slogans. Despite the consistent attitude of many to name, it may be preferable not entering into dynamics of evading responsibility, to look the other way, to become the distracted indefinitely. After all making names, report the guilty, point out daily protagonists is a simple task. The complex is identifying the wrong ideas, and even more to try changing them for the correct ones, paying the necessary price that any responsible decision implies. By compulsive inertia seems to suggest many, it might be time to look the important, review our ideas, the own visions and let aside the craze, the innocent obsession to focus on names.

Economy in 2011 Econ. Mauricio Pozo Crespo

Economic Analyst

In January 2011, met four years of President Rafael Correa’s government, time in which he should have ended his term, under historically conditions of the past and the date on which public opinion would have been able to judge government’s performance. This period of government in the economic sphere has meant in Correa’s administration, years of the greatest economic prosperity in the last three decades, only comparable to what the country received between 2000 and 2006 or similar to the amount received in the 90’s. There are several factors that explain that abundance of funds, such as the price increase of several “commodities” products or Ecuadorian exportation products, but without doubt, it’s the unusual increase of crude oil per barrel the most significant element. A slight digression might help illustrating this impact; this is, observing the oil average price between 2004 and 2006, in front of the average between 2007 and 2010. In the first case the crude price was around US$ 35 per barrel while in the second period it was around US$ 70 per barrel. This means an equivalent value to double revenue, despite that in 2005 the prices started rising if we compare it to the US$ 18 per barrel applied to the fiscal budgets of 2003 and 2004, twice more income to the more of US$ 80 of the last two months; the difference becomes abysmal. CUADRO 1 The influx of annotated resources, paradoxically, hasn’t affected as might have in terms of employment, poverty and welfare. The Estate’s budget in its total consolidated version until 2006 represented around 25% of GDP. This implies that the country allocates nearly half its annual production of goods and services to cover the size of public spending. The Ecuadorian economy grew 3.5% in 2007; 7.7% in 2008; 0.4% in 2009 and in 2010 it won’t be greater than 3.5%. We are talking about an average growth of 3.6%, but double or triple the previous year’s income, being besides a very modest growth for the country’s social needs. Employment stagnated, although it ended measuring unemployment and underemployment showing a reduction of more than 1 percentage points each. The numbers of economically active population is reduced which makes little credible official information, including the foreign whose source is CEPAL, which shows in terms of poverty that the same low 0.5% in the last four years, marginal

rate of improvement in social welfare but although it has committed around US$ 12.000 million in the last four years in subsidies of any kind, has largely protected the rich over the poor. CUADRO 2

Should then bear in mind that it isn’t necessarily the presence of higher income better incentives for growth, employment and poverty; it’s the private investment, the quality of public investment and the signs of credibility and confidence the necessary factors to promote larger economic growth. 2008, was a year of great abundance in oil resources, because the crude oil price overcame US$ 100 per barrel which promoted an essential increase of public expense and liquidity in its economy, phenomenon that didn’t have in particular the sufficient private investment and turned untenable the increment growth mentioned before. CUADRO 3

The previous is so true that in 2009 the annual production fell to near zero, having risen above 7% in 2008. It should be noted that the fall of national production to 0.4% in 2009 can’t be blamed to international crisis, because impacts for Ecuador meant only a reduction in the price of crude oil near to Us$ 30 per barrel but only for a two month period of time, because the average price for the year was higher than US$ 65 per barrel which is an excellent level of hydrocarbon historical figures. The non oil exportations far from reducing grew and the nontraditional exportations decreased in a little relevant way. The remittances sent by Ecuadorians living abroad were reduced, but not in an important way. It must be highlighted that that these funds aren’t revenue in the budget but are flows of capital entering to the private sector. If they contribute in the taxes payment they can be considered as an indirect part of the fiscal income. The foreign financial close for Ecuador was the result of the anti external market policy pursued by the government and due to wrong handling of international relations in the economical field, especially in external debt issue. The quality of public expense is an essential element in this period, because although Correa’s government has allocated more resources to road and highway construction, education and health, despite that these last mentioned sectors don’t show a higher level of people’s attention, the disproportion in the amount of current expenditure and subsidies, they don’t allow a favorable economic impact. While in the current expenditure two thirds of the fiscal budget is intended, in the capital expenditure it’s only one third. In addition it’s worth clarifying that there is ample empiric evidence that demonstrates a grater positive consequence for private investment than for the public, meaning that it doesn’t matter whatever the increase in government capital expenditure is, without a considerable reaction of the private investment, the effect on economic growth will be small. Inflation hasn’t been this government’s problem, because the important “straitjacket” which dollarization represents and the impossibility of devaluating the currency or the inability to printing money have been powerful anti-inflation

weapons of the current exchange system. For 2011 either any major problem in the inflationary issue are foreseen. The 2011 percentage will be around 3.5% annual. A phenomenon that is a legacy from 2010 to 2011, is the presence of a twin deficit, this is, one commercial and a fiscal deficit. In the first case there is a unbalance of US$ 1.500 million, being the non-oil around US$ 7.700 million, while the fiscal unbalance reaches near US$ 1.000 million; the last one because the government didn’t find enough funding but not because it has become austere. Both demand a more disciplined management of public finances. If this isn’t corrected with fiscal consolidation in 2011, the problem might be repeated, because the budget’s fiscal deficit of the current year is US$ 3.735 million. The mentioned explanations are enough basis to anticipate that 2011 doesn’t seem having great changes compared to 2010. If the style doesn’t change in economic policy, if there isn’t a friendlier attitude towards the private sector and foreign investment, as well as with the foreign financial community, increases won’t be seen in the rhythm of economic growth. The government through the Central Bank has set a target of 5.1% for 2011, percentage that seems being overly optimistic for all known estimates pointing to a growth of around 3.5%. As noted before, if there aren’t major changes of direction in economic policy, if there aren`t significant increases in private foreign and local investments, a GDP’s growth appears unlikely. Without a process of dynamic economic revitalization, it’s impossible to achieve significant improvements in employment and underemployment levels, which makes it difficult seeing an enough margin to reducing poverty, improving welfare and reducing insecurity. This seems to be the most probable scenario for 2011, meaning, and a similar one to 2010. It’s probable that the most relevant changes are related to the political environment which might turn into more aggressive and hostile, with adverse impacts towards economy which can’t be dodged, but can hardly be anticipated and even less quantified.

Why Dollarization?

Dr. Pablo Lucio Paredes Director of the Institute of Economics USFQ

Although dollarization seems reaffirmed on the Ecuadorian economy, it isn’t bad recalling its origins, the myths surrounding it, its strengths and weaknesses, prowling around by the opponents and bad policies that intentionally or unintentionally are trying to defeat.

Let’s analyze… 1) Dollarization wasn’t to blame for the problems of the time, but a system which allowed resolving them besides of generating other opportunities for the Ecuadorian economy (with inevitable problems of course). Without doubt it had another facet and it was a Government’s attempt to be saved (without success) but that’s another case. You can also raise that it could have been done in 20.000 sucres per dollar instead of 25.000 with which the macro economic adjustment would have been less drastic; no doubt that I also defended that position (it was even easier in practice to dividing into 2 instead of 2.5 to change prices). 2) The inflation in dollars post dollarization (91% in 2000 and 22% in 2011) wasn’t because the dollarization but for the needed adjustment that the economy required. As inflation in sucres from 1998-1999 was of 100% while devaluation was of 350 or 400% (depending on when we start to having counted), the result was an enormous depreciation of the real exchange rate which was unsustainable, because in an open economy it implied to high import prices ( an economy such as ours needs many importations) and an excessive encouragement to the export sector (which besides didn’t generate positive effects because on long term it wasn’t sustainable and in consequence it wasn’t credible). This is what explains the need in economy of adjusting internal prices and that’s what happened. It was maybe excessive on long term, but that’s the result of an insufficiently strict fiscal policy.

3) As it couldn’t be otherwise, the first major contribution of dollarization (beyond having changed it almost immediately the banking and monetary expectations that leads the country to a hyperinflation spiral) was having changed the economic agents horizons. People can look over the medium term; peace of mind because all nominal variables are now in dollars/sucres between wages and debts for example, was a serious problem, and

inflation is low; therefore we can say that the mortgage credit have reappeared with 20 years term; or for example, the largest pacification capacity for the investor (even if in these last four years it has been partially compensated in a negative way created by uncertainty in the overall economic policy.

4) Myth: it isn’t true that dollarization has survived for the oil’s high price that has given huge amounts of money. If we would have had a less crude’s price, the economy would have adapted to these available resources. Probably the inflation and growth would have been less. The real enemy of dollarization isn’t so much the level of cash flow that enters the economy (unless this is tremendously low obviously) but the variations that generate cycles of boom and depression difficult to control and besides generate uneasiness in the population. The bad is not having mechanisms (savings and stabilization fund for example) that allow among other factors, smoothing cycled linked to fluctuations in oil. When the cycle is high, the add value rises (especially the public because the governments are the “owners” of oil), the wages rise by estate’s decision, economy grows and the cycle reverts, the adjustment of the economy’ size and the prices are difficult to managing; and there is the risk to abandon dollarization through devaluation and inflation and do the real needed adjustments.

5) Another myth: when the fiscal incomes are analyzed, they tend to showing that the contribution taxes are very low in the country…but not accounted for the contribution made by citizens via oil. Contribution? Of course, the citizens are owners of oil and any time through some law there was an “invisible confiscation”. In consequence it’s as if there was a tax on income of 100% over the oil income to be transferred from citizens to the Government.

6) Dollarization has been positive in terms of equity. In first place because citizens are covered by the same exchange umbrella and its risks or advantages, when in the past one of the major inequities in a bi-monetary economy was that people with less income lived and saved in sucres (attacked in consequence of devaluation and inflation) while the ones of greater income managed part of their actives in dollars which really obtained benefit of the real devaluations. Second, because the system itself has been taking an adjustment of relative prices in favor of lower-income social groups in particular those that offer basic services such as gardening, building work, etc…(also the migration had an important favorable role in that sense), and the expansion of the economic horizon certainly has favored the middle and low class. In daily life the least noticeable inequity is noted.

7) An essential gain is in productivity. This was a very little used term in the Ecuadorian economy because businesses and the Government always resorted to inflation and devaluation to adjusting the nominal and real accounts. This situation ended and there is a major effort to compensate and move

towards productivity. The results are on medium term but that is the most important in economy.

8) Does the Government have been disciplined for being dollarized? The answer is no and is one of dollarization’s failure. Public spending has grown and currently we reach or surpass the GDP’s 40%; the ex before deficit is about 6% of GDP and the ex post toward 4%; but the spending growth has found even more options: High price for crude, foreign debt (especially China), domestic debt taking all resources from the Social Security, reserves which previously were accumulated by governments when there were oil savings funds in 2008 which were eliminated. Of course when that is exhausted, there will come up a fiscal limit but by then it will have done much damage to economy on medium term.

9) The big problem of dollarization is obviously that we cannot devaluate the currency in case of a foreign crisis. That’s inevitable. To deal with the previous, there are only two things in which we can think of and do. The first one is remembering that the required adjustments in the exchange rate are usually on short-term; for example, in the recent crisis it was only in the 6 month period that the oil prices dropped and the rest of the countries devaluated their currency. When the adjustments are of longer duration the problem is more complex. In second place, keeping mechanisms for discipline in economy to have low inflation, flexibility concerning to salaries and prices, fiscal balance and savings funds, which isn’t easy in the Ecuadorian institution.

10) Dollarization has pretty well fulfilled its objectives. It can’t solve all the country’s

problems (and perhaps not the most important ones) but has contributed positively. It’s a solid base to construct. It’s also clear that we can destroy and return to the monetary past, to have more of the same and again complicate the development. It’s in our hands to defending the (little) what we are building in our country, but that little is valuable.

Argentina and inflation

Ab. Enrique Guillermo Avogadro Argentina

Since the restoration of democracy –it’s still incipient - in the country, when the last military government hand over the presidential sash to Raul Ricardo Alfonsin, in December 1983, there were three times in which Argentina was plunged into serious inflationary processes. The first one was in June 1989 reaching 3.200% annual and Alfonsin was forced to resign and hand over power in advance to his successor, Carlos Saul Menem, already elected in general elections held one month before. The last mentioned whose political origin was the justicialismo (political movement founded by Juan Domingo Peron) -oppose of Alfonsin`s radicalism- had his black period in the inflation matter at the end of the same year, and was forced adopting drastic measures to avoid the drop in default of the whole national banking system. To stop the inflationary spiral and with noticeable difference to the political platform which he had outlined during the election campaign, Menem used the services of a former Central Bank’s President, Domingo Cavallo, which was designated Minister of Economy and Public Services, creating a “super portfolio” that became the real Tsar of the next decade. Cavallo wasn’t only confronting a real inflationary phenomenon, but the installed ghost of the Argentinean compatriots mentality, recurred to a system called convertibility of the national currency, establishing a unmovable exchange rate of one or another between the Argentinean peso (which was previously devaluated and the American dollar. The Argentinean currency didn’t disappear from the daily life as well as from their vocabulary and during these almost ten years of inflation didn’t exist and all the important transactions were thought in dollars, despite the payments were all done in pesos. As Menem’s term was over, the opposing party-the radicalism- took office promising to maintain the mentioned convertibility. Other factors such as the financial and political plus the lack of flexibility blew that model only two years after, plunging the country into one of the most serious crisis in its recent history. Despite the post facto criticism received in the Menem’s decade, many of them highly

justified, and modernization was entailed in the country’s infrastructure- especially the communication area- who achieved attracting numerous investments, both from Argentineans as well as foreign. The almost terminal crisis of 2001, with its brutal counterpart in the retraction of the demand for consumption fall, produced an enormous financial cushion in terms of industrial and power generation. The country with the help of Eduardo Duhalde, appointed interim President by the Legislative Assembly –after few weeks that Argentina had had five more presidents, successively-, started reemerging from second half of 2002; but a new crisis started, this time because the murder of two leftists at the hands of the Police of the Buenos Aires Province, and forced to hold early elections that led Nestor Kirshner to power and who had come second by Menem’s defection, the candidate most voted for ballotage. It’s true that the new President reconstructed the presidential authority to renew for better, the Supreme Court of Justice, his arbitrariness, his corruption and the lack of security, frightened away the investors and even their own companies and public utilities, that saw their rates frozen in 2001, didn’t explore for oil and gas, or installing new telephone lines, to improve highways and roads and develop industries increasing their offers. Meanwhile, the Government, trying to obtain the needed votes to perpetuate in an indefinite way in power, started to strongly incentive consumption, especially during and after the 2008 crisis, to avoid economy to go to a standstill. Despite the chronic lack of investment that affects Argentina since 2003 by reasons above explained, the gigantic “cushion” left idle by the 90’s decade, allowed the country to go on until the end of 2006, without the incipient inflation (more demand, less supply) showed very strong. However to win the 2007 elections that led Cristina Kirshner to power, the Government made the public expenses grow in an exponentially way and on the other hand demanded from the Central Bank a greater emission of money, that were used among other things, to acquire dollars coming from agricultural exportations – the Argentinean commodity values in the international market breaks records every year- and to keep the currency in a virtually fixed exchange rate. The people in general, then discovered that the pesos lost their value every day to a rhythm of 25% annual last year –although the Government destroyed the official organism that measured among other things, the consumer price index and distorts all the statistics since 2007- and started getting rid of the local currency each time faster, demanding each time consumer which didn’t grow for lack of investment and the result was that prices rose.

Therefore, the future is absolutely uncertain, because the Government besides of minimizing the inflation as a problem –and will continue doing during this electoral year- don’t adopt measures to fight against it, because the high political cost they would have. If you think that labor unions are claiming today the rate increases of 30% and the increase of tax exempt income to the earnings- measure that has been denied by the Government- you could think that at least this year, the inflation will be less than 35% annual. From next year on, when anyone that will come after Cristina Kirshner –even if it’s herself - must tell the truth about economy, allowing that the prices, nowadays brutally subsidized, reach international values for lack of resources to continue this policy; the Argentinean inflation will surely exceed the Venezuelan, unless other heroic measures are taken.

The Decalogue to start a business

Mr. Alejandro Indacochea President of Indacochea & Associates

1. Do what pleases you, your passion and what you’re really excited

about

Make a business simply by making money isn’t the best. There must be motivation and interest to doing things well.

2. Choose your partners in an adequate way

The choice of partners is no economic or social desirability link. The most important is having the same vision of business and share the same values. Avoid whenever possible, choosing your partners among family or friends.

3. Don’t think you’ll be working less and that you won’t have a boss. Own business requires more effort and dedication of time, it needs giving much energy into it. You will have many bosses which are your customers whom you will have to comply.

4. Define clearly which your vision about business is and its competitive advantage.

It’s important knowing what your business will be in the future and what your expectations are. What distinguishes them from others; what makes it different and only are able to giving it to your customers. It’s important to be clear. What is your competitive advantage?

5. There is no age to be an entrepreneur and don’t forget that you will never retire Real age is different from chronological age, being the most important the way you feel physically and mentally. The important thing is your ability to undertaking future projects.

6. There aren’t failures but learnt lessons

The essential is evaluating why things occur and what doesn’t have to be done again, correcting what was bad and to obtaining future lessons.

7. Don’t blame others; you’re the only responsible

The boss blames; the leader assumes his responsibility maintaining always his enthusiasm in business and providing a pleasant environment for work.

8. Have patience and tolerance

Results aren’t given immediately and businesses have a cycle of natural evolution. Provide the needed economic resources to fund the initial stage.

9. You’re not the boss, the real undertakers are leaders Surround yourself with people equally or more competent than you that has power of decision. Help to developing and be self-sufficient. You shouldn’t be necessary for the business to be sustainable in the future.

10. Organize yourself from the beginning

Businesses require self-discipline, perseverance in work with rules and guidelines in which you should be the first one fulfilling them. Remember that projects must be viable, this is, and it must be economically justified.

The reason for this situation (Part One)

Dr. Franklin Lopez Buenaño Retired Professor of Tulane University

New Orleans

With his characteristic insight, Mario Vargas Llosa once asked: When was Peru screwed up? How often do we ask ourselves the same question regarding to Ecuador? I think it’s necessary to answer it in these times in which the political project of the Citizen’s Revolution has started to capsize. A deeper analysis leads us to confirm that it isn’t President Rafael Correa’s problem, and more than the previous, we have often blamed the rulers without realizing that they don’t come from any alien galaxy, but are the product of cultural values that have become throughout a country’s history. The status quo is a system that arises spontaneously from individual interactions that overlap, sometimes with a multiplier effect and others with a delayed effect, with the peculiarity that the observed order wasn’t designed or built by anyone in particular. The economic performance is cause and effect of the beliefs, attitudes, perceptions and values of a majority of the population. It is often argued that people’s discontent is due to a mediocre economic performance. It could be true. The per capita income from 1999 to 2009 only grew a 1.3% annual. Poverty and inequality have been persistent blight, especially when comparing the economic unemployment with other countries that also were in the past in equal or similar conditions. However, between 1979 and 2006 there was progress, despite the low oil prices between 1986 and 2000. Life expectancy grew from 61 to 75 years, while infant mortality dropped from 59 to 16 per 1000 live births and illiteracy, from over 20% to less than 8%. Even more, the best yields took place between 2001 and 2006; this is, during the dollarization period as the local currency. The evidence is clear and convincing. The dollarization reduced poverty and inequity. Psychological roots of the Ecuadorian problems Oswaldo Hurtado in his book entitled “Ecuadorians’ Habits” describes vividly how, throughout history, there have been developed practices that are a drag for economic development. What’s more, it can be stated with confidence, that they aren’t different from the rest of our Latin American fellow. A short list includes: disdain and disinterest for working, paternalism, short-termism, lack of culture of respect to private property, distrust, tardiness, laziness,

lack of initiative, indiscipline and carelessness, breach of contract, breach of the law and rules, disdain towards education1. Not all habits are bad: Ecuadorians are also modest, generous, persistent and tough (they bend but don’t break). It’s important noting that those habits are of the majority, and one person might have some of these characteristics, but not others. The set of beliefs and ideas –about freedom, social equality or national glory – on how the system of social relations operates, gives rise to the ideology. These beliefs have psychological, philosophical, ethical or religious roots, and take the individual to apply certain policy actions, as the political system formulation (republican, presidential or parliamentarian) or the strategies regarding administration of the public sphere (regulations, taxation or government incentives). This time, I’ll concentrate on the psychological roots of the ideology prevailing in Ecuador, because it’s an area largely ignored by our socio-political analysts. The ubiquity of mistrust A society can place itself either on trust, or on suspicion. In a society in which trust prevails, the respect to private property and the given word are common. It’s supposed, generally and a priori, that others will be honest and well-intentioned, that it’s possible compromising with others in collaborative activities that generate mutual benefits and change attitudes if I discover being deceived. When suspicion prevails, everybody tries taking advantage over others; it’s always less risky to lie than promises to keep. When I imagine that behind their smiles, others are waiting for a moment of weakness to cause harm, I have to force myself being mendacious and cunningly deceitful. When people mistrust of strangers, they act with caution and suspicion; they prefer to guarding against lose, fraud or assault in the short term, than engaging into productive activities in the medium term. They anticipate to cheating by cheating in turn which moves others to cheat too. This way of experimenting the world and the existence is typical of countries like ours, in which legal security, the constitutionality and the rule of law is little or null and inequity is very high: when I’m in the edge of losing everything, everybody is my competitor and the division of the cake is each time smaller. In this threatening world, people just rely on their relatives or close friends, never strangers, so that instead of expanding their social networks, they strengthen the existent. This, in return, exacerbates the distrust: the society fragments dividing itself into groups that compete for the loot, mafia who take positions of power and

capital. If it already was fragmented by inequity, the lack of confidence accentuates the differences and raises caution. I note, however, that not all Ecuadorians act that way all the time and either are being condemned by it, but to the extent that most of Ecuadorians perceive constant threats or personal insecurity, they will continue taking refuge in illegal behavior or disrespect for the rule, corrupt practices and authoritarian control and authoritarian mechanisms of control and governance..

In this dark panorama, it calls for a drastic solution: applying a firm hand. When a strong leader appears, to punish corruption, citizens overwhelmingly support it. But this only worsens the problem, because authoritarian policies don’t promote participatory behavior, as well as confidence doesn’t arise under threat. The problem then lies not in the unequal distribution of income, but primarily in the unequal distribution of power. Decision making in awarding to contracts, positions, privileges, access to services and public functions, judicial decisions, etc. depends on the relatively close group or groups that benefit themselves by excluding others. This is, the power isn’t distributed but concentrated, and authoritarianism concentrates it even more. It is presented as a remedy that worsens the disease; the society is fragmented and polarized, the mistrust worsens and the cycle begins again. It must be clear that authoritarianism and corruption depend on the degree of interpersonal trust existing in a community. Sentimentality

Other physiological reasons that are an obstacle to prosperity are the utopian vision, the romanticism and sentimentalism. Who in their right mind doesn’t want a proper, equal and fair society? Who could remain indifferent when seeing malnourished children in shacks that barely hold, that haven’t got basic sanitary services and are overflowed with garbage, seeing a little bit later luxury items sold in the best shopping centers in some big city? It’s then when a discontent and protest feeling arises; a rejection to the dramatic differences we find around us and springs a spontaneous impulse to doing something for this situation to change and for the wealth to be distributed better in this hectic world. But the solution which is presented immediately even if it’s motivated in the best feelings, results generally worse than the problem wanted to be solved. The first thing that comes to our mind, in this case, it’s the need to spread wealth in an equal way, to level in the best way the life conditions of the millions of people who are part of society. Taking away from the rich and giving it to the poor seems being the best solution so everybody enjoys life better. But the solution fails, creating consequences that are contrary to the purposes frighteningly early. The problem worsens with the several soap operas and Latin American movies that take advantage of the feeling that arise with the poor’s situation and the differences with the wealthy. They then think about some being good and the others bad. Unfortunately they never worry analyzing how fortune was obtained; they are imbued with sentimentality and emotions are fed such as envy or resentment, which worsens the problem. That’s the reason why socialism is so extended and has many followers. Envy, as a promoter of social welfare policy

The presence of favelas or slums near lavish mansions not only awakens sorrow or anger, but also envy. Unfortunately, very little or nothing is said about the influence they have in the design of socio-economic policies; however, envy and resentment that are in class struggle, can’t be ignored, neither in political cannibalism and provokes the rise of populist leaders who offer remedy the social inequity in one way or the other. Envy is a barometer of social inequity that rewards those who don’t deserve it and ignores those who are really of great worth. When you want other’s toys, you’re invited to doing more or find ways to take it from the owner. Envy is an emotional state that rises by watching others possessions and achievements and a resentful desire for the owner to losing them. When a society of envy, resentment and revenge are widespread, there is room for intransigency, to disqualifying the opponents with insults. The more extensive the envy is, more inhuman or irrational the behavior, more intolerant and less conductive to developing systems of control, balance or fairness. Envy is implicitly or explicitly the cornerstone of many social policies, although very little people are willingly to admitting it. There are some politicians who seek to exploit the latent jealousy and feelings of guilt in successful groups, although certain economic and fiscal policies are to calm people, without forgetting that this is also the way of calming governor’s conscience. Egalitarianism and resentment

Modern egalitarian doctrine, taken the form of a fact statement or moral claim, is clearly the product of resentment. It would seem obvious that, without exception, behind a simple demand of equality, whether sexual, social, political, religious or material, only hides the desire to decrease, according to some scale of values, whether property or at a higher level, to which must be equalized with those who are below. The worst thing is that it stokes social resentment. It aims to simplify the struggle among those who don’t have against those that have, based on the assumption that whoever has, it’s stolen or exploded to those which don’t have. Resentment hides behind a desire of equality, when what there is looked for is matching the lowest denominator and hide that way its anger. That’s why the demands for equality and social justice can easily turn into envious demands. Joy or contentment (words very near to the concept of happiness) exists when one strives to achieve certain objectives even if when it fails. But when the State seeks to make everyone happy; when everybody receives the needed things and contributes with what is possible (according to the Marxist maxim) then, there can’t be the good, the joy or happiness, because not everyone can enjoy it at once. Not surprising then that most grieving people living in socialist countries, although they may have many needs met as in East Germany. In an economically growing society, it’s virtually impossible to innovate without the appearance of inequalities. It’s commendable to seek sufficiently match for the

rewards distribution, the status and privileges to minimize social resentment, to achieve righteous security among individuals and equal opportunities. But when envy and resentment are used to accede to power, the equalitarian policies exacerbate envy and confrontation among social classes. Cannibalism and the ambition for power

Inevitable consequence of envy is the resentment and the political cannibalism –well described in popular adagio: “Like the dog in the manger”- is one of the most notable characteristics in the Ecuadorian political environment. The country has had more than 20 constitutions and around one president every two years. It’s easy concluding that the political instability generates uncertainty and insecurity. But behind cannibalism, are the ambition of power and greed of power favors waiver. It’s continually deplored the leader’s lack of civility and credibility. It’s a bitter truth knowing that there aren’t debates of ideas, but the opponents are disqualified with hard personal epithets. Those who once were accused, turn into the accusers and backwards; is always to blame others. All insult –with more or less rich language- all accuse, all attack. Thus, inflames passions; divide and try winning; sow winds churning river to fish, and although they could reap storms, it doesn’t matter for them, it’s not important. They care little for the country. The important is acceding to power to take advantage of the privileges which the government gives. ¿It may be that where there is free cake, there are free guests? In short: the exercise of power is like an opiate that blinds; the concentrated power is abused; the discretionary that accompanies it becomes corrupt and turns leaders into tyrants.

Oil in times of Revolution

Lcdo. Fernando Villavicencio Valencia Social Communicator, a Researcher of Oil and environmental issues

When the oil mini-boom was opened in the decade of the sixty’s in the 20th century, the country had more than 8 thousand million barrels of proved reserves; forty years later remaining stocks of commercially exploitable crude oil, have been reduced to 3 thousand 700 million barrels, including the reserves of block 43, Ishpingo, Tambochcha, Tiputini-ITT. In forty years there have been extracted more or less four thousand 300 million barrels. Only for crude exports, according to official figures, the fiscal obtained 77 thousand 568 million dollars since 1972 until December 2009; the foreign companies between 2000 and 2008 obtained 20 thousand 096 million dollars.

Total Remaining Reserves

Proved Accumulated Remaining Reserves Production Reserves Petroecuador 6.881.844.968 3.495.591.772 3.386.253.196 Private Companies 1.203.081.336 848.755.172 354.326.164 TOTAL 8.084.926.304 4.344.346.944 3.740.579.360

Table of projected reserves to December 2010 based on 2008 DNH report

Without taking into account the ITT oil, the proved reserves remaining for 2010, reached to 2 thousand 500 million barrels approximately; with an exploitation rate of 470 thousand barrels per day, we have an oil horizon of 14 years. This is Ecuador is on the threshold of economic and energy model, based on oil exploitation. The proved and probable heavy crude reserves, of blocks and fields actually operating by foreign companies are in the order of 354 million barrels, which at an average extraction of 87 million barrels per year, would be exhausted in 3,7 years, in 2014. That is, the companies have almost exhausted the reserves at the end of

their original contractual periods. Let’s remember that a great part of these were due between 2010 and 2015. In these conditions the hydrocarbon policy and the contractual models to be applied should be oriented to increase the volume of reserves to seek energetic self-sufficiency and fiscal economic balance. For this, a responsible government should first strengthen its public company and afterwards subscribe risk contracts with serious, qualified and selected companies in public transparent processes. President Correa and Minister Wilson Pastor did the opposite: they dismantled Petroecuador, giving in productive fields without bidding and subscribing service contracts, which in the hydrocarbon world are simple accessory procedures to exploring and exploiting contracts. The previous step for the contractual renegotiation process was putting into effect without parliamentary debate, the amendment to the Hydrocarbon Law, which President Correa was aimed at recovering the “oil for all”. From outside the governmental circle we notice that the mentioned reform was an expression of the serious fiscal crisis which leads the regime to deprive Petroecuador of capital even more, giving without bidding the operation of their main fields to private foreign, estate or mixed capital, thus consummating an old aspiration of conservative sectors to transferring to foreign capital, the Crown Jewels. And it warns that the contractual migration to a model of service, multinational would benefit, because they had legal instruments in their favor such as the temporary contracts that were negotiated in 2008 and 2009. Tariffs No one in their senses would be surprised that the tariffs for services of 35 and 41 dollars per barrel, in mature fields, with insignificant investments for exploration, without environmental audit, or passive valuation, could be a country’s success. All tariffs are outweighing the already inflated production costs that the companies had, tariffs which exceed in 700% the production costs of public companies. It isn’t true that with the new contract for services, oil is 100% from the State because the reformed Law made by PAIS establishes that the tariff can be paid with oil, besides that the company could be able buying in field the whole crude. Something that is kept silent is that to the tariff of service there must be added 1.51 US/BL for transport of crude through the Heavy Crude pipeline (OCP) In an interview made by El Comercio newspaper on November 2010, Minister Pastor says: “at the rate we took a weighted average of US $ 32, 79 per company. Of this amount, US $ 8 is investment. The US $ 963 million investments in production fields mean US $ 8 for each barrel. That must be subtracted from the tariffs that were received nowadays without investment”. “The companies said that they would make investments in the amount of 350 million in the same period of time, until before the negotiation. They are inserting in the US $ 8 per barrel tariff which the companies wouldn’t do”. In the official renegotiation graphic shown bellow, the investments are detailed: to keep the previous production, US $ 353 million, which should be called, BASE PRODUCTION; this item was increased

both PRODUCTION BASE to NEW PRODUCTION (INCREMENTAL OR ADITIONAL) in US $ 610 million, that is, a total investment of US $ 963 million, and for EXPLORATION INVESTMENTS, (RISK), US $242 million. Nowhere in the economic information with which the negotiating team can justify the fixation rate, nor in the renegotiated contract we are able seeing investments amounts for IMPROVED RECOVERY, however there is established an additional tariff for this effect. The investment for improved recovery is the same investment for increasing the primary production of the current fields. Speaking to HOY newspaper, on December 13th, 2010, Economist Pastor, when defending the composition of the negotiated tariff argued: “…the fixed tariff during the contract’s life is determined based on three sets of factors: the amortization of investments already made, the amortization of new investment, taxes and profitability”. Let’s take literally the Economist’s explanation, the three set of factors are: I) amortization of investments already made that is US $ 353 million to keeping base production; II) the amortization of new investment must incorporate US $ 852 million, 610 million increase in the production fields, plus 242 million for the exploration in new areas; and III) that corresponds to taxes and profitability defined in the reformed Law of Hydrocarbons and in the formula presented by the Minister, which we will be seeing later.

New Investments (millions of dollars) NUEVAS INVERSIONES (MILLONES DE DOLARES)

BLOQUE INVERSIONES PRODUCCION

ACTUAL

INVERSIONES PRODUCCIONES

NUEVAS

INVERSIONES EXPLORATORIAS

NUEVAS

INVERSIONES TOTALES NUEVAS

DIFERENCIA

Andes 121 367 57 425 304

Petroriental 14 31 91 96 187 156

Petroriental 17 25 75 37 112 87

Agip 22 90 19 119 97

Repsol 154 280 11 291 137

Enap MDC 0 59 0 59 59

Enap PBH 0 0 12 12 12

TOTAL 353 963 242 1205 852

Cuadro grupo negociador Ministerio Recursos Naturales

The principle of the contract to provide services is the payment for extracted barrel, not for barrel to be extracted. In the new contracts, the government recognizes the companies in advance an increased tariff of US $ 8 for an additional production mortgage, as a result of an equally hypothetical additional investment. It’s irresponsible to having guaranteed a rate increase to raise production when there are no official figures of new proved oil reserves in the renegotiated blocks. The reserves are confirmed only with well drilling. Article 16 of the reformed Hydrocarbon Law, points out that the contracts of Provision for exploration and/or oil exploitation are those in which the companies undertake to carry out “with their own economic resources, hydrocarbon exploration and/or exploitation services in areas designated for that purpose….” And then adds: “Should there be or when the provider would have found in the area covered by the contract, commercially

exploitable hydrocarbons shall be entitled to payment of a fee per barrel…” So to speak, the payment of a tariff is conditioned on verification of the commerciality of the reserves, or the volume of proved reserves. How was a new tariff established if the reserves haven’t been increased yet, taking in account that it’s a project in the future? The magic doesn’t work in the oil’s world. The renegotiation central effort is reduced to a supposed reserve volume increase of 76 million barrels during 10 years; remaining reserves that would rise from 170 million to 246 million barrels. The government always talked about an ONLY AND FIXED TARIFF per barrel produced for life length contract, but it turns out that the components of the mentioned tariff, as well as the used formula, are inconsistent with the established in the Hydrocarbon Law and its principles, the technique and the experience of the oil sector. What was done was liquefying three variables, committing public resources, agreeing with the companies an ONLY AND FIXED tariff. They proclaimed in front of the country that with the renegotiation there has been obtained a difference in the State’s favor in the investments of US $ 852 million. The truth is that the only investment that could assure the produced tariff per barrel is of US $ 353 million and the remaining US $852 million should be paid only with an additional tariff when the incremented production is obtained by improved recovery or new discovered reserves.

The economic model of the contracts was done with fictitious information; it’s held in an alleged increase in the volumes of proved reserves, which is an absolute subjective element. Without those incremented proved reserves, the new established tariff, doesn’t correspond to the geologic reality sites and even less, to a transparent and clean contractual economy. Deep down, as we just mentioned, at the end they transfer to the Estate the risk of the companies. Extensions of time The first renegotiation phase made in 2008 and 2009, ended with the subscription of transitory contracts on one year’s length, in which without any justification, the base price to all companies was increased in a percentage of 60% average, which had a serious impact in the country’s income, in reference to the distribution of surplus for oil prices, (Law 042 and the Tax Equity Act: 50/50, 99/1 and 70/30). The most irregular was having begun a negotiation process of the Participation contracts to migrate to a new Provision contract in 2008, when there wasn’t even a draft model contract and even worse with a Reform of Hydrocarbons Law project. However, the authorities subscribed transitory contracts for ONE YEAR, period in which there was to move again to the new contractual model. A proof of the above was a despicable and harmful process to the country’s interests, that just in July 2010, TWO YEARS AFTER THE TRANSITORY CONTRACTS WERE SUBSCRIBED; the reform of the Hydrocarbon Law was approved by the Ministry of Law, with which was introduced a new model for Provision and from there on a new renegotiation. Almost all the transitory contracts were illegally extended because there wasn’t a hydrocarbon law reform, and worse a contract model.

One thing is clear. The company’s objectives when subscribing the mentioned transitory contracts, was to assure the extension of the terms, improve the base price and get rid of all the responsibilities that dragged on for decades for breach of contracts, economic damage, violation of the law, environmental impacts, affectation Amazonian peoples and nationalities. That is, they cleaned up their resume thanks to public indolent officials that are still being rewarded, occupying high State positions and one of them is Galo Chiriboga, who aims being State Attorney General.

Five Million

Mr. Roger Stagg Consultant in agriculture, aquaculture and agribusiness 1

The lack of state’s policies to boost adequately the agro-business development, the political instability and constant changes of governments on short term; the lack of planning on short, medium and long term, designed and executed by experimented professionals; the improvisation and little collaboration between incoming and outgoing presidents to continue the initiated planning made by the previous, etc…, have a negative impact on agro-productive, agro-industrial and agro-exporter sectors, slowing its growth and wasting its great potential generator of millions of employments and foreign exchange that underpin and strengthen the today’s contracted economy. Decades of logging without control, low maintenance and dredging of riverbeds, waste of national hydrographic or insufficient irrigation farming systems with problems of dams made without environmental impact studies; many monocultures because the lack of agro productive programs of diversification, little use of modern technology, reduced agro mechanization, over reliance on rain water to plant, etc., have provoked extended desert zones which were traditionally fertile and are now of low profitability and competitiveness. The lack of an adequate agro productive infrastructure turns each year the Ecuadorian low lands to overflowing in winter with sediment channels of rivers destroying cultivated areas, while the excess of water is wasted into the ocean without being kept for later use in agricultural irrigation in dry season, factor which increments the drought and destroys the natural eco-systems barriers against wind capturing arboreal humidity in the foliage and preserved in the soil through their roots in the form of fresh water, which causes the gradual decrease of rain in the disappearance of existing micro-climates; drying barricades, ponds, lagoons, wetlands, swamps, underground aquifers, rivers, streams, estuary and related. This situation deserves to run emergent solutions. The climate changes that are occurring each time with more strength and frequency flooding extended areas during several months, while other areas suffer prolonged droughts, which justifies Ecuador to implementing on short term, an adequate infrastructure to prevent floods with drains and reservoirs of sweet water that guarantee the provision for human use, agricultural irrigation and production, food security and exportation of food and raw materials surplus; using its climatic advantages and that arable land and irrigation water availability decrease rapidly in

the world; prioritizing the construction of the “Coast Complex of Reservoirs”, capturing the water of rivers coming down from the mountains and from the rain, avoiding its waste into the sea; After this, there could be done something similar with the rivers of the Amazon watershed. More or less important vessels such as Daule-Peripa, La Esperanza, Chongon, Poza Honda and Tahuin, etc, are already functioning, but new ones must be constructed until reaching about 20 or more reservoirs to collect drained water from flooded areas of the mountain rivers and from the rain to functioning as permanent sourcing “Complex of Coast Reservoirs”, as well as other rivers, lakes and lagoons, etc, that will also be used. –The reservoirs could be rectangular and of +/- 20 hectares (Has) each one, with an average useful depth of 2.5 meters (Mt) and storage capacity of 500 million liters or 500.000 Mt3. Every week each reservoir would deliver 20% or 100.000 Mt3 of water stored inside to irrigating all kind of cultivations in the surrounding or nearby areas which would be replenished each week through a system of pumps and pressure pipes from water coming from the permanent sources of supply, (reservoirs, rivers, lakes, lagoons, etc.). This weekly change or refill of 20% of water from each reservoir allows growing fish such as Tilapia, of which fresh and frozen exportations, is leading Ecuador more than 25 years. The 500.000 Mt3 of the reservoir, allows producing parameters of 125.000 fish or 200.000 pounds each 6 months or 400.000 pounds/year at US$ 0.30/pound will be an annual sell of US$ 120.000 of each reservoir or US$ 6.000Ha/year, enough to cover production costs and recoup the investment made in all the involved infrastructure: dams, reservoirs, pumping stations and pumps, pipes and aqueducts, roads, electricity, agricultural functional towns with all services, etc. All the above with the advantage that the agro-irrigation cost would be 100% covered by the fish production which would make more profitable and competitive the farming agricultural production of the neighboring land. Supposing a weekly demand of 100 M3/Ha of water for agro-irrigation of horticultural farming of high productivity, the weekly re change of 100.00 M3 of water, irrigate 100 hectares sowed with 20.000 plants considering a less requirement of water of other species because of the diversification of cultivation that would be done in the different types of soil and micro climate of each zone. It’s estimated that each reservoir could be able irrigating 1.250 hectares including coffee, cocoa aroma and other timber and forest crops, fruits, etc. In consequence, the installation of 2.000 reservoirs of 20 hectares each, would allow a stable production and with irrigation along the whole year of 2.5 million hectares, whose investment benchmark would be US$ 8.000/Ha including the agro-production cost. To investing US$ 4.000 million/year to incorporate 500.000 Hectares /year to the production during a 5 year period, would allow completing the goal of 2.5 million hectares and US$ 20.000 million of investment. Projecting an agric-productive potential to 25 year term of US$ 3.500 per hectare/year, the 2, 5 million hectares, would produce US$ 8.750 million annual,

which would add US$ 218. 750 million in 25 years, considering the presence of timber and forest crops annual and perennial, aquaculture, livestock, poultry and other animal breeding, agricultural industrialization, exports, eco and agro tourism, hotel management and restaurants, urban-rural development and commercialization of other goods/service that could be involved in this type of projects; it’s annual, medium and/or long term productivity, could even reach a billing beyond US$ 5.000 to 7.000 per hectare/year. The agricultural development of these 2.5 million hectares would allow generating 5.000 million new work posts in the coast that would absorb man power which is currently vacant or underemployed, bad paid or exploited at national level, training them and giving technology little by little in the different work areas, factor which on short term would allow qualified man power exportation. A strong urban-rural development could be achieved, because at least a 40% of that labor force would have to live in new developments as near as possible to their places of work. It’s not required having existing agricultural productive lands to be beneficiaries of the infrastructure which is built and supplying it with machinery, equipment, seeds and various inputs such as work capital, technical assistance, processing and storage, transportation and other complimentary services to the effect that each and every one of the producers have increased productivity, efficiency and profitability through feasible agreements This type of agriculture-development projects are a certainty that moved forward in stages many years ago in developing countries whose governments have achieved being trustees of the trust of local and foreign investors in base of seriousness and mutual respect, fulfilling signed agreements and treaties, having legal security and political stability, clear rules of the game which don’t change all the time according to anyone’s mood, etc. As an example we can mention African and Asian countries in torrid zone and near the two tropics such as: Kenya, Uganda, Congo, Zaire, Ghana, Ethiopia, Sierra Leona, Senegal, Philippines, Thailand, Vietnam and Sri-Lanka or Cambodia, etc., in which several national or all kind of foreign firms interact, alone or associated with productive, commercial, entrepreneurial, etc. common goal, and investment recovery based in sales to future in international markets. Ecuador hasn’t taken advantage of the opportunities of agro-development because of the isolationism in which we have been in the last four years, without having invested in new production facilities, the extraordinary income received by the government despite the time lost could even try to rectify and boost employment, wealth and progress. Consulting, advisory and projects: Agro-business, aquaculture, agribusiness, agro and eco tourism (aerial photos). Mobile: 5939-7355296. E-mail: roger_stagg@yahoo.com Guayaquil-Ecuador/ South America

State Policy

Ab. Jose Luis Ortiz Master in Political Science

When one reflects on the causes why Brazil and Chile have achieved to developing their economies in a significant way the last years, the answer comes immediately: because these two countries have had States Policy’s It isn’t only about a phrase but of a concept with deep historical roots and fundamental social agreements. Brazil took the opportunity of a government that was determined leaving behind that experience of moral breakdown and poor governance, and that was Color de Melo’s regime. It was Fernando Henrique Cardoso who delighted us in the sixties and seventies with his brilliant approach about the reasons for the backward state of Latin America. He achieved to getting close the majority of the social sectors willing to boost dynamic processes in economy, balancing and improving the distribution of wealth and make work an experience that would attack the productive weaknesses to meet its huge internal market. With that momentum, based on the adoption and enhancement of a culture of consensus, a system was strengthen that achieved joining the economic strategy with a functional political institutionalism, in a project of local and international significance, Brazil projected itself as an emergent potency, very active and energetic to entering into a difficult universe of competitiveness and globalization. Lula Da Silva, with a long term vision about development, got to the demands from the poorest groups that deserve an effective Estate’s attention, he deepened the logic of the agreements and established as an indispensable factor in public management the needed link between the social policy and the economy, the immediate fight against poverty, but at the same time the sustained conversion of beneficiaries in productive subjects. Chile starts its path towards development in 1989, when there is a coalition of all the opponents to the Pinochet’s dictatorship. Since then the successive governments of the National Coalition (NC) leaded by Alwin, Frei, Lagos and Bachelet, have boosted a dynamic production that has allowed Chile being one of the economies of greater development in the region. Since 1991 it has signed 21 Free Trade Agreements with the United States and the first one was signed by the socialist President Ricardo Lagos.

What happened in Chile allows us saying that behind any government, since the return to a democracy remains an unshakeable and serious State policy, and which by now has established a consensus among the forces that form the Democratic Agreement and the center-right Coalition for Change. The elected president, Sebastian Piñera, said to the foreign press when he took office, that in Latin America, Brazil, Chile, Peru, Colombia and Uruguay have deepened their integration with the international system and they emphasize the political priority to the most productive investment both internal as external. The governments in Chile and Brazil have achieved to having influence in the generation of surplus and its distribution, in the real wages of workers, in the policies that increase the savings and investment. They have developed in a constant way, new industrial sectors with more add value; they have guaranteed low cost services to companies and have obtained adapting education to the requirements of new productive techniques. They have impelled policies oriented to increase savings and investment and reduce social unproductive consumption to encourage the macroeconomic policies as a key to obtain a productive growth. They have taken care of fees and refunds to exports, through integration agreements, constant negotiation of their adjustments. All the above strengthened by a modernization of the physic, social and political infrastructure, with a competitive position measured by real costs, with the creation and coordination of a national system of science and technology, and overall, by a corporate and legal fitness to realize these processes for change.

Economic Freedom: challenges for Argentina

Mr. Gerardo Bongiovanni President of “Fundación Libertad” (Argentina)

Economic freedom is defined as the absence of government coercion beyond that necessary to protect the rights for property and legal security. Therefore, in a free economy the individuals are the ones that through their voluntarily decisions, decide what, how and for whom to produce, how much and how to save and where to invest. But if the government, through its policies, conditions or limits those choices, it distorts the allocation of resources, leading it in a loss of efficiency and welfare. Based on this concept, Heritage Foundation elaborates annually the Index for Economic Freedom and understanding this as a fundamental right of all individuals to protect their property and obtain a grater wealth. Therefore, it involves under multiple dimensions under the concept of economic freedom and evaluates the world’s countries according to ten specific factors such as: commercial, foreign commerce, fiscal, governmental expenses, monetary, investment, financial, rights for property, corruption and work. The index uses a scale of qualification from 0 to 100% and thereon the scores achieved for each country are automatically traduced in “freedom percentages”. After a value agreement is obtained, the countries are qualified in several categories: free, mostly free, moderately free, mostly controlled and repressed. In January, the data of 2011 index were presented. In this article you will see the data for Argentina, which despite having had a strong growth in the last years, each time more suffers the state’s intrusion in its economy. There is also carried out a comparative analysis with other countries of the region which clearly reveals the backwardness referring to economic freedom that the country has been passing through. State progress in Argentina

According to the 2011 Economic Freedom Index, Argentina has receded three positions compared to the previous year, passing from position 135 to 138 over a total of 179 economies evaluated and locating itself again among the group of nations mostly controlled. On the other side, although the score achieved was slightly higher than the previous edition, (it passed from 51.2 to 51, 7) because of

other country’s improvement, it wasn’t enough to recovering positions in the global ranking.This is how it places under countries such as Mauritania, Nigeria and Haiti. There is to mention also, that the achieved score is the second lowest that it obtains –since this index started to be done- (1995), which reveals the progressive deterioration in matter of economic freedom (the 2010 score was the lowest of the series). Besides, the obtained score in the present edition is bellow than the world’s average (59.7) and regional (60.2). Regarding to variables covered by this indicator, the lowest scores are obtained in property rights (20 points) and corruption (29 points). In the first one, it places in position 146 over the total of nations and the second one, position 107.The report rightly highlights the institutional weakness, its inefficiency, slow pace of justice and the advancement of corruption. It also remarks that the State’s intervention in economy has grown in a significant way being in the work market the area that has worsened more due to higher regulations and controls. In turn, only one of the ten indicators shows a performance above the worlds average (public expense), with 81.7% (see chart). However, it must be taken into account that the mentioned measurement only contemplates the national public expense (and not other levels of government) and not measurable in the same efficiency. If both aspects would be considered the qualification would be even less.

2011 Score for Areas of Economic Freedom

Areas of study Argentina Score World Average Commercial Freedom 62.4 64.3 Foreign Commerce Freedom 69.5 74.8 Fiscal Freedom 68.7 76.3 Government Size 81.7 63.9 Monetary Freedom 63.2 73.4 Investment Freedom 45.0 50.2 Financial Freedom 30.0 48.5 Property Rights 20.0 43.6 Freedom in front of corruption 29.0 40.5 Work freedom 47.9 61.5 Source: Freedom foundation IEE development based on data Index of Economic Freedom of Heritage Foundation

In another matter, the variable measuring the monetary issue (monetary freedom in terms of the index); Argentina obtains the worst performance when getting place 164 over the universe of analyzed countries. The distortion of official statistics, the tariff regulation, the controls and price regulations and the limited independence of the Central Bank are the factors which drove to this poor performance.

In effect, this indicator shows something that all Argentineans suffer in the last years: the biggest state interference over economy. Tax pressure is at the highest point, a record and inefficient public expense; control of prices; restrictions to foreign commerce, manipulation of statistics; delay rate and regulations in the financial market, are only some of the variables that sign the decisions for investment, consume and production of the economic agents. Comparisons that disappoint Data concerning to Argentina are not only regrettable when analyzing the country by itself, but this situation is more painful when we compare it with the region’s countries: Let’s see According to the index, Latin America and the Caribbean, comprising 29 nations reach an average score of 60.2. Chile is the country that leads, and is in 11 th place of the world’s ranking and very little under the United States and Canada, while the last place, as expected, corresponds to Cuba, a complete repressed economy which is placed in 177 positions at world’s level. This figures show strongly the big differences in our region. In this frame, Argentina occupies place 24, only surpassing Venezuela, Ecuador and Bolivia besides the Caribbean country. Taking a smaller sample of countries, strictly 10 from South America, Argentina has a score lower than average, while in only one of the ten areas under study it surpasses (government expenses). Meanwhile, in the “fiscal freedom” variable it occupies the last place among this group, basically for having an excessive tax burden to be borne by economic agents. Precisely, the fiscal pressure in Argentina measured as the ratio between revenue and GDP, nowadays reaches the highest point since 1930. This poor performance of Argentina in matter of economic freedom becomes more widely known when analyzing the index. Indeed in 1996 it ranked first at regional level and excepting this year, since 1995 until 2000 it positioned in second place, behind Chile and surpassing highly Uruguay, Peru and even Brazil, which for those years was among the last one of South America. Nowadays it stands under all of them. Chile in now far away from the rest, with 77.4 points, leads the region, but has also taken big distances from other economies such as the Uruguayan and Peruvian. There is only to mention that the first one is in place 33 and the second one in 41. At the beginning of the decade, both countries reached a score similar than the Argentinean and nowadays the breach is notorious: the figures obtained by the first one are 35% higher and the second one, 32% even higher. Besides, both economies show scores above the media and are substantially higher than the Argentineans in the sub-indicators, especially regarding to property rights and corruption control.

The following graphic presents some of the comments above:

Economic Freedom Score Argentina, Chile and Uruguay 1995-2011

Source: Heritage Foundation

Regarding to Colombia, the comparison is also disappointing. This country is in place 45 with 68 points, 31% higher than the obtained by Argentina, while the last one exceeded the first one since 1995 until 2002. As if the previous wasn’t enough, even Paraguay, which is famous for being corrupt, is ahead of Argentina (65.9 points). This Argentinean sharp drop concerning to economic freedom, starts in 2004. Since then until 2007 included, it was located in the last but one place only over Venezuela. Afterwards it recovered some positions but was never again leading the index’s first places and- as it was already mentioned- in 2010 it obtained the lowest score ever since this indicator exists. Learning from Neighbors

The results of this index are added to others with worldwide importance that also show the poor Argentinean performance in institutional and freedom areas such as the competitiveness index (WEF), the perception of corruption (Transparencia Internacional), the institutional quality (CIMA –ESEADE) and the indicators of governance and, Doing Business of the World’s Bank. This coincidence isn’t accidental, because all these indexes are made by different organizations and with different methodologies and clearly show the urgent need to making structural reforms to lead to a sustained socio economic progress. Just as in previous measurements, the results of the 2011index edition confirm that the freest countries are the higher income per capita and greater socio human development. In this context, Argentina should look around and copy many policies applied by their neighbors. Not only Chile, who stands as a star in the region, but others such as Peru, who in the last years through multiple measures achieved to attracting investments and obtaining a steady growth with low inflation; or Uruguay, who has a solid institutional strength, predictability and respect for contracts. Of course we have to talk about Brazil, who has made from its productive sector and commercial opening, the axe of its growth. All these economies present big challenges in economic and social areas showing a greater maturity when evaluating its economic freedom. In these nations, the State doesn’t hinder private sector activity (or if it does, to a lesser extent than in Argentina) but it tries to encourage and incentive it to get the maximum potential. In consequence, the greater intervention of the State in the Argentinean economy through multiple ways is reducing the economic freedom and with it, the investment, pillar of growth on long term. It’s time to change this scenario and

direct the policies for the market to operate without obstacles. This of course is a major challenge for Argentina but perfectly possible and viable.

The importance and attention to the code’s

changes

Ing. Roberto Calderon Viteri

The Organic Code of Production, Trade and Investment, in Book IV; the Foreign Trade Control, their Bodies and Instruments, is the Title II entitled Customs Legal Rule, “Of Customs for Trade Facilitation” which replaces the Customs Organic Law, keeping as a basis for the substantive changes the Decision 671 of the Andean Community, also taking into account Article 425 of the Political Constitution of the Republic which provides that “the hierarchical order of application of the rules shall be as follows: the Constitution; foreign treaties and agreements; organic laws; ordinary laws; regional rules and district regulations; decrees and regulations; agreements and resolutions and other acts and decisions of public authorities.” According to the above I note the following changes: The CAE (Ecuadorian Customs Corporation) is eliminated, address reborn again as the National Directorate of Ecuador’s Customs with the responsibility of the National Service Administration of Ecuador’s Customs to the Director General. Prescribed customs processes are consistent between the Facilitation Standards and the General Regulations (draft) with Decision 671, by the prevalence of supranational rules. The principle of a Single Counter is wanted, which is a tool that allows parties involved in trade and transportation to presenting all documents and standard information through one entry point to accomplish the required regulations related to all imports, exports and transit. The figure of the Authorized Economic Operators, the person involved with the foreign move and in the course of its duties, performs regulated activities for the customs regulations. It must be a reliable person who will have the customs benefits and facilities in controlling the national security and will be considered a reliable and safe operator for the other members of the logistics chain. In the Assess Act the following is foreseen: the non-intrusive inspection which is a control operation made by authorities to determining the nature, estate, number of packages, volume and weight and other characteristics of the merchandise, cargo, cargo units, media, packaging.; through high technology systems to allow

visualizing these aspects through images and without prejudice to the ability to performing physical inspections where circumstances warrant. It isn’t necessary to open the containers with merchandise and manipulate the cargo at the time of the inspection, either in the act of the valuation or another time of customs clearance, because the X-ray technologies, which are the equipment characteristics, allow visualizing its contents. There has been considered the figure of the Guaranteed Dispatch, covered in a general guarantee previously rendered to the effect. The taxpayer, (importer/exporter) may obtain release of their merchandise declared for consumption immediately after the value close. The taxable amount of Customs Duties is the customs value of imported goods or Transaction Value, adding the determined costs of transport and insurance according to the established in the valuation rules. Supersedes the Incoterms CIF in the imports and the Incoterms FOB in exports; one concept only for the whole transaction of input and output of goods. There is a bounding on commercial terms or 2010 INCOTERMS in force since January 1st, 2011 and the customs value of goods (Transaction Value). Incoterms and concept: “Terms worldwide used in foreign commerce, created by the Chamber of Commerce of Paris in 1932, and have to be strictly accepted by exporters and importers, that define the conditions of the contract and responsibilities during the process of the International Physical Distribution of merchandise”. The new terms in force are 11 instead of 13, grouped into four categories of letters, E-F-C-D. E=EXW, term in which the seller makes the goods available to the buyer at the factory. F=FCA-FAS-FOB. The seller is responsible for delivering the goods to means of transportation chosen by the buyer. C=CFR-CIF-CPT-CIP. The seller contracts the transport without assuming the risk of loss or damage of goods or additional costs, after shipment and dispatch. D=DAT-DAP-DDP. The seller bears all costs and risks to bring goods to country of destination. It states that sales of containerized goods should apply the multimodal terms: EXW-FCA-CPT-CIP-DAP-DAT-DDP. In bulk or outside the container, the other four terms will be applied. Recommendations to be considered: to establish that the seller provides adequate and appropriate packaging, besides of the certification of the verification and good’s quality. In some cases the seller will provide assistance in obtaining the documentation of the customs formalities, the loading of goods to the container by the seller, the costs of handling at source terminal, are associated to the delivery of

merchandise in the international transport terminal; the issuance of goods’ insurance and transport; coverage display is recommended, taking into account who bears the risk, depending on Incoterms for the respective claim in case there is one. The Incoterms regulate the goods physical flow, but aren’t meant to regulating the provision With the 2010 version it’s pretended to eliminating the incorrect use which is generalized, not only those involved in a purchase and sell operation but also by the operators involved, from financial institutions to storage. Regarding the Transaction Value, meaning: The price paid or payable for the goods when sold for exportation to the country of importation.

Basic principle: the value in customs must be based, except in certain cases, the actual price of goods being valued, which is generally shown in the invoice. This price plus the adjustments for certain items, such as deductible expenses of the price paid or payable to discounts or price reduction respectively. There must be respect to the methods to determining the value in customs, which the first and main issue in the imported goods transaction, then comes identical merchandise, similar, deductible values, reconstructed and last resource. The Free Zone is no longer a Special Customs Regime, turning into a Customs Destiny (treatment applicable to goods which are under customs authority) without losing the principle of extraterritoriality. With regard to tariff, they may be given in mechanisms such as. Ad-valorem, percentage terms of the customs value of goods; specific, monetary term unit of measurement and mixed, as a continuation of both. Tariff Arrangements: Fixed arrangements, when there is established an only rate for a sub-heading of the customs nomenclature. Customs contingencies, when there is established a customs level for a certain amount or value of imported or exported goods and a different tariff to imports and exports that exceed that amount. Non Tariff Measures: in specifically foreseen cases, that might establish measures of non-tariff regulation and restriction, such as quotas, approvals, permits, etc. For lack of a General Regulation Code and specification, there is being tried operating the Customs resolution by the Board of the Ecuadorian Customs Corporation.

Development increasingly distant

Econ. Jaime Carrera Director of Fiscal Policy Observatory

Forty five years ago, Singapore, a small country with 4.7 million inhabitants produced half of Argentina and the same as Mexico; in 2009 its GDP was $ 37.000. The complete lack of natural resources forced it to importing water from Malaysia and even sand from Indonesia. Nowadays it’s the largest producer of submarine oil platforms, one of the largest worldwide exporters of control systems for harbors and airports; their engineering and architecture firms have spread across the world. This country is highly introduced to modern technology. Almost all young people have access to higher education. The University of Singapore is ranked 30 among the best world’s universities. Its importations exceed the $ 270 thousand million and its importations, $ 245 thousand million. It’s the most globalized country of the world and its unemployment rate is 2%. To achieve that development, Singapore adopted English as its official language and has more than 100 foreign Universities importing the world’s best. US multinationals attracted to manufacture electronic and semi-conductive products. They also impelled financial and pharmaceutical firms for bio-technology, engineering and architecture. It’s Science, technology and investigation agency has registered more than 800 patents and its research center will accommodate around 2.000 engineers and Scientifics from 50 countries. Finland with 5 million inhabitants, few decades ago, depended from agriculture and raw materials exportation. Its modernization began in the 80’s, with a quantum leap in research and new products development for which it invests 3.5% of its GDP. It has turned into an innovation power. It passed from being a timber producer into the largest world’s cellular producer. Nokia, business symbol, started in 1869 near a town called Nokia. In the 80’s in Nokia nobody knew about cellular phones; in 2008 it covered 40% of the worlds market having almost 120 thousand employees around the world. Which is the key? Innovation, investment and working with the private sector. In Finland it’s believed that investigation and development of new products will be seen each time more in China, India and Central and East Europe. An agricultural society has turned into an industrial and thereon to a knowledgeable one. The next step will be a society of mind and interaction between designers and consumers. In 2009 the annual income per person was $ 45.000 almost equal to USA. - 93. 000 thousand to buy underdevelopment

In 40 years Ecuador exported $ 93 thousand million in oil; 39% or 436 thousand million in the last four years, a value ten times higher to the exported in the oil boom of the 70’s. Although the nowadays dollars aren’t worth the same as before, the differences are extreme. The annual GDP per capita is $ 4.000 and exports one tenth of the one percent of world’s total –about $ 7.500 million of non-oil exportations-, occupying backward places in competitiveness and other universal benchmarks; maintains a primary economy away from technology, knowledge and innovation. Poverty has risen from around 32%, as well as unemployment, 6. % and underemployment from 47% to the condition of good living (see graphic 1). Not invented any product sold to the world and the education level is poor. The absence of a true north of development at long term has been substituted by exacerbation of the populist practices and its costs in the last four years exceeds the $20.000 million, which is the equivalent to the whole 2010 budget. (See graphic 1) - Absence of foreign investment limits development

According to CEPAL, in 2010 the global flow of foreign direct investment (FDI) was 1.122 billion dollars. Until September 2010 Ecuador received $200 million, the tenth of one percent of world’s total. Brazil received $ 30.200 million of FDI, Chile $ 18.200 million, Colombia $ 8.700 million, Mexico $ 19.100 million, Peru $ 900 million, Nigeria $ 2.300 million and Egypt $ 6.800 million. Countries that have reached development in the last 40-50 years and others which are heading that direction have cherished the direct foreign investment to change their productive basis, assimilate technologies, boost exports, progress in productivity, invent new products with global market value, generate jobs and insert into the global economy. Singapore nested multinationals and FDI to develop the manufacture of electronics and semi-conductive products. To reinvent its productive structure, it attracted financial, pharmaceutical firms of biotechnology, engineering and architecture. South Korea made the same thing to be an industrial power with its multinational Samsung, Daewoo and Hyundai. China opened to foreign investment to export and be the world’s biggest internet company as well as it opened their innovation centers. India has become a world power in the provision of computer services. There are in Bangalore 180 computer firms including Microsoft, IBM and Intel as well as Indian companies such as Infosys, Tata and I-flex which altogether employ 450.000 engineers and generate the majority of the $ 23.000 million income which India receives from computer system. - Dark perspectives Ecuador is far away from articulating a long term project pursuing a steady growth of its economy over 6% annual to allow a progressive reduction of poverty and a

steady increase of employment, keeping the public sector’s size compatible with the economy. Objectives to be achieved in an environment to boost education, insertion into the global economy, freedom of commerce, constant innovation and technological development, invention of products that can be marketed in the world; diversification of exports with add value, etc. All the above inside a democratic frame and the country’s institutional strengthening under the fundamental conception that the private sector must be the engine of wealth creation. For the State must be reserved to assuming tasks efficiently to redistribute resources to the less favored; the prudent regulation of private activity and granting guarantees and securities for the investment. On the other hand, Ecuador with a huge technological backwardness and an insignificant internal market, couldn’t be able moving forward towards development without the contribution of foreign direct investment, only way to make the country competitive in the knowledge, innovation and technological era.