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

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.

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 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.

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.

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.