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Impact of The Macroeconomic Policies Imposed in Correa's Government on The Ecuadorian Industry

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The macroeconomic policies of the different countries around the world “have as fundamental objectives price stability, sustainable growth, full employment, the viability of the balance of payments, among others”; in consequence, the appraisal about the management of the economic authorities is carried out in accordance to the goals obtained within these same areas.In the present time, Ecuador is considered to be a nation “with high average income, with a dollarized economy dependent on oil revenues and a Gross Domestic Product (GDP) of US $ 98,614 million (2017) that places it in eighth place in Latin America and the Caribbean (ALC)”. This territory has a 16.6 million people population, nevertheless “the per capita income measured on the basis of purchasing power parity is estimated at US $ 11,185 (2017), below the average for LAC of US $ 15,649”. In order to analyze the economical behavior of Ecuador´s industrial sector, it is from great importance to first take an insight into its political-economic tendency during the last ten years.

In the mid-year of 2007, the Economist Rafael Correa assumed the country´s presidency. The main leader and promoter of Revolución Ciudadana political movement, did many legal as well as socio-economic changes during his presidential period; for instance, Ecuador went through a process of redefinition of the Development Model approved in the Carta Magna (2008) and the National Plan of Good Living (PNBV). This project was mainly addressed to the social expenditure and state investment as aspects to achieve greater development, which involved extensive financial and regulatory reforms. Although there can be no denying improvements such as infrastructure, there are great questions about whether all the measures applied were the best ones to reach a sustainable economy and generate development in the country.

Similarly, with the aim of accomplishing each of the objectives, the last-decade government allocated tax collection as the primordial basis for fiscal policy; for this reason, “taxes represented 65% of the Central Government’s revenues while the sale of oil and derivatives constituted the 23%, the remaining 12% corresponds to non-tax revenues and transfers”. Given this fact, it is effectively understood that the majority of expenses and investments made by the government of Correa, were actually the results from all the monetary activities among Ecuadorians. The macroeconomic policies adopted within this ten-year period regime, which pretended since the beginning to improve tax revenue, have been harshly questioned by the civil and business sector. When reviewing the taxes and their consequences, analysts can say that the business area has been the most affected; furthermore, they frequently speak about the productive discouragements that taxes have caused. However, there are two of them which impact had generated most of the discomfort: “Tariffs on the outflow of capital” and, specially, “Safeguards”.In March of 2015, the Government adopted a temporary balance of payment safeguards, following the World Trade Organization rules, in response to the collapse of oil price, the appreciation of the US dollar and, the consequent, reduction of tax revenues. This economic measure allowed Ecuador to impose tariffs on imports; initially “safeguards of 7% and 21% were imposed on Peru and Colombia respectively. Subsequently, global safeguards were imposed for one third of imported products. The tariff surcharges were 5%, 15%, 25% and 45% depending on the type of product”. This type of policies had a negative influence on the Ecuadorian industrial sector, particularly on the automotive industry, which is of because of its greatest participation in the local market, generating a chain of sources of employment and a large contribution in the collection of taxes. This sector had a great dynamism after the “introduction of dollarization in the country when the acquisition of real estate was an option for people who do not trust the national banking and financial system.”

Since 2011, the automotive industry has been subject to a set of tax policy measures, among which are:

  • “Licenses on imports of finished vehicles (CBU, Complete Built-Up) or to the parts and pieces corresponding to unarmed vehicles (CKD, Complete Knocked-Down) for its subsequent assembly”.
  • “Increase in tariffs on the importation of vehicles and their parts”.
  • “Minimum tariff rates according to vehicle type”.
  • “Imposition of tariffs on imports of hybrid vehicles”. It is from significant meaning to add that hybrid cars were previously exempted from taxes.
  • “Implementation of environmental taxes on vehicles according to displacement, seniority and valuation”.
  • “Establishment in March 2015 of a tariff surcharge (between 15% and 45% for the items corresponding to vehicles), with a reduction schedule whose completion has been planned for mid-2017”.

It is considered that one of the regulatory provisions of greatest effect for the local automotive market was the issuance of an annual quantitative restriction for the importation of finished vehicles and their parts in June 2012. These quotas significantly limited the supply of importing companies and assemblers; even more so when, in subsequent years, import quotas were established, both in monetary terms and in units, which meant an appreciable reduction with respect to the distribution of the immediately preceding year. The quota system remained in effect until 2016 and had a direct incidence on reducing the number of vehicles sold and, together with the rest of the measures, on increasing the final price to consumers in the dealerships. In the manner that, “in 2012 a peak value of 79,616 units was reached, destined both for the local market and for exports. In the following years the production was reduced so that in 2016 this figure was 24,954 units”; meaning that, this kind of industry has gone through a complex and irregular scenario as it has “had an average annual decrease of -4.2%”. “This same trend has followed imports that in 2014 were 57,788 units and fell to 31,766 in 2016”.

In conclusion, during the last decade in Ecuador, safeguards have been implemented as a protection mechanism for national production, in which the main idea is to create an increase in the price for imported articles trying to dismiss the consumption of these items and, in that way, avoid the outflow of currency from the country. It was also directed, according to the governmental authorities, to maintain the trade balance in perfect way. However, it is important to note that these macroeconomic policies did not achieve the objectives for which they were created.

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Impact of the Macroeconomic Policies Imposed in Correa’s Government on the Ecuadorian Industry. (2020, May 19). GradesFixer. Retrieved October 17, 2021, from https://gradesfixer.com/free-essay-examples/how-did-the-macroeconomic-policies-imposed-in-rafael-correas-government-affect-the-ecuadorian-industry/
“Impact of the Macroeconomic Policies Imposed in Correa’s Government on the Ecuadorian Industry.” GradesFixer, 19 May 2020, gradesfixer.com/free-essay-examples/how-did-the-macroeconomic-policies-imposed-in-rafael-correas-government-affect-the-ecuadorian-industry/
Impact of the Macroeconomic Policies Imposed in Correa’s Government on the Ecuadorian Industry. [online]. Available at: <https://gradesfixer.com/free-essay-examples/how-did-the-macroeconomic-policies-imposed-in-rafael-correas-government-affect-the-ecuadorian-industry/> [Accessed 17 Oct. 2021].
Impact of the Macroeconomic Policies Imposed in Correa’s Government on the Ecuadorian Industry [Internet]. GradesFixer. 2020 May 19 [cited 2021 Oct 17]. Available from: https://gradesfixer.com/free-essay-examples/how-did-the-macroeconomic-policies-imposed-in-rafael-correas-government-affect-the-ecuadorian-industry/
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