[Economics] The Government will change to catch up with local governments; social spending is inefficient

[#Wittels-]

The first year of Government, economic policy has focused on paying off inherited debts

The Government has prioritized an economic policy to reduce the fiscal deficit. One of the pending debts, which Guillermo Lasso inherited from previous administrations, was with the decentralized autonomous governments, those amounts were accumulated even before the pandemic.

After the first year of government, the Ministry of Finance ensures that these debts have been paid and that the corresponding amount is paid month by month, in accordance with current regulations.

The Central Government lost an item to the local governments due to the Territorial Equity Model. On May 24, 2021, when Lasso took office, he found himself three months behind schedule. According to the Finance Portfolio, they managed to catch up, paying the outstanding amounts for March, April and May.

All municipalities and prefectures receive their transfers on time, and are up to date. Less Quito.

Why is the Government's debt with Quito not paid off?
The Municipality of Quito is the one that generates the most income since it is the largest and, therefore, more availability is needed in the cash register to pay off what is pending. Currently, the government owes the city council around $100 million.

At the end of June 2022, the Ministry of Finance offers to leave that amount at $1 million, which would correspond to parish councils, and thus it would be practically settled.

VAT refund

 

Another value that must be the return of the Value Added Tax (VAT). The debt was $140 million, according to the notifications registered by the SRI until May 2021, when the change of government took place. That amount was also canceled in its entirety, although after the municipalities entered other refunds that increased it to $237 million, that last value has been reduced to $100 million.

In June 2021, the National Assembly presented a tax reform that allows this refund, for purchases and services made by GADs, to be direct.

Before this modification, local governments will have to wait even years to be credited with the VAT refund. For example, in October 2020, the Municipality of Guayaquil filed a lawsuit against the Government, led by Lenín Moreno. The judge in charge decided to give the Portfolio of the branch 72 hours to pay the amount from September 2019 to April 2020.

 

This regulatory adjustment can improve for local governments because it presupposes their works with the peace of mind of receiving the money that corresponds to them, but the Government stopped receiving that amount, although tax collection increased in 2022, due to the reform promoted by the Executive.

The increase in the price of oil was obtained to pay off debts
The Minister of the Economy, when questioned about the destination of the surplus money from oil prices, has responded on numerous occasions that it has served to "put the house in order" and that it has been used to pay off outstanding debts.

Álex Rojas, Executive Director of the Association of Ecuadorian Municipalities (AME) says that he does feel a certain increase in the allocations derived from the increase in the price of a barrel of oil.

Rojas acknowledges that they still have some differences to agree on. For example, regarding the allocations that must be given within the framework of the Amazon Law and the Mining Law, but he is confident that the Government has honored the debts of past administrations.

 

Resources in the hands of local governments
In theory, by transferring the allocations that correspond to the autonomous governments, the social work should reach the citizenry in services; however that is not felt.

The economist and university professor, María Herrera, does not find a "recipe" to ensure that this money is properly invested. "That's the million dollar question, how do we control corruption?"

What it does emphasize is that the municipalities and prefectures must generate self-sustaining projects in order to also generate their own resources and thus not depend on the political will of the government in power.

And the government's social spending?
The representatives of the GADs felt satisfied with the management of the Government because they have managed to obtain the values owed; however, citizens still face problems in the most basic services.

From the shortage of medicines in health centers, to the lack of material to obtain an identity card in the Civil Registry.

Herrera believes that getting up to date with debt is as important as investing in priority issues such as safety, health and education.

The specialist explains by means of an example: if a family uses a credit card to buy food, it must be paid at the end of the month, without neglecting other amounts such as the children's educational pensions.

The decision to allocate the money for one or another expense has to respond to planning, elaborated in a technical and responsible manner, according to Herrera.

Diego Mancheno, an economist and professor at the Catholic University, in turn, believes that it is much more important to pay attention to health and education than to pay off pending debts.

He says that the effects of the pandemic emerge much more in a developing country like Ecuador and that is why public investment is needed to meet the needs that correspond to the State.

 

Link: https://www.ecuavisa.com/noticias/economia/es-el-mejor-momento-para-vender-el-banco-del-pacifico-YG1769155