Economy

Lasso proposes labor and economic reforms to reactivate Ecuador's economy

However, the proposes will have to be approved by a skeptical National Assembly, where Lasso's party does not have a majority

Ecuador's President Guillermo Lasso speaks during the annual gathering in New York City for the 76th session of the United Nations General Assembly (UNGA) in New York, U.S., September 21, 2021. Photo: Spencer Platt/Pool via REUTERS
Ler em português
  • The oil-exporting nation’s economy has for years struggled under low crude prices, and the pandemic left 5.8 million people without permanent employment;
  • The new labor regulations would seek to stimulate telecommuting and allow work hours to be distributed in different ways, according to the plan;
  • Unions have complained that the changes could undermine workers’ rights, which Lasso denies.

Ecuadorean president Guillermo Lasso, elected this year, on Friday proposed new labor regulations and tax reform targeting some $700 million in new revenue as part of a broad economic growth plan that will require approval from a skeptical legislature.

The oil-exporting nation’s economy has for years struggled under low crude prices, and the pandemic left 5.8 million people without permanent employment. Ecuador‘s GDP dropped 7.8% last year and is only expected to grow 3% this year. Poverty rose from 25% in 2019 to 32% currently (almost half of these people are in extreme poverty).

Since the last years of Rafael Correa‘s government, the country has had a growing external debt that was further aggravated under Lenin Moreno‘s presidency. Ecuadorian public debt now is $ 63 billion, equivalent to 63% of GDP.

READ ALSO: Against inflation, Argentina raises minimum wage and income tax-free bracket

Lasso needs money, but he knows he can’t risk raising taxes at this delicate time. He renegotiated a $6.5 billion financing agreement made with the International Monetary Fund last year in order to speed up disbursements. Right before that, in June, a month after his inauguration, Lasso’s administration also secured $550 million by various multilateral organizations to finance COVID-19 vaccines.

The labor and tax reforms will have to be approved by the National Assembly, where Lasso’s party does not have a majority. Lawmakers have already asked Lasso’s administration to make changes to the proposed budget for 2021.

READ ALSO: China’s Evergrande problem may dent global Brazil’s growth

“The proposal I am leaving in your hands today is of an urgent economic nature, and it is unpostponable,” said Lasso upon delivering the so-called “Creating Opportunities” plan to the legislature. “What we are presenting is reasonable.”

The new labor regulations would seek to stimulate telecommuting and allow work hours to be distributed in different ways, according to the plan. Unions have complained that the changes could undermine workers’ rights, which Lasso denies.

The plan seeks an increase in income tax deductions for citizens who earn more than $24,000 annually, which Lasso says would affect 3.5% of the economically active population. It would also create a two-year tax for people with more than $500,000 in assets and a one-time tax on companies with more than $1 million in assets that turned a profit in 2020.

Get the best insights about Latin America market in your inbox