William Black, by invitation of the President of Ecuador’s National Assembly, will present to the Standing Specialized Committee of Economic and Tax Regime in Quito, Ecuador on the banking crisis in that country.
Professor Black’s experience in financial regulation and his involvement in the US Savings and Loan Crisis puts him in a position to assist the Ecuadorians with their banking crisis.
Details are available in the following spanish language article.
Is it true that Correa is considering a universal debt forgiveness of some kind?
Not that I know of, Katie, but Mr. Correa is definitely defying the austerity-mania that rages through most Western governments.
If you are interested in what Bill Black is talking about, here is some info…
Ecuador’s financial economy is chalking up impressive growth rates of over 7 per cent a year, while the real economy has been hurting from falling oil prices. During the last nine months, Ecuador twenty-five private banks, plus the state-run Banco del Pacifico, posted a combined $395 million after-tax profit, up 51% from $261 million the year before. That is a whopping sum by Ecuadorian standards.
Since bankers extracted their fortune from the real economy, Correa now wants the private bankers to give some of it back to the real economy.
In retaliation, the bankers are threatening to crash the entire system. According to Devlin Smith, Bill Black will advise Correa’s people on what to expect from the criminals.
BACKGROUND
Ecuadorian president Rafael Correa wants to be re-elected for a third term in February 2013. In connection with this, Correa has proposed a new 3 per cent charge on local banks’ taxable income, in order to boost social security payments to the poor by about $150 million a year. About 1.8 million poor Ecuadorians (mainly the elderly and single mothers) get a social security stipend of $35 per month. Correa wants to increase that to $50 per month, and make rich private bankers pay for it.
Correa also wants to erase tax breaks for private bankers, who should be paying a tax rate of 23 percent, but have so far been allowed to pay only 15%. Further, Correa wants to boost tax rates on rich people’s assets held abroad and in offshore havens.
In 2008, Correa repudiated $3.2 billion in odious foreign debt, the interest on which was consuming 40% of Ecuador’s GDP (three times what was spent on the social sphere ― education, health and so on). Foreign investors had bought Ecuador’s bonds at a 70 percent discount. When Correa repudiated the odious debt, he purchased back those bonds at their discounted price.
This enraged foreign bankers, who retaliated by ordering their respective governments to put Ecuador on the Financial Action Task Force “money laundering” black list, thereby cutting Ecuador off from international loans.
In response, Correa simply took billions in development loans from China, and is paying off the loans in oil. In September 2012, Ecuador and China signed a Commercial and Security Agreement that lets Ecuador easily sell seafood, cocoa and bananas to China, with the Chinese agreeing to ease restrictions on further food items. China has also established an $80 million line of credit for Ecuador’s government with the EximBank to help the government build a road to the new Quito airport.
[Ecuador produces around 500,000 barrels of crude oil a day. Oil exports at $14 billion, plus remittances at $2.7 billion, account for nearly 75 per cent of Ecuador’s external revenues, and a quarter of Ecuador’s $67 billion GDP. Half of that oil is now sold to China. China is now talking about investing another $12.5 billion in Pacifico, a joint Ecuador-Venezuela refinery project. Meanwhile Russia’s Gazprom is exploring Ecuador’s Amistad natural-gas field in the Gulf of Guayaquil.]
Correa’s high popularity has been built on heavy government spending on roads, hospitals and schools. Indeed, Correa is so popular with the bulk of Ecuador’s voters that he will easily be re-elected in February, even if he does nothing. However he is tired of private bankers sucking away so much of the nation’s wealth in the form of interest payments.
His main opponent for the presidency, Guillermo Lasso, is a former bank president and finance minister, who initially pledged to increase the social security stipend if he wins. Mr. Lasso said he would get this money by taxing the general population, not his rich banker friends. That killed his chances, which had already been remote. Mr. Lasso’s power base is the upper middle class and the wealthy, who want to impose brutal austerity on the masses. Their rhetoric is the same as the rhetoric of elitists everywhere, namely that austerity is the path to prosperity, that the way to boost unemployment is to reduce it, and that the way out of a depression is to make the depression permanent.
Correa has submitted his banker tax bill to Congress (the National Assembly), which will surely pass it, as legislators too want to be re-elected in February 2013. In the National Assembly, Correa’s party is by far the largest (the Proud and Sovereign Fatherland Alliance). The lawmakers have until late November to accept, modify or reject the bill, otherwise it will automatically become law upon publication in the official gazette.
In addition to all this, Correa’s government requires Ecuadorian banks to hold 60 % of their assets and investments in Ecuador (up from 45 % before) so that liquidity is brought back to Ecuador. Correa’s government has banned banks from investing in other sectors, a measure approved by a majority of voters in a 2011 referendum. Correa’s government has also banned financial institutions from charging for some services to account holders and credit card holders. Correa’s government also requires banks to acquire public debt. Correa’s government also allows borrowers to default on car loans or house mortgages by giving back the cars or houses to the banks, without a deficiency judgment. (That is, without having to pay back the loan to the private bankers, who create loan money out of thin air.) The latter move has dampened predatory lending among bankers. Moreover, a constitution passed in 2008 (under Correa) took away the full autonomy of the central bank, so that the government was able to reclaim national reserves that central bankers had stashed in overseas banks.
Obviously the bankers and the 1% despise Correa. They say Correa is trying to win re-election by bribing the voters. (Presumably Correa should bribe only the rich, like most Western politicians do.)
BILL BLACK
So what is Bill Black talking about? The article in Spanish says that four leading Ecuadorian bankers, acting in collusion, sent an email to millions of customers saying the entire banking system will collapse if Ecuador’s government passes the new tax, and does not lift restrictions on bankster crime. Bill Black notes that lying to shareholders is one thing, but Ecuador’s private bankers are blatantly lying to regular bank depositors, which is utterly outrageous.
“In 40 years of work, I have never encountered something so egregious. In Ecuador the most important leaders of the major banks representing Ecuador’s richest men are mass-transmitting threatening e-mails to depositors. In the USA the bankers do this by spreading rumors, but in Ecuador the bankers are literally threatening to crash the entire system if they don’t get their way.”
NOTE: I have not been able to find out any more about this, other than the web site at the link given.
Thanks for that background Mark.
Very interesting material. Aligning with MMT thought, would’nt it be better for Ecuador to return to the Sucre and establish a jobs-guarantee program that pays a living wage?
October 25, 2013
Mr. Correa is doing an excellent job and improving the quality of living of low income Ecuadorians something that the US politicians do not understand and therefore gave an opportunity for China to explore and invest not only in Ecuador but in south America in general and in Africa as well like the former Portuguese colonies.
China is exploring all the possibilities and that’s why the US economy is doing so bad both domestically and internationally.
Manix Salvador