The World Bank’s ‘recipe’ for the private sector to help revive

The World Bank recommends to the Government a series of reforms for the private sector to boost Ecuador’s economy, after the impact of the coronavirus.

The study ‘Creating Markets in Ecuador’, the World Bank affirms that Ecuador should promote reforms in the labor, tax and mining spheres to create incentives for trade, investment and competitiveness.

With these reforms, the multilateral considers that the private sector will help strengthen the recovery economy of the country, as long as the reforms reduce “the footprint of the State” in the economy.

PRIMICIAS presents below the recipe it proposes the World Bank so that the private sector can help the economic reactivation:

  • The World Bank recommends that the country undertake a labor reform to combat informality and facilitate hiring for new businesses.

    The labor reform should adjust “Wages with productivity”, especially the minimum wage. The study also proposes that the Government promote the flexibility of hiring methods, especially part-time ones.

    Another recommendation to boost employment in the country is “Rationalize dismissal costs putting a ceiling on compensation and reducing payments for voluntary resignation ”.

    The reduction in the distribution of profits to workers is also one of the recommendations of the multilateral.

    The latter is part of the changes that the Government is preparing in the labor reform, one of Ecuador’s commitments to the International Monetary Fund (IMF).

    The Minister of Labor, Patricio Donoso, explained that in the project of ‘Opportunity Law Labor ‘, the Government will propose that employers give 15% of the company’s profits to all workers in an equitable manner, without taking into account family responsibilities.

    Currently, 10% of the company’s profits are for workers and the remaining 5% is distributed for all family responsibilities. This means that the more family charges, the more are the profits for the worker.

  • Although the Government has already been implementing it, the World Bank recommends the gradual elimination of the Foreign Currency Outflow Tax (ISD) to attract investment and new companies to the country.

    ISD is the third highest income tax it generates for the State, only behind the Value Added Tax (VAT) and the Income Tax (IR).

    President Guillermo Lasso announced that he will phase out the ISD and by sector. The first business to benefit was that of the airlines.

    The multilateral study recommends ‘correct policies’ so that the private sector has a greater participation in economic activity, especially in the construction sector.

    In this activity, the proposal is to promote agreements and public-private investments.

  • Expand exports

    The World Bank recognizes that Ecuador exports more fruit and fish than Colombia and Peru and that there is an opportunity to sell more organic products to the world.

    To achieve this, the country must “Improve cold chains and packaging, and post-harvest technology ”.

    The study warns that exports will improve once the country has reduced rates for the transfer of raw materials to ports.

  • The World Bank study also raises a new Mining Code, at a time when “mineral reserves, particularly gold, copper and silver, but also land, lithium, uranium and iron are arousing great enthusiasm among investors.”

    The new law must include all ranges of activity, from artisanal mining to large-scale mining. But, the multilateral recognizes that extractive activity must be implemented with the consent of the people. (prior consultation) and with all environmental permits.

    In addition, the reform must include the following changes:

    • Strengthening public institutions for mining control.
    • The development of an information system on extractive activity.
    • And, expand the benefits for the zones where mining is done.

    The multilateral organization expects that the contribution of mining to the economy will grow due to large-scale strategic projects, as shown in the following graph:

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