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Frayed Friendships – Ecuador’s Dysfunctional Relationship with Its Banks

Article Summary:

The government of Ecuador, its President, and the country’s private banks are neither friends nor foes. The relationship between the three entities is continually under stress, especially in the past six years of Correa’s regime. The latest damage to the relations is a direct result of the state decision to use part of bank profits to finance an increase in the Human Development Bond (BDH), further expanding the rift between the three.

Photo Credit: America Economia

Original Article Text From America Economia via Google Translate :

Ecuador: The Complex Relationship Between Correa and Banking

No friends, no rivals. The government of President of Ecuador, Rafael Correa, and the country’s private banks are neither one nor the other, even though at times lean toward certain ends.

The relationship has been strained during the six years of the regime, and the latest flip what caused the state decision to use part of the profits of banks to finance an increase in the Human Development Bond (BDH).

Confrontation dates from 2007, when Correa took office with his doctrine of socialism of the XXI century, which opposes the free market theory professed representatives of the financial system.

Only in times of international crises have reconciled amicably criteria.

From the beginning of his administration, Correa sponsored changes through executive orders, resolutions of the Banking Board or the Central Bank of Ecuador (BCE), bills and even by constitutional means.

The constant in them was and still is the regulation and state control of certain measures of the system, which bankers say harms institutions.

In 2007, they limited the interest rates and charging fees or services requested by the customer (by law), and in 2008 adopted a constitution (via referendum), which ordered the bankers sell their actions on the media.

Between the end of that year and early 2009, the two parties joined forces to prevent the country from suffering the consequences of the global crisis, to the point that the system resources in the area injected.

In 2010, it was ordered that private banks repatriate part of the International Book Freely Available. In 2011, he set out to the owners of these institutions sell shares in any other business (via referendum). And, in 2012, increased the amount of money to be retained in the country.

On this background, the president of the Association of Private Banks of Ecuador (ABPE), Cesar Robalino, believes the regime’s attitude towards the sector is increasingly hostile. “Banks are always willing to cooperate in a number of objectives of public power. Then this growing hostility not understand or understand. ”

The head of the Federation of Chambers of Commerce, Blasco Penaherrera Solah, agrees and adds that the treatment is discriminatory because the government does not apply the same yardstick to control other businesses.

The employer follows that Correa “has pursued” to the bench because the group identified as a power which he feels he must fight, and personal resentment. And remember it was in the Credit Risk for an alleged delinquent credit with Banco Pichincha, which sued and won a judgment (with compensation of $ 300,000).

The director of the publication AnAsociación Private Banks of Ecuador (ABPE) Weekly alysis, Walter Spurrier, says the proposal on the BDH was somewhat expected, since the different provisions of the scheme “will have closed the circle to the banking and reducing him within its competence. ”

But the economic researcher at the Pontifical Catholic University of Ecuador, Pablo Davalos, does not think so, and instead describes the relationship with the bank executive as “very cordial, very friendly.”

The expert assumed that there is a tacit agreement between the liquidity to take care of the country, a factor which in turn helps preserve dollarization.

Notes that show why this is the system utilities, which have remained high despite the decisions ruling.

ABPE data show an upward trend between the years 2007-2011, with a contraction in 2009, with regard to the international crisis.

The Executive submitted on 25 October to the Assembly the bill Redistribution urgent social spending to fund increased BDH from 2013, among other goals.

The head of the Internal Revenue Service (IRS), Carlos Marx Carrasco, justifies, daily The Telegraph, the proposal: “We looked for a sector that is in extraordinary economic situations. This is a little help with those utilities, with more than 1’900 000 households (poor) “.

The head of the Association of Consumer Advocate for Life Action, Gelacio Mora, fears that the decision will result in costs for clients and control authorities shall not exercise its work well.

Dice agree to regulate the sector because services are not efficient.

The Superintendency of Banks reported 1344 complaints in 2010 (including the public and private sector), 1,800 in 2011 and 1327 until last September.

Times: Bill
The Committee on Economic and Tax Regime tomorrow plans to submit the report for the first debate of the proposed redistribution of social spending. This, after having heard the various actors involved.

It is expected that the full Assembly debate on appeal on 20 November. The Legislature has 30 days to approve the document, as the Executive sent him with a matter of urgency.

Approving the Regulation Act Maximum Cash Credit Cost Optimization and Public Investment, which sets caps on interest rates, and eliminates some bank fees and commissions.

New Constitution
Government seizes assets Isaiah Group (former shareholders of Filanbanco). That year also approving the Constitution, which limits the role of banking and Financial Security Act, which created a liquidity fund.

International Crisis
The scheme adopts measures such as reducing bank reserves and injection of resources to support the banking and overcome the global crisis. Then forces her to repatriate resources and unifies the consumption rate.

The ECB issues new rules for liquidity reserves. Issues a regulation that forces the private financial system to purchase government securities to be part of bank reserves.

The people of Ecuador approved the referendum and referendum promoted by the government, which, among others, the bankers have to sell their shares in any other business, not only in the media.

The ECB raises Domestic liquidity ratio from 45% to 60%, and therefore banks must raise funds retained in the country and repatriate those who are abroad.

Link to Original Article:

From America Economia

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