QUITO, Ecuador (AP) – President Rafael Correa has long used his bully pulpit to bash bankers as profit-mongers who brought Ecuador and the rest of the world to the edge of financial collapse. Now, he says he’ll give a bigger share of those profits to the country’s poor.
Less than four months before presidential elections, Correa has announced the sort of bold measure that would delight anti-Wall Street protesters in the United States who blame unchecked financial-sector greed for the economic downturn.
“Those who are earning too much will be giving more to the poorest of this country,” the charismatic leftist said in a weekend address. “The time has arrived to redistribute those profits.”
Under his plan, taxes would go up on bank holdings abroad and an excise tax on financial services would increase, with the proceeds used to increase lump-sum payments for single mothers, the elderly poor and other needy Ecuadoreans.
Correa said the move would raise $200 million to $300 million a year, money that would not just help pay for the increased monthly subsidies but also would finance “other wealth redistribution activities.”
The increase was first suggested by the very man who is likely to be Correa’s top challenger in February elections. Guillermo Lasso said that if he were elected, he would boost the monthly aid payments that 1.2 million Ecuadoreans receive to $50 from the current $35.
But Lasso, former director of Guayaquil Bank, did not intend to underwrite the increase by raising taxes on banks already heavily regulated by Correa, who has a doctorate in economics from the University of Illinois at Urbana-Champaign.
The proposal is virtually guaranteed to take effect because Correa introduced it as an emergency measure, which automatically becomes law if Congress doesn’t reject it within 30 days. Correa’s opponents don’t have enough votes to knock it down.
“My duty is to the poor,” Correa said Saturday in his weekly TV and radio show, which pre-empts all other programming. The self-described 21st-century socialist, who says his politics are guided by the teachings of Christ, even went so far as to call out well-known Ecuadoran banking families that would be hit, “the Pachanos, the Egas and the Lassos.”
Lasso, said he’s pleased his idea of boosting monthly aid payments to the poor has been embraced. But along with the rest of the banking industry, he says Correa will be weighing it down with an unfair tax burden.
“It’s not the way to go, because it only creates more obstacles for entrepreneurs, for those who create jobs,” Lasso told reporters after Correa announced the bill on Friday.
Produbanco’s president, Abelardo Pachano, told the newspaper El Comercio that the proposed tax would “destabilize the banking industry, weaken it and clip its wings.” The victims would be Ecuador’s 7 million depositors, he said, who account for nearly half the small South American nation’s 15 million people.
Lasso, 57, remains the chief stockholder in Guayaquil Bank and has not formally announced his candidacy.
Correa, who was first elected in 2006, has built a solid base of support through populist programs that have widened the social safety net and broadened investment in education.
He has doubled public spending, and Ecuador now devotes a greater share of its economy, 10 percent of gross domestic product, to public investment in infrastructure, education and other purposes than any other nation in Latin America and the Caribbean.
A similar formula helped Correa’s ally in Venezuela, President Hugo Chavez, win re-election on Oct. 7, though Correa has not moved to nationalize the private sector as Chavez has.
Instead, Correa has restricted the ability of businesses to expand into other industrial sectors and, in the case of banks, he’s promoted consumer-protection measures, including a law that prevents banks from penalizing first-time home buyers of modest means if they default on mortgages.
Correa hasn’t announced his candidacy for re-election, but the latest poll by the firm Cedatos gives him 55 percent support against 23 percent for Lasso, with other candidates dividing the rest. It surveyed 2,320 people in 15 cities and had an error margin of 3.5 percentage points.
Political scientist Jorge Leon of the Ecuador campus of FLACSO university called Correa’s move a political masterstroke “because it puts the bankers in a terrible situation,” making them scapegoats.
Correa, whose only previous job in government was as finance minister, has alienated bankers before, both at home and abroad. Under his watch in 2009, Ecuador defaulted on nearly $3.9 billion in external debt.
He has long blamed bankers for a financial crisis at the end of the 1990s that provoked a bloodless 2000 coup. The country was nearly at the point of hyperinflation and half of the country’s 42 banks collapsed amid accusations of malfeasance.
The industry’s profits have climbed steadily since Correa won election, from $239 million in 2006 to $393 million last year, even as banks were forced to reduce fees for credit cards, repatriate funds held abroad and purchase public debt.
Ecuador’s private bankers association complains that it already pays the state about $309 million annually in taxes and other fees that eat up nearly 80 percent of its profits.
The director of the national revenue service, Carlos Marx Carrasco, contested that figure, claiming the banks only paid $170 million in taxes.
Correa’s populist stand has won supporters such as Gilberto Albornoz, a 43-year-old Quito attorney.
“It’s good that the bankers help the poorest,” he said. “They turn themselves into millionaires with the money of the people and they should contribute to the country and the poorest.”
But Carolina Holguin, a 32-year-old insurance company worker, said she worries the taxes will wind up hurting consumers.
“The money in the banks doesn’t belong to the bankers. It belongs to us, the depositors, simple people, small, medium and big companies. Now we’re going to have to think a lot before putting our savings in banks because the government is desperate to get more financial resources to spend.”
Associated Press writer Frank Bajak in Lima, Peru, contributed to this report.
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