In Ecuador, civil unrest on the streets has been heating up, as expected. In early June, President Rafael Correa once again supplied the ingredients for social demonstrations in the major cities, most notably in Quito, Guayaquil and Cuenca.
Two draft laws (on inheritance tax and capital gains on property), were the catalyst for citizen protest. However, these laws, which increase existing tax rates to percentages considered confiscatory, are not considered the sole cause for unrest; merely the last straw.
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The public’s weariness of the ruling party, after eight years in office, has been confirmed in the streets. A weariness that was evident at the polls on 23 February last year, when Correa lost around twenty major provincial capitals and cities in the local elections. The loss of the urban vote came mainly from the middle class. The main reasons include the Executive’s concentration of power; the abuse of authority; arrogance; the persecution of social and indigenous leaders; the creation of a system to persecute and punish dissenting voices; the extractive policy; corruption; and economic measures taken to alleviate the fiscal crisis, whose very existence the Government denies.
The President, absent from the country when the demonstrations began in the first week of June, was said to be surprised by their magnitude. His strategy changed within hours. On Monday June 15, at a meeting in front of the Government Palace, he was unflappable, asserting that the National Assembly, where he has a large majority, would pass the new laws as a matter of urgency. That same night, in a national broadcast, he announced that the laws were being temporarily withdrawn from the Assembly. A controversial decision, because the option of temporary withdrawal does not exist in the Ecuadorian Constitution; the Assembly passes a new law or archives it.
Correa plans to push his new laws forward after the Pope’s forthcoming visit and following a period of State-organised debates. The opposition and dissenting voices who have been expressing their opinions on the social networks do not harbor any expectations for these discussions. Rafael Correa understands dialogue only as a monologue, a chance to instill his arguments in the public consciousness; not to hear his opponents’ opinions.
Correa had already made concessions on the inheritance tax law, which he refers to as the ‘redistribution of wealth.’ The proposed bill, which includes legacies and donations, was originally due to implement progressive tax rates, from 2.5% to 77.5% (for indirect heirs). Inheritances between the exemption threshold of $34,500 and $849,600 would be liable for a 77.5% tax rate. Before the protests, this fell to 47.5% for direct and indirect heirs.
The law on capital gains seeks to tax “extraordinary gains on the transfer of real estate.” Conceptually, the government considers ‘illegitimate gain’ any additional value that a property acquires due to public works in the area. The ‘extraordinary gains’ tax would be paid at a rate of 75%, minus the adjusted value of the purchase, any improvements and USD 8,500 (24 minimum wages). Experts say that the ambiguities contained in the bill open the door to completely arbitrary interpretation.
Correa has claimed that these laws would not affect the middle class and denies a strategy of fiscal strangulation. His explanations reveal a change in political strategy. Correa-ism has noticed its estrangement from the middle class and, in the run up to the 2017 presidential campaign, has returned to the most basic logic of confrontation: the poorest versus the richest. Contrary to socio-economic-statistics, Correa has claimed that the inheritance tax law would not affect 98% of Ecuadorians. This is the message repeated day and night on all official television and radio channels.
Undoubtedly the ruling party, feeling a structural slump in the polls, is flirting with the poorest sectors of society, thinking to rebuild its electoral base. It does so now by resorting to ideological resentment because the Government lacks the funds for new bonds and subsidies. Of course, the regime talks of wealth redistribution, but this is just a marketing slogan: according to the Government’s own calculations the inheritance tax law would only generate $39 million annually. This demonstrates that the motives for the new laws are ideological and political, rather than fiscal.
Correa has shifted his speech once again towards the more radical left. He did this as easily as he had opened the door to entrepreneurship, once it was clear that, without oil dollars, the State could no longer remain the engine of the economy. The withdrawal of his two new laws is a tactical retreat with two objectives: to cool the social climate ahead of the Pope’s forthcoming visit; and to include the bills in a ‘national dialogue’ which is expected to form part of his 2017 Presidential agenda.
It has already been said that Correa does not dialogue. This has been demonstrated in the campaign mounted by the Government and its supporters against demonstrators. The Ecuadorian President not only denies reality (minimizing to the point of caricature the extent of the protests, which initially surprised him), but now sees the protests as irrefutable proof of a ‘destabilization plan’ against his Government. ‘Destabilization’ and ‘coup’ are the phrases most commonly repeated by the President and the high ranking officials of his Government. The reality is that they are using expressions and slogans borrowed from Venezuela.
They talk of ‘violent actions,’ ‘an agenda of destabilization,’ ‘foreign advisers,’ ‘paid people,’ ‘destabilization of development,’ ‘conspiratorial activities,’ and ‘an onslaught’ against the Joint Command for encouraging the intervention of the Armed Forces. President Correa and his Government use language designed to confuse demonstrations with destabilization; and the democratic opposition’s legitimate protests with conspiratorial actions. There is no evidence to support such claims. Many protests have been self-convened via social networks. And Guillermo Lasso and Jaime Nebot, the opposition leaders who have called the most massive demonstrations in Guayaquil, have emphasized that the President must meet constitutional deadlines that entitle him to rule until May 24, 2017.
The offensive official propaganda shows a distinct nervousness regarding the social fever that has taken over the streets. But it reveals, too, Correa’s political vision. Like Chavez, he cannot conceive of alternation in power. In fact, the overlapping threats issued by President Correa to his opponents and adversaries raise fears that his Government is entering into an era of greater repression and violence. A chapter that sets it apart, to a large extent, from Nicolas Maduro’s regime in Venezuela.