by Patricio Zamorano
From Washington DC

The media had to double down through a constant barrage of violent photos and videos arriving through social networks so that especially non-Chileans, who are accustomed to the mythical image of a stable and exemplary country, could internalize and believe the spectacle of fire and blood on their screens.

The president of Chile, Sebastián Piñera, realized a feat impossible to imagine after almost 30 years since the return of democracy: provoke street clashes between Chilean youth, who were not raised during the dictatorship, and military troops, while enforcing  a curfew, a state of emergency, and the suspension of some constitutional guarantees. These measures create a ghostly continuum of the dictatorship embedded in the Chilean collective psyche.

The outcome thus far will go down in history: as of October 23rd, the official count is 16 deaths (5 of them by military and police forces), 226 wounded and 1,692 detained.^[1] In addition to the human cost, more than 70 metro stations were damaged, with 20 set on fire, and some trains destroyed. A large amount of public and private infrastructure has also been destroyed.

Of course, the analysis by apologists for the government, that this was all a surprise, is meant for foreign consumption. Last weekend Chileans knew all too well what was coming. The population of the country has been subjected to state violence for decades. The images of these past days are the same ones seen during the painful protests of the ‘80s, when the country seethed from the poverty and desperation produced by the political and economic repression of the Pinochet dictatorship. The images recall the state repression inflicted against secondary school students 10 years ago during the so called “Penguin Revolution” (“penguin” is a nickname for students, based on the colors of school uniforms), when children were attacked by police dogs. And the images also remind us of the legal coercive methods such as the violence of the anti-terrorist law applied to the Mapuches in southern Chile.

The president of Chile, Sebastián Piñera, realized a feat impossible to imagine after almost 30 years since the return of democracy: provoke street clashes between Chilean youth, who were not raised during the dictatorship, and military troops, while enforcing  a curfew, a state of emergency, and the suspension of some constitutional guarantees.

The Chilean police, called “carabineros,” have always been a repressive force, adding to the other  repressive institutions that have converted Chile into a great pressure cooker. The government struggles to maintain a made-up face before the international community. Far from creating a narrative of reconciliation in response to social upheaval, the government uses the idea of “war” against an “internal enemy.”^[2] Pinochet used this painful metaphor to justify the violation of human rights of Chileans and provide a moral basis for soldiers to exercise repression directly against their compatriots.

One has to remember that despite the advances of the social agenda since the end of the dictatorship, Pinochet managed to implant neoliberal privatizations that still impact the daily lives of 17 million Chileans. He privatized education and created an underfinanced public sector that compromises the well being of millions of children, condemning them to substandard technical-professional training that leaves them ill-prepared to compete with the sons and daughters of the national elite. He privatized health care making it into a totally regressive system, creating constant desperation for the nation’s majority who must either use the public system — slow, bureaucratic, and of poor quality — or pay for private care. He also privatized pensions, which regressively provides benefits according to the level of one’s lifetime income and personal savings, favoring the privileged.

Social trauma generated by the economic and political model

All of these privatizations have been creating a social trauma that one can breath in on each visit to Chile. It is a feeling of permanent institutional harassment by economic pressures and by the news media. The Chilean soul has been converted into an expression of permanent frustration.

Salaries are at pauper levels. A study by the Sol Foundation shows that 70% of Chileans earn less than $700 dollars per month, and 50% earn less than $500 dollars, little more than the minimum wage.^[3] The lives of middle class Chileans are plagued by chronic debt, with millions of people trying to attain a quality of life similar to that projected by the media of those living in higher income neighborhoods.

Chronic debt and generalized depression

Approximately half of the 9 million Chilean workers^[4] are in debt.^[5] A June 2017 study showed that 31% of those in debt have a financial burden greater than 40% of their income, and 22% of debtors have a financial burden greater than 50%. Also, 43% of debtors have monthly income less than 500,000 pesos, equivalent to a little less than $700 according to present exchange rates.^[6] It is simply impossible to make ends meet with peace of mind.

A 2014 international study places Chile in second place in Latin America for credit card debt per capita.^[7] Under these conditions, the possibility of saving or spending on leisure are very difficult.

This situation has repercussions for mental health in the country. Chile has one of the highest rates of depression in the world, afflicting more than 18% of the population. And this is a problem affecting mostly the poor in Chile. Mariane Krause, psychologist and director of the Instituto Milenio de Depresión y Personalidad, points out that high income sectors have an 8% rate of depression, while the poor reach a rate of 25%. This is to say, shockingly, that one of every four persons living in poverty suffers from depression in Chile.^[8]

The reasons for the social debacle of recent days leaves no room for doubt. The extraordinarily high rate of chronic stress may even be under-represented considering the limited access to mental health services in a privatized system.

Transportation: a sensitive topic

The topic of the cost of riding the metro as well as other public transportation is not merely symbolic or just a matter of an increase of a few cents by decree. One needs to study the details. To figure out the real cost, note that a worker spends on a daily basis between $3 and $6 dollars combined on public transportation, depending on the distance between home and work, and the number of trips taken, for work or other daily activities (picking up children from school, errands, emergencies, shopping, etc.). This is between $60 and $120 per month. About 50% of workers earn less than 500,000 pesos, a little less than $700 per month. If a father or mother are the only breadwinners, and there is a son or daughter that needs paid transportation, for example, to attend university or take care of some business or go out to eat some night . . . the picture emerges of constant financial pressure on millions of families.

Let’s compare this to a city like Washington, DC. A young worker with some experience can aspire to a salary of $4,000 per month. The metro in DC is expensive and in one day can cost about $10 for two trips or $200 per month. Yet that cost does not come to even 5% of monthly salary of the worker in Washington.

Chile: the same recipe as Ecuador and Argentina

This system of institutional violence is based on the impunity of the elite. As Professor Javier Ruiz Tagle of the Universidad Católica points out, the extent of sacking of public funds revealed by prosecutions of large Chilean corporations has exceeded $4 billion over the last few years.^[9] This includes tax evasion, price fixing, and illegal monopolies, all of which involve large business groups, including that of Piñera himself.

The social explosion under the government of Piñera is not isolated from the international context. In Ecuador, the government of Lenin Moreno has reversed the social policies of his progressive predecessor, Rafael Correa. Moreno, for example, decreed a tax amnesty for the bank system and other large corporations that have not paid taxes for decades. This loss in State revenue comes to more than $4 billion.^[10] Lenin Moreno transferred this debt of the private finance sector to the Ecuadorian people, along   with the elimination of gas subsidies. This blow to the population was felt immediately only a few days ago, especially among the indigenous peoples. More than 500 were wounded and several killed. This was a crude reminder of the instability suffered by Ecuador for decades and the cost of the structural adjustment package and conditions imposed by the International Monetary Fund (IMF). The approval rating of Lenin Moreno has fallen to as little as 20%, one of the worst on the continent.^[11]

A parallel  situation has occurred in Argentina. The fiscal and monetary policies of President Macri have dismantled almost entirely the subsidies and social programs of the former progressive government.^[12] Macri eliminated subsidies for public transportation, water, natural gas, and electric services, provoking a 500% rise in the cost of the latter.^[13] The looting and despair could not wait.^[14] Just this past month,  an enormous demonstration demanded measures that would stave off hunger among the population.^[15] The IMF is also behind these fiscal policies of  austerity in social spending, despite the fact that the banking system brought in $170 billion in profits in 2018, 120% more than the 2017 figure.^[16] What is the result of these social policies? The poverty rate in Argentina exceeds 30%,^[17] childhood poverty is at 50%, and one in six children experiences hunger.^[18]

Chile’s regressive tax system: economic violence

In Chile, the neoliberal economic model, has been perpetuated by all presidents (including the socialists Lagos and Bachelet) since the Pinochet dictatorship without any significant structural changes  The taxation feature of this model places excessive weight on citizens and a minimal burden on companies. More than 40% of the tax collection in Chile comes from VAT (sales tax for products and services).  The burden falls on citizens, not companies. This  regressive and unfair situation disproportionately affects the most vulnerable. People with higher incomes only represent 9% of tax revenue[19]. Companies in Chile also have great advantages when filing taxes that, in some cases, allow them to pay as little as 0%[20] . Companies in the mining sector, one of the most important sources of revenue for the country, have also greatly benefited. According to a study by economist Eduardo Titelman, between 2004 and 2009, the state stopped receiving more than $10 billion due to special dispensations offered to mining companies, privileges that few Chileans have[21] .

Everything leads to inequality. According to a 2019 ECLAC report, the richest 1% of Chile hold 26% of the nation’s wealth[22] . And Chile ranks seventh among the most unequal countries on the planet, as reported by the World Bank in 2018[23] .

More than 40% of the tax collection in Chile comes from VAT (sales tax for products and services).  The burden falls on citizens, not companies. This  regressive and unfair situation disproportionately affects the most vulnerable. People with higher incomes only represent 9% of tax revenue

The economic model then, is based on a regressive tax policy that exacerbates inequality. The system is so rooted in the Chilean socio-political culture, that there are no institutional mechanisms in place to transform this model of economic violence into one that is more equitable and fair. The electoral route, in that sense, has been totally incapable of bringing about a change that benefits the whole country. Street mobilization and violence appears, then, as the only way out, the cry of despair in the face of the chronic stress of daily life. And as we have seen, other governments in the region, also faced with the lack of substantive tools to respond to these crises, are also resorting to extraordinary measures such as, in the case of Piñera, using curfews, military troops, the state of emergency or the anti-terrorism law.

A fury fueled by 30 years and the recipe for change

As in the cases of Argentina and Ecuador, both governed by right-wing presidents, Piñera impacted a basic service of critical importance ​​to the population, by increasing the price of the Metro ticket and the public transportation system of Transantiago. Although the increase was only a few cents, it precipitated the people’s fury against “30 years of state violence”, as the popular slogans on the streets say. Piñera and the powerful financial sector he represents are incapable of providing a solution to the Chilean problem. Chileans gain nothing by appealing to Piñera for a lasting solution; it would be tantamount to shooting themselves in the foot.

The recipe is clear: the corporate groups ( Angelini’s, Luksic’s, Piñera’s and a long etcetera), must voluntarily cede part of their factual power and allow a real tax reform that floods the state coffers.

The privatization of the health system must be reversed immediately, and a universal insurance system must be created that covers all the needs of the population. That is, health care is a human right. It is not necessary to reinvent the wheel: it prevails in Canada, Europe, and even in embargoed Cuba.

The pension system must also be universal, although mixed variants should be allowed that provide the option of private pension accounts for those who can collect more as a fair reward for their previous income. But the state must guarantee a fair and substantial fund for every retiree in the country. All proceeds from the investment operations of these public funds must be returned to each citizen.

And the salary structure must be urgently reformed. The objective is to create income and consumption conditions that foster a strong domestic market, unlike the one now based on chronic indebtedness. The structure of consumption in Chile is based on the permanent debt of the middle and working classes, which is not only unsustainable but  keeps the domestic market permanently depressed. The current equation exhausts the population by a constant sense of job insecurity, harming productivity, professional morale, and the quality of life of families. If large business groups want more commerce, more dynamism, more production, it is incomprehensible why they opt for the economic repression of millions of potential consumers. Simply put, there is conformity with the current profit levels, and even greater conformity with the submissive passivity suffered by millions of workers in the country.

Economic freedom, only for the elite

The most important challenge is to produce a new mindset of the Chilean business elite. By supporting and financing the political and economic values ​​of the Pinochet dictatorship, the holders of big Chilean capital opted for repressive and often lethal social control by the State, while pretending to advance the values of individual development and “freedom” championed by free market economists Milton Friedman and his followers. Non-intervention of the State in the economy is a myth. In reality, the State intervenes strongly to guarantee a permanent position of economic privilege  of a specific sector of the population. The way in which this logic has been developed for more than four decades leaves no doubt. There is no interest in developing the productive potential of the Chilean people. There is a huge distrust in the population that is perceived by the ruling elites as a mass that must be controlled and rendered docile.

By supporting and financing the political and economic values ​​of the Pinochet dictatorship, the holders of big Chilean capital opted for repressive and often lethal social control by the State, while pretending to advance the values of individual development and “freedom” championed by free market economists Milton Friedman and his followers.

Chile’s low quality and expensive private health system keeps them sick and indebted with the private hospital system. The educational system frustrates the vast majority of young people and keeps them under-employed and under-educated. They are locked in a stagnant and insufficient salary structure, which prevents the accumulation of capital and savings, and truncates the possibility of sufficiently financing leisure, spiritual and creative activities. The electoral system does not provide an avenue for profound structural changes.  It does not matter if the governments are nominally socialist, social democratic or right-wing; oligarchic rights are maintained at the expense of civil society. The law and constitutional coercive measures are used to crush the expression of social protest, leaving the door open to the raw expression of violence.

The Chilean explosion this weekend is not a new phenomenon. It has always been present, latent, sometimes submerged, but ready to overflow the streets. The international community generally misconstrues Chilean reality, convinced by the mirage created by macroeconomic figures. Thus Santiago suffers, destroyed and rebuilt several times a year, in a cadence of rage that has already become a painful litany. The Chilean people, hardworking and persevering in a land full of natural calamities, political calamities and social calamities, got tired this October of 2019, of turning the other cheek.

Patricio Zamorano is a singer-songwriter, journalist and academic in political science. He is also Co-Director of COHA.

Translation by Fred Mills. Editing assistance by Roger Harris

[VISIT the Photo-Report of COHA prepared by four young Chilean photographers to document the social unrest in Chile]

End notes

^[1] INDH anuncia querellas por cinco personas fallecidas en Estado de Emergencia. https://www.indh.cl/indh-anuncia-querellas-por-cinco-personas-fallecidas-en-estado-de-emergencia/

^[2] Presidente Piñera: Estamos en guerra contra un enemigo poderoso. https://www.telesurtv.net/news/pdte-pinera-estamos-guerra-contra-enemigo-poderoso-20191020-0047.html

^[3] “Los verdades sueldos de Chile”. http://www.fundacionsol.cl/estudios/sueldos-chile-2018/

^[4] Banco Mundial. https://datos.bancomundial.org/indicator/SL.TLF.TOTL.IN

^[5] SBIF realiza radiografía del endeudamiento en Chile https://www.sbif.cl/sbifweb/servlet/Noticia?indice=2.1&idContenido=11889

^[6] SBIF realiza radiografía del endeudamiento en Chile https://www.sbif.cl/sbifweb/servlet/Noticia?indice=2.1&idContenido=11889

^[7] Chilenos tienen la segunda mayor deuda en tarjetas de Latinoamérica. http://www.economiaynegocios.cl/noticias/noticias.asp?id=124482

^[8] MARIANE KRAUSE: “Chile requiere un cambio sociocultural para superar la depresión” https://www.conicyt.cl/blog/2019/02/01/mariane-krause-chile-requiere-un-cambio-sociocultural-para-superar-la-depresion/

^[9] La cifra de la indignación: Académico calcula en más de cuatro mil millones de dólares las pérdidas que sufrió el Estado en beneficio de unos pocos. https://www.eldesconcierto.cl/2019/10/20/la-cifra-de-la-indignacion-academico-calcula-en-mas-de-cuatro-mil-millones-de-dolares-las-perdidas-que-sufrio-el-estado-en-beneficio-de-unos-pocos/

^[10] Ecuador: gobierno de Lenin Moreno sacrifica a los sectores empobrecidos para satisfacer al FMI. http://www.coha.org/ecuador-gobierno-de-lenin-moreno-sacrifica-a-los-sectores-empobrecidos-para-satisfacer-al-fmi/

^[11] Consultora Mitofsky. https://radioequinoccio.com/inicio/item/9179-presidente-lenin-moreno-con-pesima-aprobacionsegun-consultora-mexicana.html

^[12] Macri persiste en su política de eliminar subsidios a los servicios. https://www.elciudadano.com/latino-america/argentina/macri-mantiene-su-politica-de-eliminar-subsidios-a-los-servicios/05/31/

^[13] Gobierno de Macri elimina subsidios a electricidad, se esperan alzas de hasta 500% https://www.eltelegrafo.com.ec/noticias/mundo/8/argentina-aumentodeprecios-luz-tarifazo-macri

^[14]Crisis económica en Argentina: Intento de saqueo terminó con un niño de 13 años muerto por herida de bala. https://www.eldesconcierto.cl/2018/09/04/crisis-economica-en-argentina-intento-de-saqueo-termino-con-un-nino-de-13-anos-muerto-por-herida-de-bala/

^[15] Argentina y una semana marcada por protestas que exigen la emergencia alimentaria https://www.france24.com/es/20190911-argentina-protestas-emergencia-alimentaria-crisis

^[16] El sector financier sigue siendo el gran ganador de la era Macri. https://www.infobaires24.com.ar/el-sector-financiero-sigue-siendo-el-gran-ganador-de-la-era-macri/

^[17] Argentina se hunde en la pobreza mientras el dólar se dispara. http://www.rfi.fr/es/americas/20190429-argentina-se-hunde-en-la-pobreza-el-fmi-aplaude

^[18] Más de la mitad de los niños argentinos son pobres. https://elpais.com/internacional/2019/06/07/actualidad/1559927136_602178.html

[19] Chile recauda cuatro veces más impuestos por el IVA que por lo que pagan los más ricos. https://www.publimetro.cl/cl/noticias/2017/11/24/chile-recauda-cuatro-veces-mas-impuestos-iva-lo-pagan-los-mas-ricos.html

[20] Cómo y por qué el gobierno permitirá a las empresas no pagar impuesto corporativo. https://ciperchile.cl/2019/07/18/como-y-por-que-el-gobierno-permitira-a-las-empresas-no-pagar-impuesto-corporativo/

[21] Los enormes beneficios tributarios a los que acceden las empresas mineras en Chile. https://ciperchile.cl/2011/07/19/los-enormes-beneficios-tributarios-a-los-que-acceden-las-empresas-mineras-en-chile/

[22] Cepal describe a Chile como un país desigual: Un 1% concentra el 26,5% de la riqueza https://www.cnnchile.com/pais/cepal-describe-a-chile-como-un-pais-desigual-un-1-concentra-el-265-de-la-riqueza_20190116/

[23 ] Aparece Chile: estos son los 10 países más desiguales del mundo. https://www.biobiochile.cl/noticias/nacional/chile/2018/07/04/aparece-chile-estos-son-los-10-paises-mas-desiguales-del-mundo.shtml

Foto-Reportaje | La furia de Chile tras el lente

Four young Chilean photographers lived the days of violence directly, documenting dramatic moments of social outbreak that still persist: a curfew, state of emergency, and the military on the streets in public security functions for the first time since the end of the dictatorship. More than a dozen dead, hundreds arrested and injured. COHA prepared a critical analysis on the meaning of the social crisis that Chile suffered this week of October, and also shares the photographic work of Luciano Candia, Loyka Manuelle, Luiseduardo Quijada and María Catalina Godoy.

Cuatro fotógrafos jóvenes chilenos vivieron la jornada de violencia directamente, documentando días de estallido social que aún persisten. Toque de queda, decreto de estado de emergencia, los militares en las calles por primera vez en funciones de seguridad pública desde el fin de la dictadura. Más de una decena de muertos, cientos de arrestados y heridos. COHA preparó un ensayo de análisis sobre el significado de la crisis social que sufrió Chile esta semana de octubre, y a continuación comparte el trabajo fotográfico de Luciano Candia, Loyka Manuelle, Luiseduardo Quijada y María Catalina Godoy.

[All images protected by copyright of their authors. Reproduction is not allowed without the author’s consent]

[Todas las imágenes protegidas por el derecho de autor de cada fotógrafo. Prohibido su uso sin autorización expresa del autor]

Luciano Candia. Instagram | @lcn_fotos

Loyka Manuelle. Instagram | @a.loyka

Luiseduardo Quijada | Instagram: @gualloo

Catalina Godoy | Instagram: @_artshoot

By Wilma Salgado, PhD

Ecuador’s President Lenin Moreno has been cutting government spending since signing an Extended Fund Facility (EFF) agreement with the International Monetary Fund (IMF) in February of this year. This policy has benefited multinational corporations, the banks, and in general, powerful economic groups at the expense of the middle and working classes, who are being pushed toward poverty and extreme poverty.

In the context of the IMF negotiations the administration issued a law ironically called “the Organic Law to Foster Productivity, Attract Investment, and Create Jobs, Stability, and a Balanced Budget,” which has been in force since August of 2018. The law brought neoliberalism back to the country by instituting a policy to reduce the budget deficit and national debt, which have now become the top priorities. The law contemplates the collection of interest, fines, and other charges for outstanding obligations with several government institutions: the Internal Revenue Service (SRI), decentralized autonomous governments, the Office of the Superintendent of Businesses, the Ecuadorian Institute of Credit for Education and Scholarships, state enterprises, and even the Ecuadorian Social Security Institute (IESS).

On the day that the Law entered into force the private sector owed the government US$4,291,200,00 (almost $4.3 billion)—for unpaid income tax alone—not counting interest. This figure is higher than the total credit granted by the IMF. The IMF loan is for $4.2 billion and will be paid in installments if the country is deemed to be complying with the IMF conditions.

The list of big winners from the new policy is topped by fossil fuel corporations: Andes Petróleum Ecuador LTD , which owed US$396.2 million, of which US$228.3 million would be forgiven; Oleoducto de Crudos Pesados, OCP, which owed US$347.7 million and would be forgiven US$194.4 million; Consorcio Petrolero Bloque 16, which owed US$141.6 million and would be forgiven US$78.7 million; AGIP OIL Ecuador, which owed US$96.1 million and would be forgiven US$61.5 million; Repsol Ecuador S.A. which owed US$93.7 million and would be forgiven US$52.2 million, just to name a few. A second tier of winners includes the offshore phone company OTECEL S.A., which owed US$78.4 million and was forgiven US$38.9 million; Exportadora Bananera Noboa S.A., that owed US$71.1 million and will be forgiven US$41.2 million. There are several private banks, including: Banco Pichincha that owed US$39.6 million and will be forgiven US$18.3 million; Banco de la Producción S.A. Produbanco, which owed US$29.3 million and will be forgiven US$14.9 million; Banco de Guayaquil which owed US$6.3 million and will be forgiven US$3.9 million. It bears mention that this list of beneficiaries only includes income tax debt. ODEBRECHT is also on the list, owing US$11.8 million of which US$4.5 million will be forgiven. And Mr. Alex Bravo, former manager of Petroecuador, who is known to still have accounts in offshore tax havens even though he is in prison, owes US$6.3 million and would be forgiven US$3.9 million. ^[1]We should also remember the acts of corruption associated with Odebrecht operations, for which Ecuadoran beneficiaries and accomplices have yet to stand trial. This stands in stark contrast with how this was handled in other countries, such as Peru.

Once these debts were collected, the SRI reported that US$1.25 billion^[2] had been taken in. However, it did not explain what happened with the rest of the US$3 billion, which is twice the amount that the government estimates it will save from the fuel subsidies it eliminated as of October 1, 2019—US$1.3 billion^[3].

The total amount of debt collected by other public entities included in the aforementioned law is not known, nor is there any information on how much the many tax exemptions included in the law cost the government. There has been an utter lack of transparency in both the approval of the law and its true scope.

The legislature passed this law without requesting even the basic information outlined above. It did so with the votes of Alianza País (the movement started by former President Rafael Correa, with only the votes of the Moreno supporters in the Assembly after the defection of all of Correa’s supporters), and with the Social Christian Party.

While the most powerful economic interests in the country have been enjoying debt reduction and tax exemptions, the current administration has been punishing the middle and working classes by cutting government spending under the agreement signed with the IMF.

IMF CONDITIONALITY IN MOU AND LETTER OF INTENT

The Memorandum on Economic and Financial Policy gives details about “the public policy program for the next three years,” which includes targets for reducing the fiscal deficit and national debt. These are much more drastic than the targets the IMF set for Argentina.

Target for reducing the debt to GDP ratio:

• In Argentina debt was to be reduced to 55.8% of GDP over three years, that is by 2021;^[4]
• In Ecuador debt is to be reduced to 40% of GDP over three years, by 2022; in 2018 debt was close to 60% of GDP.^[5]

Target for reducing the budget deficit:

• In Argentina the primary fiscal deficit for 2018 was 2.7% of GDP, and the country was given two years to eliminate it, which meant a 1.35% reduction per year;
• In Ecuador the primary fiscal deficit was estimated at 7% of GDP in 2018 (at the time of the IMF negotiations) and is to be eliminated over three years, which means a 2.3% reduction each year.

In order to reduce the debt burden and budget deficit, under its agreement with the IMF the government has been cutting spending by laying-off government workers, eliminating subsidies, and drastically cutting programs. Cumulative reductions since 2016 amount to 75%, from US$6,1 billion^[6] in 2016 to US$773 million as of July 2019, which amounts to approximately US$1.5 billion in 2019.

The last package announced by President Moreno on October 1, 2019 included the elimination of gasoline and diesel subsidies, causing their prices to go up 24% for gasoline (from $1.85 to $2.30), while premium diesel went up 119% (from $1.037/gallon to $2.27/gallon)^[7]. The government expects this measure to bring in additional funds of $1.3 billion/year.

In addition to the elimination of these fuel subsidies, the announced package includes a broad array of measures, including: new tariff reductions on raw materials and capital goods imports for the agricultural and industrial sectors; reduced import taxes on vehicles priced under US$32,000; elimination of advance payment of income taxes by companies; elimination of taxes on technology imports (cell phones, computers, and tablets); 50% tax cut on foreign exchange being used to import raw materials and capital goods; 20% cut in compensation for government employees; increase in the number of beneficiaries of the human development bonus; and loans at 4.99% interest under the Own Your Own Home plan—just to mention some of the bigger programs^[8].

Elimination of the fuel subsidies is what is hitting the poor the hardest. Ecuadorians have already been impacted by a stagnant economy and competition from imported goods, especially from neighboring Colombia and Peru whose currencies have been devalued in recent months. The border provinces, particularly El Carchi on the border with Colombia, have been clamoring for government relief from a deep economic crisis, even resorting to ad hoc measures sometimes.

People’s reaction to the IMF austerity package was immediate, particularly in the organized social movements: transport workers, the indigenous movement, workers’ organizations, and social movements in general.

The IMF agreement also includes the following elements:

• The transfer of profitable businesses from the Ecuadoran State to the private sector, resulting in decapitalization and the loss of future revenue, which harms public finances;
• The opening of markets with Ecuador joining the Pacific Alliance, and the negotiation of free trade agreements with the United States and even with China;
• Extensive labor reform to make employment and the labor market more precarious;
• Tax reform to increase excise taxes that punish the most vulnerable sectors of society and make taxation even more regressive, instead of correcting it by increasing income taxes on the wealthy; and
• Greater financial deregulation by eliminating taxes on foreign exchange leaving the country, which has allowed interest rates to reach their currently usurious levels. Interest rates are set by the monetary authority at almost 25% annually for loans to microenterprises, despite the fact that the economy is dollarized and there is no risk of inflation or devaluation. For every 1% of interest collected by the financial system, US$422 million is extracted from the economy as a whole, considering the balance of credit to the private sector as of July 31, 2019^[9]. This means that with a 3% interest rate, banks extract $US1.266 billion, which is close to the US$1.3 billion that the government estimates the fuel subsidies cost. A 4% reduction in interest rates would be like injecting US$1.688 billion into the economy. Or a tax on the excessive fees charged by financial intermediaries could give the government more revenue than the US$1.3 billion it expects to save by eliminating the fuel subsidies.

Meanwhile, government spending on agricultural development in the first half of 2019 was a paltry US$53 million, or US$106 million annually—just a quarter of the US$422 million the financial system collects for every 1% of interest it charges customers. This is surprising given that the agricultural sector is such an important source of employment, accounting for 28.3% of jobs in the country.

Ecuador is in dire need of far-reaching financial reforms, including drastic cuts in interest rates—rates which everywhere else in the world go down when there is a need to stimulate the economy and boost production.

The policies the government has implemented under the IMF agreement have brought the economy to a standstill. The IMF itself predicts a 0.5% reduction in GDP this year^[10]. Unemployment has continued to rise (only 37.9% of the economically active population has adequate employment^[11], that is, with salaries above minimum wage and benefits, as of June 2019). The poverty rate has risen from 35.3% of the population in December 2014 (5.6 million poor people in a total population of 15.9 million), to 43.8%^[12] in June 2019—that means 2 million more people have fallen into poverty, for a total of 7.6 million Ecuadorans living in poverty out of a total population of 17.3 million people.

The IMF policies are still geared toward serving the interests of creditor countries and toward reducing the national debt. The objectives are as follows:

• Generate surpluses in the debtor countries and transfer them to the creditor countries through deficit reduction policies and by reducing the debt to GDP ratio at the expense of the middle and working classes;
• Expand profitable business options for foreign capital and for national capital allied with foreign capital by privatizing profitable state enterprises and assets;
• Expand export markets for the developed countries that are the IMF’s biggest contributors by opening markets while giving nothing in return, putting sectors and businesses that cannot compete with exports at risk of collapse. Many of these imports are highly subsidized or come from countries that have devalued their currency, while Ecuador’s economy is dollarized.

The policies adopted under IMF austerity packages do not resolve fiscal crises. Rather, they heighten them, forcing privatizations and the opening of the economy to foreign capital. Meanwhile, the structural problems in the intervened countries grow worse. The labor market becomes precarious, poverty and extreme poverty rise, there is a greater concentration of wealth, and the economy de-industrializes and reverts to raw materials. This encourages an intensification of mining and fossil fuel extraction—extractivism—with its multiple harmful impacts on the environment and a deterioration of the living conditions of the people living in countries where these policies are imposed.

In the case of Ecuador, the economic policies implemented by the government of Lenin Moreno are in perfect conformity with the IMF’s neoliberal recipe. This context explains the huge social mobilization this past week, especially of Indigenous groups and other sectors impacted by the elimination of gas and other energy subsidies and the government’s repressive response to the civil outcry. President Moreno’s approval rating has reached a historic low of 30%^[13], and as this article goes to press, the political repression of the State security forces has resulted in egregious social costs, with five deaths^[14], hundreds of wounded and almost five hundred persons arrested^[15].

Wilma Salgado holds a Doctorate in Economics, is former Minister of Economic Affairs of Ecuador and an expert on fiscal affairs under various administrations.

Translated from the original Spanish version by Jill Clark-Gollub.