Ecuador President Raises Taxes After Devastating Earthquake

Ecuador President Raises Taxes After Devastating Earthquake



Ecuadorean President Rafael Correa announced on Wednesday, April 20, 2016, that he would use his ability to sell off state assets in an effort to fund the reconstruction of the country after the earthquake on April 16. Other measures the president has announced are that millionaires will have to pay a one-time levy and there will be an increase in sales tax. These will assist the country as it embarks on the duty of restoring Ecuador after the devastating earthquake. 

The 7.8-magnitude earthquake devastated Ecuador and was responsible for the death of almost 600 people. “Rebuilding the affected areas will take years and cost millions of dollars,” the president reportedly said on prime time television. “The short-term costs are significant.”

Correa raised the sales tax from 12 percent to 14 for the next year. Ecuadorian citizens with at least $1 million in assets will be charged 0.9 percent. Workers who have an income of $1,000 per month will give up one day’s wage, and those earning $5,000 per month will contribute five days of their pay to fund the country’s reconstruction process.

The president also pointed out that he was looking into drawing $600 million from lenders, including the World Bank, to aid with the recovery of Ecuador. He also appealed to the international community to offer whatever help they could to the devastated country. He added, “We are looking at the possibility of issuing bonds in the international market.”

The fatal quake that hit Ecuador on April 16 was followed by dozens of aftershocks. This came at a bad time for the smallest OPEC country. The reduction in oil prices is one reason the president has implemented new taxes. Another situation that created the need for increased taxes is that the country’s manufacturing industry has suffered financially due to its over-dollarized economy and the subsequent devaluation of Ecuador’s currency.

Ecuador’s Central Bank reported that the country has $133 million in the treasury, which is one of the lowest balances in the last decade. According to Observatorio Fiscal, an organization that tracks governmental budgets, international reserves have also hit rock bottom at $2.3 billion, as compared to $4.2 billion in August 2015. As a result, President Correa has decided to raise taxes to aid in the recovery of Ecuador after the devastating earthquake.

“It is going to be a long battle. A quake is always bad but, in this case, it has caught Ecuador at a real bad time, with little money for the emergency,” San Fransisco de Quito University Professor of Economics Sebastian Oleas said.

Humanitarians and volunteers from across the globe were continuing to comb through the rubble of what was left looking for quake survivors as of April 20. Cuba has sent health workers, and Venezuela has sent food. The U.S. promised Ecuador $100,000 million in aid.

Though the influx of relief food continues, the distribution is slow. Hungry, melancholic survivors can be seen everywhere, eagerly waiting for water and food. “I have lost my house, and I am living on the street,” Sandra Alvia, one of the survivors, said. “We have no water, no power and nothing to eat.”

Raising taxes, according to Ecuador’s president, was necessary to counter the devastating effects of the earthquake. The recovery will be slow. However, President Carrea believes his move will help its citizens, since there have been other financial situations that have caused the country to have a reduced treasury.

By James Nganga
Edited by Cathy Milne


The Financial Times: Ecuador president promises ‘millionaire tax’ to fund quake recovery
NBC News: Ecuador President Will Raise Taxes to Fund Earthquake Recovery
The San Diego Union-Tribune: The Latest: Ecuador to raise taxes to fund quake recovery

Image Courtesy of European Commission DG ECHO’s Flickr Page – Creative Commons License