By World Bank
Ecuador?¦s outstanding financial functionality of 2003 is encouraging, yet fragile. a number of structural bottlenecks may possibly bog down financial self-discipline and restoration, that is a pre-condition to improve a poverty aid time table. Tax earmarkings and exemptions and an expansive payroll and pensions invoice have diminished to a minimal the on hand monetary area for improvement wishes. Reversing poverty traits is necessary for the country?¦s balance, and this may merely be completed with well-targeted, powerful and effective pro-poor courses. the established order isn't an choice for poverty aid. retaining a legitimate financial place and deepening confident social results is easily close by. one of the country?¦s many strengths are: a protracted oil providence; the lifestyles of and compliance with financial ideas; reducing arrears that are meant to absolutely disappear in 2004, major growth on social results regardless of lowering budgets; and a sequence of on-going reforms on funds administration. If reforms are to be triumphant, they need to be pro-poor. Ecuador?¦s financial rigidity and bad funds administration is deeply rooted in a governance method reaping rewards the elites, be it mirrored on pro-rich subsidies, specially on uncomplicated infrastructure; off-budget operations that hinder transparency and foster corruption, or regressive transfers to subnational governments defined through get together politics. The problem for the govt. is to supply more advantageous, effective, sustainable and equitable information to the negative.
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Additional resources for Creating Fiscal Space for Poverty Reduction in Ecuador: A Fiscal Management and Public Expenditure Review (World Bank Country Study)
0 percent of GDP in 1974, reflecting both the start-up of large-scale production and the fourfold increase in world oil prices. The newly found wealth gave rise to a rent-oriented, conflict-prone, and deeply fragmented political-economy regime that would come to dominate public policy making in the next decades. A major feature of this regime was that fiscal income from oil was used to finance an increase in the size of the State and to subsidize private spending through, among other means, low prices of domestic petroleum products, reduction in the taxation of non-oil activities, and a number of other subsidies.
He also proposes that the rules and operations of the existing liquidity support mechanisms, including the Liquidity Fund, be improved and that a new contingent liquidity facility be negotiated with a foreign institution. C. Structural Constraints on Fiscal Policy Ecuador entered the 21st century suffering the deleterious effects of three decades of predominantly wrong fiscal policies. 8 Estimates of the decline in real net worth calculated in two separate studies9 range between 32 percent and 48 percent.
The economic role of the State. During the oil boom of the 1970s, the decision was made to assign property rights on petroleum resources to the Ecuadoran state. By virtue of this decision the State became both the administrator of the oil rents and the crucial arena where the struggles for oil-rent distribution are waged and the institutional and policy decisions on this crucial matter are made. In consonance with this new role, the government became a producer of goods and services that were sold at subsidized levels, a rescuer of private firms in distress, a subdsidizer of credit to the private sector, an employer of last (and sometimes of first) resort, and a builder of infrastructure.