$18.8 million in cash in circulation and feeding an informal economy that is over-indebted and stifling growth – Diario La Hora

Trade. Informality takes liquidity from the formal economy and creates more informality.

For every dollar in demand deposits, there is $1.70 in cash. Informality and avoidance of the cost of formalization are behind this fact.

Currently, For every dollar in sight or current deposit in a formal financial system, $1.70 is in cash.

In the last 23 years, the Cash positionIt is not valid through any bank or co-operative, A 17-fold increase to a total of $18,878 millionAccording to estimates by the Central Bank of Ecuador (BCE).

According to former Economy Minister Fausto Ortiz, The amount of money currently moving in Ecuador “seems proportional to the size of the economy.”

When the country switched to the dollar in the early 2000s, $1.12 billion was in circulation; And in 2010 the amount reached $4,545 million.

The hypothesis of money growth is linked to informality and the desire not to be caught by the tax collection agency”, he pointed out.

In other words, The high costs of formalization in Ecuador mean that billions are not going through the financial system.

The problem with the nearly $19 billion in a sort of underground economy, according to economist and financial analyst Andrés Romero, is that the largesse doesn’t fund an increasingly sluggish lending sector.

“Currently, banks and cooperatives have increased interest rates on term deposits in search of more local liquidity for lending. External financing is very expensive and the growth rate of loans is harmful to companies and entrepreneurs,” Romero emphasized.

Informality

The World Economic Forum estimates that although the criminal economy, drug trafficking and money laundering represent about $5 billion, there would still be more than $13 billion, if formalized. A major impact on increasing credit levels. They help lower interest rates.

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LA HORA has published that one of the main obstacles to development in Ecuador is the limited access to formal credit, especially for entrepreneurs and micro-entrepreneurs.

Instead of imposing political interest rates, attention should be paid Reducing the cost of formalization (both monetary and procedural) so that money in circulation is multiplied by formal financing of new ventures..

“The opportunity is still there. “That money should allow for further growth in deposits and loans, which can boost and energize the economy,” Ortiz added.

Government is a burden

Ecuador is one of the countries that use the most money. It is one of the most traded cryptocurrencies.

These two facts are a A society that distrusts traditional institutions, but above all a state that seeks to collect other needs such as taxes, rates, contributions, etc.; But it provides poor quality public goods and services.

In this environment, according to economist and entrepreneur Carla Moran, it is necessary to reduce the burden of inefficient government.

For a small entrepreneur, for example, the cost of each worker would increase by 37% to 40% if he formalized.. In addition, it is, in many cases, filled with requirements imposed by municipalities and other events. On the other hand, if there are roads in bad condition and hospitals with less attention, this burden discourages any formal economy,” he clarified.

For this reason, deep changes in labor laws, tax practices, etc. must be made, along with curbing inefficient monopolies in the public and private sectors.

“Programs such as the Simplified Regime for Popular Businesses and Small Enterprises (RIMBE), even with the changes in the recent bill presented by the government, encourage formalization, but they are not enough. Local governments need to evaluate all the constraints and requirements they put in place. The slogan is to have less bureaucracy and a more formal economy.” , Moran concluded. (JS)

En 2010, se registraban $0,8 en efectivo por cada dólar en depósitos corrientes en el sistema financiero. Ahora esa proporción ha crecido más de dos veces.
Más del 60% de ecuatorianos justifica eludir los controles para pagar menos impuestos o formalizarse. No se ven incentivos para cumplir la ley.

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