07
Feb
2009
James

Ecuador strives to keep the dollar circulating

The Sacajawea Dollar coin - popular in Ecuador.

Within the past month, a lot has been going on here in Ecuador. President Correa has imposed a new tax levy on a large number of imports in order to develop and stir interest in buying local goods, and to vaccinate the country against the effects of the downturned global economy. This move will doubtless affect a major sector of the middle and upper class who build their businesses around selling imported goods in Ecuador.

The government has imposed a tax of 30% on various luxury goods like imported alcohol, perfume, clothing, and up to a surprising 200% for other products from places like China and the USA. Add that to the typical 40% that local stores mark up their imported goods and the price extended to the consumer is a full 70% markup of the normal retail price found in the States.

The truth is, Ecuador doesn’t have infrastructure and technology to “setup shop” over night to replace the demand for many of the industrialized imports from China and the USA. In some cases, the local industry exists but the quality and technology is years behind that of the imported products.

On the other hand, companies like the Cuenca based Cerámica Andina, who produce local ceramic plate-ware and specialize in printed designs on their ceramics, are likely to feel the response of these new tax hikes in a positive way. Restaurants, hotels and retail stores alike will be looking for more economic alternatives for cups, mugs, and plates. Some people however are worried that the new spikes in local interest will keep many companies scrambling to keep up with demand.

Its arguably a good measure to attempt to insulate the tiny produce and petrol based economy, with a move like this when prices are falling around the globe. An over-night tax hike of 30% is indeed a bit drastic, and we’ll just have to wait and see if it turns out as President Correa has planed.