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Coronavirus crisis: The six factors that define the economic ‘shock’

Posted On 14 Apr 2020

Companies that avail themselves of the agreement between the parties must not pay dividends to their shareholders during the recovery period and must guarantee the employment of their workers.

Coronavirus crisis: The six factors that define the economic ‘shock’

For example, to avoid layoffs, new salaries , different working hours may be agreed ; as well as extensions of terms and grace periods for debts, “said Martínez.

In addition, companies that reach agreements with their workers will be able to access financing, Martínez said.

For companies that cannot reach agreements with their workers, a liquidation regime will be created, which will last two or three years.

“Workers will be at the top of the payments, that is, they will be the first to collect , based on the assets that go into liquidation,” said the minister.

After the agreement phase between the parties, it will seek to establish new regulatory frameworks , Martínez said.

Another aspect that the Government seeks to continue underpinning is the reduction of public spending. During the morning of last Sunday, Moreno announced that the salary of the highest ranking public servants will be lowered by 50%.

Added to this are the contributions that will be made by public sector workers who earn more than $ 1,000 of 10% of their remuneration , which adds to savings to the Treasury of about $ 250 million a year. The table of contributions to be made by citizens for the emergency fund was modified.

  1. Companies: According to the Government, 70% of the productive sector is unemployed for now, to prevent the spread of the coronavirus pandemic. This has caused companies to stop receiving income and their liquidity is compromised. For this reason, the Government has sought to alleviate its expenses by deferring payments that companies must make, such as taxes or the employer’s contribution to the Ecuadorian Social Security Institute. According to business associations, SMEs are the most affected.
  2. Oil: The oil sector is going through a dire moment. The collapse of oil prices is compounded by damage to infrastructure. On April 7, the damage to the Heavy Crude Oil Pipeline (OCP) and the Trans-Ecuadorian Pipeline System (SOTE) was reported. The Minister of Energy and Non-Renewable Natural Resources, René Ortiz, pointed out that oil revenues have fallen 40%. The Esmeraldas Refinery also suffered damage following a power failure that occurred last week.
  3. Politics: The Government has little political capital and this has prevented it from successfully implementing economic measures. Last year, it was unable to eliminate fuel subsidies or pass bills in the Assembly that were part of the agreement with the International Monetary Fund (IMF). The situation for now is similar. The Assembly seems to disagree with most of the proposals put forward by the Government, and this contributes even more to the uncertainty.
  4. Employment: One of the problems that most concern the authorities and citizens is employment. After a month without activities, companies face problems and the dismissal or bankruptcy of businesses, in some cases, may be inevitable. According to official calculations, due to the COVID-19 crisis, some 508,000 people in Ecuador could enter unemployment and another 233,000 people will enter informality. To seek to reduce this impact, the Government proposes the agreement between the parties.
  5. Trade: Being a global pandemic, international markets have also been affected. Many exports made by the country have been reduced or stopped dead. One of the most complex cases is that of the floricultural sector. The flower growers record large losses and have asked the government for alternatives to deal with the situation. On the other hand, food shipments abroad have been maintained normally, for products such as bananas, shrimp, or tuna.
  6. Financing: Access to financing for Ecuador in international markets is closed for now. The Government urgently requires liquidity to face the health crisis and revive the economy. The doors open for now are China and the multilateral organizations. To face the emergency, it is expected to receive about $ 580 million, both from the Asian giant and from multilaterals. The Government has the expectation of obtaining about $ 2,000 million more from the same sources.

https://www.expreso.ec/actualidad/economia/crisis-coronavirus-seis-factores-definen-shock-economico-9208.html

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