Ecuador's Correa pushing for higher bank taxes as election nears

Fri Oct 26, 2012 6:21pm EDT

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By Eduardo Garcia

QUITO, Oct 26 (Reuters) - Ecuador's government has unveiled a bill that would increase bank taxes to finance a welfare program, a move that has rattled banks, but would fuel support for President Rafael Correa ahead of a Feb. 2013 election.

Correa, who is expected to announce a re-election bid in early November, wants banks to finance an increase in his government's Human Development bonus scheme that pays about 2 million people a monthly stipend of $35.

The program tries to support low-income citizens, including the elderly and single mothers.

The bill - which is expected to be passed by Congress within a month - would allow the government to increase the monthly stipend to $50, helping cement Correa's position as the most popular politician among the poor.

The proposal was presented to Congress late on Thursday and is expected to get a lot of votes, partly because lawmakers face re-election in the Feb. 17 presidential and congressional ballot and the move would be popular with voters.

The bill would introduce a 3 percent tariff on banks' taxable income and effectively scrap a tax exception that let banks pay 15 percent in income tax instead of 25 percent. The exception still applies for other sectors of the economy.

"That makes this a discretional tax project which discriminates (against banks) and could even be characterized as a confiscation," said Abelardo Pachano, the general manager of Produbanco, a large local bank.

"The 3 percent charge could mean that a system that is making profits would start making loses," he told Reuters, estimating the government could raise between $200 million and $210 million a year with the new taxes.

JAB AT RIVAL

The move is a political jab at Guillermo Lasso, a banker from the costal city of Guayaquil who has launched a bid for the presidency. Lasso is the second favorite to win the election after Correa, according to opinion polls.

A survey by local pollster Cedatos released earlier this month forecast Correa would win 55 percent of the vote, followed by Lasso with 23 percent. The poll showed Correa is very popular among the poor, while Lasso's supporters tend to be middle-class or wealthy.

Correa's high popularity has been built on heavy government spending on roads, hospitals and schools.

Lasso, as well as former leader Lucio Gutierrez, who is running for office again, h ave also pledged to boost t he Human Development Bonus if they win - but they have vowed not to make banks pay for it.

Correa, 49, has been at loggerheads with the banks since he first took office in 2007.

The U.S.-trained economist blames banks for the hyperinflation and devaluation in 1999 that forced Ecuador to adopt the dollar as the national currency the following year and meant thousands of account holders lost part of their savings.

Correa's government has banned banks from investing in other sectors, a measure approved by a majority of voters in a 2011 referendum. And his government has implemented reforms that ban financial institutions from charging for some services to account and credit card holders.

Government regulations also force banks to acquire public debt and Congress passed a mortgage law earlier this year that allows borrowers to default on loans by giving back the houses or cars they bought to the banks that lent them the money, which analysts say could dampen credit growth. (Editing by Daniel Wallis and Andre Grenon)

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