ECUADOR - Economy
President, Ecuadorean Social Security Institute (IESS)
José Ramiro González Jaramillo is an economist with a graduate degree in political science. He is currently President of the Board of Directors of the Ecuadorean Social Security Institute (IESS). He has also held the position of Under Secretary of Human Resources and the Ministry of Labor and Human Resources, as well as President of the Economist School of Quito.
Ecuador is in the process of reforming its social security system. This is a very significant step for the country, taking into account that in the past Ecuadoreans perceived the Ecuadorean Social Security Institute (IESS) as the sole provider of social security. The new law will involve every aspect of the system; taxpayers as well as both semi- and non-contributive members of the population. The semi- and non-contributors represent people who are unemployed or retired, which comprise 50% of the population in Ecuador. Therefore, it is important to ensure we have the right welfare system in place. These will be the main pillars of the new law we are expecting in 2013. At the moment, Ecuador has pension benefits for unemployed people, senior citizens, and housewives; these citizens historically depended on the government, not on the national pension fund. The new law will create a sustainable fund system that will offer benefits for retired people independent of the government administration.
A few years ago, there were 1.5 million people affiliated with the social security system in Ecuador, which covered the employed members of a family and their children for one year. As of today, there are 2.5 million affiliated people, covering 50% of the economically active population in Ecuador. If we include retirees and rural social security workers, there are over 3 million people. In addition, we have extended the coverage of the system to include children under the age of 18 and a taxpayer’s partner, as long as they contribute 3.41% of their wages. I would like to emphasize that one of our greatest achievements was the ending of a vicious cycle; there were a lack of affiliates because there were almost no services, and the social security system couldn’t offer many services because there weren’t enough affiliates. In this regard, the IESS Bank has significantly invested in the health system over the last few years, which has brought us a great deal of recognition and success at all levels. For example, we appealed to the private sector to increase the number of public hospitals and clinics, and now the IESS has 295 private healthcare centers at the service of the social security system. In 2011 alone, private healthcare institutions treated 603,000 patients. Furthermore, we have established 33 new hospitals, with eight more under construction. We are planning to develop 15 new hospitals in the near future.
Social security is the main domestic savings scavenger in every country, and Ecuador, a country thirsty for financing, kept those economic resources in the Central Bank. Much of the monetary reserves were funneled to foreign countries, and the IESS was only paid 0.7% annually. We have now reversed this situation, allocating social security funds for the development of the country. We invest through our mortgage and unsecured loan portfolios of about $3 billion, and through strategic development projects in the oil industry (Pañacocha), electric power (Toachi-Pilatón and Coca Codo Sinclair), and in healthcare infrastructure. In addition, we have invested $750 million in the securities market and the manufacturing sector. Today, the IESS has a variety of investments in 87 private companies, and we are shareholders in 18 of the 20 top national companies. We turned the IESS into a significant player in the development of Ecuador, stimulating the national economy.
I firmly believe that the IESS’ participation in the development of the public healthcare system has been a key part of its overall improvement. We have encouraged private institutions to invest in both staff and infrastructure. In my opinion, the public healthcare system should focus on primary health care, which represents 80% of the overall medical treatments. In this way, specialized and more complex treatments are the responsibility of the private sector, which leads the way on investment in new technology and innovation.
The investments made over the last few years have enabled the IESS to diversify its portfolio. I believe that the social security system has a bright future within the region, thanks to the young population. The average age of an affiliated member is 35, and we currently have 8.5 economically active people per retired person, and expect to reach 10 by end-2011. To put these figures into context; the average number of economically active people per retired person in Latin America is 5.4, and in Europe it is 1.8.
Our investments have been and continue to be consistent with the government’s macroeconomic policies. Ecuador is experiencing serious problems with consumerism, and we do not invest in imports, neither cars nor household appliances. Instead, we believe that we must reduce the current trade balance. In the future, the IESS will further invest in construction in order to develop the 200 hectares of available land we own in Quito and in other cities like Guayaquil and Cuenca. We will further strengthen our ties with private companies in the construction sector, in order to maintain reasonable construction prices. Construction will definitely drive our investment lines in the near future, because the sector offers great opportunities. The IESS is seeking partners for the development of large construction projects, especially those that address the demands of the lower to middle income population. In this regard, I also see the mining sector as a potential recipient of investment, both local and foreign, because the sector is taking its first steps in the country. The government is also heavily promoting the development of ICT, creating many investment opportunities.
Such an agreement is very important for Ecuadorean migrants at retirement age who have worked in both countries. We agreed to implement a pension portability system that will facilitate the accumulation of workers’ pensions, regardless of the country they worked in. For example, this agreement allows someone who worked for 14 years in Ecuador and 17 years in Spain access to their pension in either country after retirement. This is also reciprocal for Spanish workers in Ecuador. Furthermore, we have signed agreements with other South American countries such as Brazil, Argentina, Bolivia, Venezuela, Peru, and Chile. In the future, we want to focus our efforts on our emigrant community in the US, where a great number of Ecuadorean workers lack permits and do not have access to health care. We are also providing primary healthcare services to this community via a network based in Ecuador. The only requirement is to enroll in social security on the internet.
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