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Ecuador Approves New Labor Law With Changes to Public Pensions

By Nathan Gill
(Bloomberg) -- Ecuador’s congress approved changes to the Andean nation’s labor laws on Tuesday, including the removal of a government subsidy meant to cover almost half of state pensioners’ monthly payments.

Lawmakers approved the measure proposed by President Rafael Correa in a 91-to-29 vote, while government supporters and political opposition groups looked on from a packed balcony at congress in Quito. The new law replaces the subsidies with a general promise of future state funding for pensions, if needed.

Correa and members of his Alianza Pais political party have argued that the government didn’t need to subsidize the social security institute, known as IESS, because Ecuador has a surplus of young workers whose mandatory payroll contributions provide enough funding to cover current expenses. By eliminating the subsidy, the government will save about $1 billion a year, Correa said in a March 28 speech.

As the government was previously paying the subsidy with bonds, the measure will also relieve pressure on the nation’s debt ceiling as eliminating the provision removes the payments from the nation’s public debt forecasts. Ecuador’s laws limit total public debt to 40 percent of gross domestic product. It’s currently at 29 percent of GDP as of February, according to the most recent data from the Finance Ministry.

The new law also grants “housewives” subsidized social security benefits and bans firing pregnant women. It creates an umbrella labor union to organize workers across the nation’s different industries and reduces fixed-term labor contracts in favor of indefinite employment accords.

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