Bank reform or just politics in Ecuador? Regardless....money laundering is a profitable business.

Ecuador lawmakers raise bank taxes ahead of election

By Eduardo Garcia

QUITO | Tue Nov 20, 2012 8:48pm EST

(Reuters) - Ecuador lawmakers on Tuesday approved hiking bank taxes to finance cash payments to the poor, a move that could cement President Rafael Correa's chances of winning re-election, but which banks have described as a confiscation.

Correa, the clear favorite to win the February vote, has broad popular support thanks to anti-poverty initiatives and a leftist platform of boosting state involvement in the economy.

"They will continue earning, a bit less, but they will continue earning," Correa told reporters after the law was approved.

Opposition critics slam the measure as a jab at banker-turned-politician Guillermo Lasso, who has launched a bid for the presidency and is the most popular opposition candidate.

"He took a visceral decision to get back at me, a personal move against someone who was faster than him and thought about the poor," Lasso told the local daily Expreso on Sunday.

The measure would finance a raise in a monthly stipend paid to about 2 million low-income citizens including the elderly and single mothers to $50 from $35 currently.

The government would raise around $165 million through several tax increases, including a new 3 percent tax on bank revenue and the elimination of a tax exemption so that banks will have to pay 23 percent income tax rather than 13 percent.

The law will go into effect once it has been published in the official gazette, but officials did not give a publication date.

Lasso in September offered to raise the stipend, known as the Human Development Bonus, if he wins office. But Correa picked up on the idea and sent a bill to Congress to make banks pay for the increase.

"I spoke about the (possible) ways to finance it, and instead of engaging in a debate the president and candidate made a revenge law," Lasso said.

Lasso's proposal was seen as an attempt to dent Correa's support among the poor. The former banker is running on a platform of lower taxes and incentives to private investors to boost job creation.

A survey by local pollster Cedatos released on Monday forecast Correa would win 52 percent of the vote, followed by Lasso with 21 percent.

A new term in office would allow Correa, an ally of Venezuela's socialist leader Hugo Chavez, to continue spending heavily on the poor and probably give the state a bigger role in the economy.

AT WAR WITH BANKS

Correa, 49, has been at loggerheads with the banks since he first took office in 2007, but his attacks against the financial sector have become more frequent and caustic in recent weeks.

"They don't care about people. They care about their pockets. They're manipulating people. This is a strategy of terror. They want to scare people away from the government to put their candidate in office," Correa told reporters on Monday.

Bankers have complained that the tax increase amounts to a de facto confiscation. The banking chamber has said banks will have less money to grant loans, which could dampen economic growth in the OPEC-member country.

Correa, a 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.

(Additional reporting by Patricio Vivas; Editing by Lisa Shumaker)