USD 110 million cut in IESS Unemployment Insurance

The Ecuadorian Social Security Institute (IESS) projected a budget of USD 8,589 million for 2021, but it falls short due to the increase in expenses due to the impact of the health emergency.

The IESS has reduced the budget to pay unemployment insurance from 2021.

The Institute plans to raise $ 151.2 million to cover unemployment insurance this year. That means 42.2% less versus the initial budget for 2020, which was USD 261.9 million.

Of the 151.2 million unemployment insurance for 2021, some USD 113.6 million will come from contributions from workers and employers and the rest will be financed with the income and investments of the IESS, in addition to the fines that the Institute collects from employers who do not pay their unemployment insurance contribution on time.

Unemployment insurance is a benefit economic to protect members who are unemployed for up to six months.

The budget reduction of unemployment insurance It has its explanation in resolution 609 of the IESS, approved in 2020.

This resolution establishes that, from January 2021, the unemployment insurance contribution rate will decline from 1% to 0.5% per month, with the purpose of financing retiree bonuses.

In other words, the IESS opens a hole to cover another.

Half of the monthly contributions made by IESS members will be to finance unemployment insurance, while the other half (0.5%) will go to the pension fund, to cover a part of retirees’ bonuses.

The decision to change the distribution of contributions, by the IESS Board of Directors, is based on a actuarial study ordered by the Constitutional Court, in December 2019.

The Court declared the discount unconstitutional annual rate of 2.76%, equivalent to USD 121 million per year, which the IESS made to pensioners to finance part of the bonuses of retirees.

With the information from the actuarial study, the IESS Board of Directors reduced the contribution to unemployment insurance because, supposedly, this fund will be able to subsist with less income, due to the fact that it has a surplus of at least USD 1 billion.

This is what the president of the IESS Board of Directors, Jorge Wated, said at the time.

IESS will divest USD 1,418 million

The IESS continues to have financial problems despite being the institution with the largest amount of savings funds in the country.

To survive in 2021 you need to spend, once again, the savings you have in the Bank of the Ecuadorian Institute of Social Security (Biess), amounting to USD 20,000 million.

This figure, although it sounds high, is not. Several internal technical studies indicate that the savings in the Biess they should amount to about $ 80 billion.

The institute approved a budget of USD 8,589 million in 2021.

The anticipated income in the budget includes the sale of goods and services; investment income and fines, as well as transfers that the Central Government makes to the IESS.

But these sources of income will not be enough to cover all the expenses of the IESS.

That is why the IESS foresees divest this year about USD 1,419 million to fill the financial gap of 2021.

The divestments will be used to cover the following funds:

The deficit of the different IESS funds in 2021 occurs for two reasons: the lack of payment of the contribution of the Central Government and the drop in the number of affiliates by the impact of the coronavirus pandemic.

In the first, the IESS requested USD 2,655 million from the Government, but it is only planned that the Ministry of Finance disburse USD 1,532 million. Part of the gap will be covered with the divestments in the Biess.

Another part of the divestments will be used to make up for the economic impact of the economic crisis, which caused a drop in the number of affiliates in 2020, as they were left without jobs.

Between December 2019 and December 2020, the IESS reported a drop of 269,478 affiliates, from 3.1 million contributors to 2.8 million.

The desertion of members of the IESS, due to the increase in unemployment, will produce a reduced income of the Institute of the order of USD 689 million this year.

In 2020, the IESS budgeted USD 5,170 million in contribution income, but in 2021 it foresees that this income will decrease to USD 4,481 million due to the effect of the coronavirus pandemic, which aggravated the economic crisis.

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