John December

Progress Report – December 2013

 * 1) Have completed a survey of documents relating to the legislative and policy environment for NGOs and CSOs in Ecuador.
 * 2) Have completed a preliminary review of Ecuador legislation on the Popular and Solidarity Economy
 * 3) Have completed a preliminary analysis of legislation pertaining to co-operatives
 * 4) Have drafted a new section pertaining to issues concerning the legislative and policy environment for civil society and social economy organizations in Ecuador, including a listing of key issues and concerns.
 * 5) Have initiated outreach to potential interview subjects with respect to government policy for civil society and social economy organizations (Orazio Bellettini Cedeño (Grupo Faro), Sofia Zaragosa (IAEN), Felipe Oqaz (Dia Blum), Pedro Moroles (Machita Kusunchi Co-op), Pablo Davalos
 * 6) Have arranged for a meeting with the Superintendent of Popular and Solidarity Economy.

= Public Policy and the Civil Economy = – cont’d.

Ecuador Context – NGOs, CSOs, and the Popular and Solidarity Economy
The relation of the state to civil society in Ecuador is both complex and contradictory. While the Ecuadorian constitution explicitly recognizes and guarantees the legitimacy and autonomy of civil society and its institutions, the application of these principles in practice often contradicts both the spirit and the letter of the constitution. And whereas the recent civic revolution prompted the drafting of the 1998 Monticristi constitution in which civil society actors played a key role recognition of civic, democratic and pluralist principles, many of Ecuador’s civil society organizations have faced marginalization de-legitimation and even dissolution by the serving government. In some cases, NGOs have been undermined by the creation of government-controlled organizations (GONGOS) that substitute and subvert the role of civic groups.

In addition, while there is a high level of civil society organizations (CSOs) in Ecuador, the level of civic engagement and citizen participation in the formation and implementation of public policy is low. CSOs that are critical of the government may be subject to disproportionately burdensome financial penalties and unfair court proceedings.

The primary issue that has emerged then, is the need to resolve this contradiction between policy and practice, vision and reality, with respect to the legitimacy, autonomy and agency of civil society vis-a-vis the role and practice of the Ecuadorian state.

As stated in the Constitution, all organizations in society are recognized to be an expression of popular sovereignty, and may therefore carry out processes of self –determination, and influence decisions, public policy and exercise social control of public bodies at all levels of government (Article 96). These organizations may be structured in any manner to enforce the popular power and its expression. They must adhere to internal democratic practices, and ensure the accountability of the organization (Article 96).

The Constitution also creates the “Council of Citizen Participation and Social Control” as a fourth branch of the State that is in charge of designating authorities such as the General Attorney, the General Prosecutor, the members of the Judicial Administrative Council, among others. The constitution provides that all the candidates will be nominated by CSOs and the citizens.

In addition, the Constitution contains specific articles relating to the protection of human and civic rights. These include:

Article 66.13: Freedom of association - The State recognizes and guarantees the people the right to associate, meet and speak freely and voluntarily.

Article 66.19: The right to personal data protection, which includes the access and the decision about the information and data related, and its correspondent protection. The data gathering, filing, processing, distribution, and spreading shall require the owner's authorization or a legal mandate.

Article 66.6: Freedom of expression - The State recognizes and guarantees the people the right to the free development of personality, with no more limitations than the rights of others, and the right to think and express one's thoughts freely and in all its forms and manifestations.

There is however, no comprehensive law in Ecuador regarding CSOs. The basis of the sector's legal treatment is the Civil Code, effective since 1861. The Civil Code also provides the President of the Republic the authority to establish and dissolve CSOs. Thus, CSOs are governed by Executive Decrees, which have been issued to address issues of operations, organization, and oversight of civil organizations.

The Presidential Decree No. 982 was signed by President Rafael Correa Delgado on March 25, 2008, and substantially revises the Regulations' provisions governing CSOs. It provides additional requirements, controls, and causes for dissolution of CSOs that did not previously exist. A second Presidential Decree No. 19 which was passed on June 4, 2013 provides for additional regulations and controls that have since come under widespread criticism as violations of both human and civic rights and in contravention of constitutional guarantees.

These constraints on the formation, operation, and reporting of NGOs and CSOs in Ecuador underscore an ongoing tension between the stated objectives of the serving government and its practices with respect to recognition of the freedom and autonomy of civil society in general. At the heart of this tension is the state’s ambivalence concerning the legitimacy of civil society as an autonomous social and political space over and against the legitimate requirements of state control and oversight for purposes of public accountability.

Since the passage of Decree 982, civil society organizations have lobbied for changes to the laws and regulations governing their activities. Their primary concerns relate to the undue restrictions on freedom of association and expression that have also been criticized by such groups as Human Rights Watch.

Chief concerns include the following:


 * The law allows for excessive government discretion to dissolve NGOs and CSOs. Grounds for dissolution of an organization include “political proselytizing,” “compromising ... the interests of the State,” and “non-compliance with accountability requirement of by-laws”. These terms are largely undefined, thus leaving the government with broad discretion to determine what constitutes prohibited conduct. As a result, legitimate NGOs may be deterred from speaking out on particular public policy matters for fear of being accused of “political proselytizing.” This entails the termination of an organization’s political rights of association and expression in a democracy. In addition, the law permits dissolution if an organization’s board of directors lacks gender balance – the only exceptions allowed are for NGO’s with membership that is exclusively of one gender.
 * The law gives the government and the public nearly unrestricted access to the internal information of NGOs. Citizens may demand “accountability” – undefined -- from any NGO that carries out public interest activities – also undefined -- or public services, or that utilizes public resources. NGOs must also hand over to government officials any information related to their activities, and must make their premises available for inspection so long as the officials provide advance notice. Government officials from ministries related to the work done by the group – for example, the Health Ministry if the group works on health-related topics – review the documentation and have the authority to grant or deny the group legal status. Once they obtain legal status, groups must inform authorities when they select directors and a legal representative and if they add or remove members. They must also provide the government with information about projects with international funding, and get government authorization to revise their by-laws. Without limits on these accountability obligations, the need to present documentation in response to repeated citizen or State demands threaten the privacy rights of NGO members and inappropriately burden an NGO’s financial and human resources thus paralyzing their ability to operate.
 * The law requires the registration on a government electronic database of all members belonging to an association. This entails a grave invasion of privacy and a violation of constitutional guarantees against the use of personal data without the explicit authorization of the individual or a legal mandate. The provision also lends itself to governmental abuse and undue surveillance by the state of civil society organizations and their members.
 * The law requires NGOs to accept any and all applicants as members thus nullifying a basic principle of freedom of assembly and the right of a group to determine the nature and composition of its civil community. The law also undermines an association’s capacity for self-defense against infiltration by hostile interests including potentially, the state itself.
 * The law creates a “permanent plan” for purging NGOs. All Government Ministries charged with NGO oversight are required to develop plans for removing organizations from the NGO Registry. Purging is permitted for even slight technical infractions and the information demanded may itself be improper, given international standards. As for example, the requirement for NGOs to report the names, ID numbers, nationality, and addresses of every member – a substantial undertaking for NGOs with large memberships. If the government is dissatisfied with an NGO’s response to a request for this list, it can dissolve the NGO in as little as 15 days.
 * The law grants government agents broad discretionary power to dissolve NGOS for a wide range of ill-defined infractions thus creating an atmosphere of insecurity and dependency that violates the ability of NGOS to properly pursue their legal and constitutionally guaranteed activities. Infractions include the extremely vague grounds of "compromising ... the interests of the State," vastly increasing the discretion of government officials to shut down civil associations. This provision allows the government to shut down a CSO for advocating against the government’s natural resource extraction policies on the grounds that this activity contravenes a State “interest” in promoting the extraction and export of oil as has happened in the case of Pachamama. CSOs are also subject to dissolution for many other reasons, including any act of non-compliance with their objective(s) or non-compliance with the Regulations.
 * A July 5, 2011 Presidential Decree poses a serious threat to development activities carried out in Ecuador with support from international agencies. Presidential Decree No. 812 amends existing regulations governing international NGOs by amending the law to prohibit international NGOs registered with the Ecuadoran Government from “intermediating, implementing, or executing plans, programs or projects” that are funded with resources from bilateral or multilateral co-operation entities. International NGOs that already hold agreements to operate in Ecuador must sign new agreements that conform to the Constitution and guidelines of the national development plan. Moreover, international NGOS are now required to submit their bylaws in Spanish. The government will then ask Ecuadorean embassies and consulates in countries where the international group operates for information about the “legality, solvency, and seriousness” of the organization.

The decree also imposes vaguely defined prohibitions on international groups – for instance, they are not allowed to conduct activities that “undermine security and public peace.” It also allows government officials to monitor a group's activities “to ensure the true fulfillment of its obligations” and to revoke the international agreement if they decide the group violates it. The requirement that international NGOs reapply for agreements to operate in Ecuador opens the door to denials based on abuses of discretion, as well as bureaucratic obstacles creating uncertainty and costly delays in development assistance.


 * Finally the law erects several barriers for the entry into legal status of new CSOs. CSOs may not attain legal status without possessing at least $USD 4000, in the case of second and third tier organizations, and $USD 400 for first tier organizations. As mentioned above, the Decree mandates that all of a CSO's members be individually identified on an internet-accessible registry in order for the CSO to legally exist, a major disincentive for the formation of new associations.

These issues represent serious obstacles to the realization of a social knowledge economy, which is the primary objective of the FLOK Society project and the stated intention of the government. However, there are also important and groundbreaking provisions in the Montecristi constitution, in the National Plan for Good Living, and in the legislative instruments that regulate the social/solidarity economy which are extraordinarily progressive with respect to acknowledging and promoting the role of civil society and of social organizations in the advancement of an open, informed, and engaged civil polity.

These principles are present in the provisions that promote the advancement of the social economy through the preferential support of governments and public bodies in the procurement of goods and services; in the National Plan provisions for full engagement of civil society in the prioritization and implementation of local economic development plans; and in the creation of institutional bodies that represent the interests of civil society stakeholders in the development of policies to regulate the operation of civil organizations such as co-operatives and CSOs.

These principles remain the foundation upon which a more open and engaged set of institutional supports may be developed to promote the realization of an open, social economy of knowledge.

Popular and Solidarity Economy Law
A number of policies that act as impediments to the free and open development of NGOs and CSOs as outlined above may also be seen in the legislation governing the operation of co-operatives and the broader solidarity economy. At the heart of the difficulties lies an unwarranted control of the state over the operations of social enterprises that should be free and autonomous entities in the pursuit of their social and economic aims.

In addition, there are fundamental confusions and contradictions in the language of the legislation that invites misunderstanding on what defines social economy organizations and the social/solidarity economy as a whole.

Outlined below is a listing of some of the more problematic issues with respect to the legislation. At their foundation however, is the underlying question of what constitutes a proper role for government when it comes to the regulation and support of co-operatives, credit unions, and the kinds of associations that constitute the social/solidarity economy.

As stated by International Labour Organization (ILO), and as borne out by the historical experience of co-operatives the world over, the basic principle that should characterize the relationship of the state to co-operatives is that of minimal involvement and intervention in matters of co-op organization and operation. In principle, the role of governments should be to establish appropriate enabling policy and legislation that recognizes the nature and requirements of co-operatives, that registers co-operatives and grants them legal status, that compiles useful data on the co-op economy and its constituent sectors, and that supports the growth of the sector through appropriate public policies for social and economic development.

In its document, “ILO Guidelines for Co-operative Legislation” the ILO states, “In order to thrive cooperatives need a favourable socio-economic, political and administrative framework. The current development model is based on political and economic freedom. The state must ensure respect for human rights, including the rule of law, the freedom to choose one’s economic activity, free access to national and international markets, private property as well as a clear distinction between the public and the private sector based on the principle of subsidiarity.

Apartfromexercisingthefunctionsoflegislation, registration, deregistration, and general normative control, the state in a market economy must not interfere in the economic affairs of cooperatives.”

Key Issues
a) Definition of Social Economy Organizations

The characterization of social economy organizations in the legislation is inaccurate and confusing. It fails to provide a clear definition of what constitutes social economy organizations and what are their defining economic and social attributes. The legislation also cites as examples of social economy organizations enterprises that clearly fall outside the accepted scope of what may be termed social enterprises (e.g. the inclusion of small, private businesses that engage in commercial practices for purposes of self-subsistence). Such businesses properly belong in the private sector, regardless of how small they may be.

b) Organizations such as trade unions, professional and sports associations, religious organizations, cultural organizations, etc. are excluded from the social economy. There is no justifiable rationale for this and such exclusion contravenes the accepted definition of social and solidarity economy.

c) There exists a fundamental confusion with respect to the notion of profit and its relation to social economy organizations. For example, it is stated in FEATURES Art. 3 c) that there is an absence of profit motive in social economy organizations in relation to their members. This is false, as for example in the case of many co-operatives and other social enterprises.

d) In VALUES Art. 4, a list of values such as honesty, justice, honesty, transparency, social responsibility etc. are attributed to social economy organizations. But are these values also required of other forms of commercial entities, such as private businesses or corporations? If not, why not?

e) There appears to be a double standard with respect to the reporting and accountability requirements imposed on social economy organizations as compared to private businesses. Co-ops and other social economy organizations appear to be held to a much more stringent standard than private sector firms. Why this should be so is unclear.

f) A key issue is the imposition by the Internal Revenue Service of arbitrary limits to the capital assets of social economy organizations. What are the standards and rationale for this?

g) In the global co-op movement it is generally accepted that all co-ops, being founded on identical principles, should be treated equally within the same legislation. What is the rationale for treating some co-op sectors differently from others? (e.g. transport, housing).

h) Undue powers of intervention in the affairs of co-operatives, including their dissolution, are granted to the Superintendent. In addition, the terms for a co-op’s dissolution are extremely vague and arbitrary and this constitutes an infringement on the freedom of co-operatives to operate as autonomous organizations. This kind of practice has been ended in most reforms of modern co-op law and this should be the case also in Ecuador.

i) In Chapter Four of the Legislation under Articles 55 and 59 – the requirements for allocation of capital gains and surplus for co-operatives – are too prescriptive and fail to take account of the particular social and economic contexts within which individual co-operatives have to operate. Moreover, these provisions are an infringement on the control rights of members to determine how best to financially manage their co-operative. Aside from the requirement to provide for an indivisible reserve, or for investment in common co-operative pools, other matters of allocating capital within a co-op should be left to its members.

j) The mandatory contribution of 5% from a co-op’s surplus for the support of the Institute and the Superintendent seems unwarranted unless these institutions have some accountability to the co-operatives that pay for them. Otherwise, they should be funded from general revenues.

k) In Section Three, dealing with Educational Co-operatives, it is unclear why teachers, as primary stakeholders in schools and the education system, should be prohibited from being members in an educational or school co-operatives.

l) Co-operative Federation, Art. 82 – It is unclear why co-op federations must be national in scope or why a minimum of thirty or more co-ops are needed for their formation. This seems arbitrary and ignores the particular contingencies of different co-operative sectors and their specific needs.

m) Chapter Seven – Dissolution and Liquidation – This is a particularly worrisome section and the primary issues here echo the concerns raised earlier with respect to NGO legislation and the wide discretionary powers of the state to dissolve legally constituted civil organizations. The terms for dissolution outlined in this section are extremely vague and easily subject to arbitrary interpretation and abuse.

n) Part Three – National Council of the Popular and Solidarity Economy – There are serious issues with the conception and organization of the National Council. These are primarily due to the lack of meaningful representation from civil society and the social/solidarity economy and the domination of the Council by government bodies.

o) Part Three – National Institute of the Popular and Solidarity Economy – The composition of the Institute is not articulated in the legislation. It is also empowered with the granting of legal status to co-operative and other social organizations; however this appears to be in conflict with the role of the Office of the Superintendent which also has this power.

p) Part Four – Superintendent of Popular and Solidarity Economy – The powers of this office are far too broad and contravene fundamental principles of a free and autonomous social and solidarity economy. This single element in the legislation is perhaps the one most in need of reflection and reform.

q) Art. 150 – Criminal Liability – Is the absence of limited liability for Officers and Directors for decisions made in violation of the rules or gross negligence different from the liabilities for Officers and Directors in private businesses and corporations? If not, why not?