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Ecuador: Correa’s Economic Legacy

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Correa's four years have resulted in slower GDP growth despite higher oil prices and political stability.


LBC SPECIAL
Analytica

 

An Ecuadorian presidential term is meant to last four years, even though no president has managed to spend that time in office since the mid 1990s. Rafael Correa, beneficiary of an extra two years, has however now ruled for more than 48 months. Time for a review, says the Quito Chamber of Industries and Production (CIP), which [recently] published a study on Correa’s economic and social legacy to date. Unsurprisingly, it was unflattering and led to a swift rebuttal by Planning Secretary René Ramírez.

 

The chamber compared the current administration’s track record with that of the preceding governments since 2001. It disregarded 2000, the first year of dollar usage, because the data was skewed by the adjustment of the economy to the introduction of a new currency. Under Correa, an economist with a U.S. doctorate, growth has slowed compared with the previous administrations, even though these had suffered from more political instability and had far fewer resources at their disposal. While the fall in the price of commodities and of remittances from overseas hit the economy in 2008-2009, the same happened in much of South America, and other countries bounced back much faster than Ecuador.

 

This slowdown in average growth came despite the highest level of public spending ever. The CIP calculated a total influx of $126 billion into government coffers over the past decade. Correa’s government benefited most from the high price of Ecuadorian oil, collecting $75 billion over the past few years. This hasn’t satisfied the populist government’s appetite for spending, as it has spent $77 billion, leading to the first deficit under dollarization. Inflation has remained relatively stable as imports have met much of the demand triggered by the cash government spending flooded into the economy.

Access to financing, meanwhile, has declined after several policy mistakes. Above all, the politically motivated 2008 debt default and the country’s temporary blacklisting by the Financial Action Task Force, a global anti-money laundering body, thanks to foolish diplomacy, have elevated country risk. Strapped for cash, it has had to “contract new foreign debt under conditions that offer little in favor of the country,” as well as to cajole the Social Security Service into buying debt and investing in government-promoted infrastructure projects.

At the end of the day, government spending has helped reduce poverty levels and eased access for poor individuals and families to basic services. This has included water and electricity, education and health, despite very negative media coverage of healthcare crises and other nagging problems of public utilities and social welfare programs. At the same time, “it has been demonstrated that this spending hasn’t been all too efficient.”

 

The government has characteristically bristled at the report, which was based on data from public offices, including Ecuador’s statistics office, the central bank, and the United Nations’ Economic Commission for Latin America and the Caribbean. Ramírez’s office quickly produced a list of “100 achievements of the Citizens’ Revolution” to counter the “ideological” document produced by the CIP.

 

Oddly, Senplades provides less favorable poverty reduction figures than the chamber. It says that in 2006, 45.6 percent of Ecuadorians were poor, falling to 41.8 percent by the end of 2010, with 700,000 people rising to the middle class in the same period. In contrast, the CIP notes a similar drop in percentage points, but to a far lower rate – to 33 percent in 2010 from 38 percentin 2006, the lowest ever. The CIP notes, however, that the rate of decline in poverty slowed markedly from the first half of the decade. Further research would be necessary to determine whether this is due to poor management of social spending under Correa or to a normal slowing of poverty reduction as Ecuador recovers from the 1998-2000 economic crisis.

 

Sadly, for all its public emphasis on the role of planning, the kind of careful analysis this would need appears unlikely to emerge from government offices. Senplades also reports that following the past four years’ investment in roadways, Ecuador now has “7.78 million kilometers of highways in good conditions.” Even for the Correa government, this estimate is astronomical – it’s more than 20 times the distance between the earth and the moon.

 

This commentary originally appeared in Ecuador Weekly Report published by Analytica. Republished with permission.

 

 

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