Ecuador’s economic progress impressive during Correa administration, report says

Feb 14, 2017 | 0 comments

By Alan Barber

A new report from the Center for Economic and Policy Research (CEPR) looks at key economic and social indicators, as well as policy, institutional, and regulatory changes in Ecuador in the decade since President Rafael Correa took office. The paper also looks at how the government dealt with the 2008–2009 world financial crisis and recession, and then a second oil price collapse beginning in 2014.

President Rafael Correa

“The reforms and macroeconomic policy changes over the past decade, some of which were quite innovative, seem to have allowed for significant economic and social progress ― despite two major external economic shocks that triggered recessions in Ecuador,” said CEPR Co-Director and economist Mark Weisbrot, a coauthor of the paper.

Among the highlights, the paper finds:

  •  Annual per capita GDP growth during the past decade (2006–2016) was 1.5 percent, as compared to 0.6 percent over the prior 26 years.
  •  The poverty rate declined by 38 percent, and extreme poverty by 47 percent ― a reduction many times larger than that of the previous decade. This resulted from economic growth and employment, and from government programs that helped the poor, such as the cash transfer program Bono de Desarollo Humano, which more than doubled in size as a percent of GDP.
  •  Inequality fell substantially, as measured by the Gini coefficient (from 0.55 to 0.47), or by the ratio of the top 10 percent to the bottom 10 percent of the income distribution (from 36 to 25, as of 2012).
  •  The government doubled social spending, as a percentage of GDP, from 4.3 percent in 2006 to 8.6 percent in 2016. This included large increases in spending on education, health, and urban development and housing.
  •  There were significant gains in education enrollment at various levels, as spending on higher education increased from 0.7 to 2.1 percent of GDP. This is the highest level of government spending on higher education in Latin America, and higher than the average of the OECD countries.
  •  Government expenditure on health services doubled as a percentage of GDP from 2006 to 2016.
  •  Public investment increased from 4 percent of GDP in 2006 to 14.8 percent in 2013, before falling to about 10 percent of GDP in 2016.

The paper notes that these results were not driven by a “commodities boom,” but from deliberate policy choices and reforms that the Correa government enacted, including ending central bank independence, defaulting on illegitimate debt, taxing capital leaving the country, counter-cyclical fiscal policy, and ― in response to the most recent oil price crash ― tariffs implemented under the WTO’s provision for emergency balance of payments safeguards.

“Ecuador’s experience over the last ten years indicates that a relatively small, lower-middle income developing country is less restricted in its policy choices by ‘globalization’ than is commonly believed,” Weisbrot said.

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The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people’s lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.

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