New CEPR Paper Assesses the Ecuadorian Economy Under Correa

For Immediate Release

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Dan Beeton, 202-239-1460

New CEPR Paper Assesses the Ecuadorian Economy Under Correa

WASHINGTON - The Center for Economic and Policy Research released a paper
today that provides an overview of major macroeconomic and social
indicators and policy changes in Ecuador over the two and a half years
since President Rafael Correa took office in January 2007.

"Correa's continued popularity, even as the national and regional
economy slows, is most likely attributable to the economic reforms and
improvements in living standards that have been achieved over the last
two years," said CEPR Co-Director and economist Mark Weisbrot.

Among the highlights of the paper, "Update on the Ecuadorian Economy" by Mark Weisbrot and Luis Sandoval:

  • GDP
    growth averaged 4.5 percent annually for the first 2 years,
    contributing to significant reductions in unemployment, poverty, and
    extreme poverty during this time. Growth would have been much higher if
    not for the decline in the private oil sector, where output fell by
    8.93 percent during these years.
  • The
    government doubled spending on health care, as compared to past levels,
    to 3.5 percent of GDP (about $1.8 billion). Free health care spending
    has been expanded especially for children and pregnant women.
  • There
    was also a very large increase in social spending by the government,
    from 5.4 percent of GDP in 2006 to an estimated 8.3 percent of GDP in
    2008. This included a doubling of the cash transfer payment to the
    poorest households It also included a $474.3 million increase in annual
    spending on housing, mainly for low-income families, as well as
    numerous new programs in areas such as education, training, and
    microfinance.
  • The
    government maintained an expansionary fiscal policy even as inflation
    rose from 2.7 percent when Correa took office to 10 percent in the fall
    of 2008, before falling back to 6.4 percent over the past three months.
    This appears to have been a good policy, as the spike in inflation last
    year proved to be a mostly temporary increase due to the rise in
    commodity prices.
  • The
    government defaulted on $3.2 billion of foreign public debt, and then
    completed a buyback of 91 percent of the defaulted bonds, at about 35
    cents on the dollar. The default has apparently been very successful
    for the government's finances. In addition to clearing off a third of
    the country's foreign debt and much of its debt service, at a huge
    discount, the debt reduction appears to have convinced foreign
    investors that Ecuador's ability to repay its non-defaulted debt has
    increased.
  • In
    the last quarter of 2008 and the first quarter of this year, the
    economy was affected by the world recession, mostly in the form of
    lower oil prices and declining remittances. This led to a reduced
    current account surplus, and a growing trade deficit. In January 2009,
    the government implemented import restrictions, which appear to have to
    contributed to a reduction in its trade deficit.
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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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