New CEPR Paper Assesses the Ecuadorian Economy Under Correa

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.