New Paper Examines Ecuador’s Success In Emerging from Economic Recession
By Eurasia Review
May 2, 2012
A new paper from the Center for Economic and Policy Research (CEPR) shows that Ecuador has experienced strong progress in key economic, social and health indicators since 2007, with a dramatic rebound from the global recession since 2009. The paper, “Ecuador’s Economy Since 2007” by Rebecca Ray and Sara Kozameh, examines economic, health, budget and other data since President Rafael Correa took office at the beginning of 2007.
“The Ecuadorian government has gotten its economic policies right,” CEPR Co-Director Mark Weisbrot said. “Through concessional loans, using banking regulation to keep dollars in the country, cash transfer programs for low-income households, and expanded public spending, Ecuador’s government implemented policies that allowed the country to emerge from the global recession even stronger than before.”
Among the highlights:
- The government fought the recession in two main ways: through expansionary fiscal policy – including expanding access to housing finance – and through what limited monetary policy it had available, keeping interest rates low and limiting the bank reserves that could leave the country.
- Ecuador’s stimulus was almost 5 percent of GDP and consisted of three major initiatives to use new lines of credit to bolster the economy. Apart from housing loans, the stimulus also included a large, temporary increase in the Crédito de Desarrollo Humano microcredit program.
- Poverty has fallen dramatically since 2009, and by about one-fourth over the last five years. Urban poverty has fallen by about one-third, to 17.4 percent since mid-2009, and had fallen to 22 percent before the recession. Rural poverty fell to 50.9 percent by the end of 2011, after rising from 58 to 59.7 percent during the recession.
- This decrease in poverty has been aided by a significant expansion in the bono de desarrollo humano (BDH), a cash transfer program for those in the lower 40 percent of income distribution who are mothers of children under age 16, are above the age of 65, or are disabled. Recent studies have also found significant positive health and education effects associated with poor children receiving the BDH.
- Between 2006 and 2009, social spending increased significantly, with government spending on education doubling from 2.6 to 5.2 percent of GDP – and spending on social welfare programs such as cash transfer programs, child and family development, food security and nutritional development programs, and construction and maintenance of community centers, more than doubling – from 0.7 to 1.8 percent of GDP.
- Education accessibility for poor children has also been increased through the elimination of school fees, and the offering of free breakfasts, school materials and uniforms.
- Unemployment is currently at 4.9 percent (its lowest point since the current methodology began in 2007), while the minimum wage has risen by about 40 percent in real terms over the last five years.
- Ecuador’s progress is especially impressive given the huge fall-off in revenue from exports and remittances over the last few years. Between 2008 and 2009, revenue from exports of goods fell by more than 25 percent.
The paper also finds that Ecuador could improve its balance of payments situation by diversifying exports, as there has been little diversification beyond the petroleum and traditional agricultural sectors. Having the dollar as the country’s currency makes this more difficult, however.
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