CEPR: The Ecuadorian Economy Under Correa
Julio Huato
Date: Wed, Jun 24, 2009 at 2:01 PM
Subject: New CEPR Paper Assesses the Ecuadorian Economy Under Correa
CENTER FOR ECONOMIC AND POLICY RESEARCH
________________________________________
New CEPR Paper Assesses the Ecuadorian Economy Under Correa
For Immediate Release: June 24, 2009
Contact: Dan Beeton, 202-239-1460
Washington, D.C. - 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
[http://www.cepr.net/index.php/mark-weisbrot/].
Among the highlights of the paper, "Update on the Ecuadorian Economy"
[http://www.cepr.net/documents/publications/ecuador-update-2009-06.pdf]
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.
###
________________________________________
The Center for Economic and Policy Research is an independent,
nonpartisan think tank that was established to promote democratic
debate on the most important economic and social issues that affect
people's lives. CEPR's Advisory Board includes Nobel Laureate
economists Robert Solow and Joseph Stiglitz; Janet Gornick, Professor
at the CUNY Graduate Center and Director of the Luxembourg Income
Study; Richard Freeman, Professor of Economics at Harvard University;
and Eileen Appelbaum, Professor and Director of the Center for Women
and Work at Rutgers University.
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