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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 .
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.