October 17, 2019
Mark Weisbrot The Nation, October 16, 2019
The government of Ecuador reached an agreement on Monday with leaders of the protests that have rocked the country for the last two weeks. The deal, which included the Confederation of Indigenous Nationalities of Ecuador (CONAIE), is a retreat for the government of President Lenín Moreno and a victory for the protesters.
Jubilant crowds took to the streets, chanting in celebration. But the agreement doesn’t resolve the underlying problems. Moreno is not likely to finish the remaining year and a half of his presidential term without a recurrence of serious unrest.
The protests started after the government ended fuel subsidies and began with a transport strike that blocked roads. Large student demonstrations and neighborhood protests followed, and clashes with security forces were common. Tens of thousands, and possibly hundreds of thousands, of people participated.
They were massively disruptive, and the government response was fierce. Security forces killed at least seven people, arrested about 1,000, and injured a similar number. Moreno had declared a “state of exception,” a curfew beginning at 8 p.m., and yet still had to flee the capital — temporarily moving it from Quito to the port city of Guayaquil.
Amnesty International had demanded “an immediate end to the heavy-handed repression of demonstrations, including mass detentions, and … swift, independent and impartial investigations into all allegations of arbitrary arrests, excessive use of force, torture and other ill-treatment.” The level of police repression shocked many in a country where security forces are not known, as much as elsewhere in the region, for the use of excessive force.
The government also raided homes to arrest political allies of former president Rafael Correa, including Paola Pabón, the governor of the province where the capital, Quito, is located. This continues a disturbing crackdown, which has included trumped-up charges against Correa himself and a number of former officials and the abuse of pretrial detention to force them into exile. On Monday, the Mexican embassy in Quito offered protection to a number of pro-Correa political dissidents, including legislators.
Moreno agreed on Sunday to rescind Decree 883, which was part of a program agreed to in March with the International Monetary Fund (IMF). The decree had cut subsidies to energy, including gasoline and diesel fuel. The resulting price increases had been substantial and were especially tough on poor people in rural areas. According to press reports, Moreno on Sunday was “willing to reconsider the economic policies that spurred the protests … [and] review plans to cut salaries and vacations for government workers.”
But other reports indicate that the Moreno government will stick to the austerity and other commitments that he made to the IMF in return for a $4.2 billion loan. And that economic program is so deeply flawed that it is bound to cause more trouble as it is implemented.
In fact, the IMF has already acknowledged that the shrinking of the Ecuadorian economy this year is a result of the budget-tightening in its program. This is a familiar pattern in IMF loan agreements: pushing the economy into recession, or deepening a slowdown that is already happening, with a promise that it will one day lead to a recovery.
In this case, the IMF program calls for a fiscal tightening of about 6 percent of GDP over the next three years, which is like knocking $1.4 trillion out of the budget gap in the US in the same brief time span.. We can imagine the recession and increase in unemployment that this kind of austerity would cause here. And what makes it even less rational is that the Ecuadorian government is barely running a budget deficit — just 0.3 percent of GDP, according to the IMF’s latest estimate. If we look at Ecuador’s public debt, the IMF’s own Debt Sustainability Analysis in its March loan agreement found it to be quite manageable.
The IMF forecasts that the economy will return to (very slow) growth next year, but this is based on unrealistic assumptions. These include a large increase in capital inflows, due to the program’s “restoring confidence” in the economy, and even some accounting errors. In reality, a recession is much more likely. And the agreement contains other regressive “reforms” that are sure to be unpopular, including layoffs, wage cuts, regressive tax increases, and pro-employer changes in labor law.
Where there is flawed economics, there is often bad politics. On October 11, US Secretary of State Mike Pompeo issued an official “United States Response to Protests in Ecuador,” stating that “the United States supports President Moreno and the Government of Ecuador’s efforts to institutionalize democratic practices and implement needed economic reforms.” For the Trump administration, the struggle in Ecuador is part of its policy of “containment and rollback,” to get rid of the left and center-left governments that presided over the majority of Latin America in the first decade of the 21st century, and restore the status quo ante.
Before he was elected in 2017, President Moreno was the vice president of Rafael Correa, who had implemented a set of institutional reforms and innovative economic policies that were quite successful. Poverty dropped by 38 percent and extreme poverty by 47 percent over the decade. Public investment — including schools, hospitals, roads, and electricity — more than doubled as a percent of GDP, as did social spending. Central Bank policy was coordinated with the Treasury, and the government was even able to use quantitative easing, despite having the US dollar as its currency. The government also required banks to bring billions of dollars back to the country and taxed capital outflows. Correa’s government showed the world that the boundaries for independent economic policy in a small, middle-income, developing country were much wider than is often believed.
Most of these changes are now being reversed. At the same time, Moreno has allied himself in the region with the Trump administration’s foreign policy: He took Ecuador out of OPEC and the Union of South American Nations, which had been a significant force for Latin American independence. To please Washington, he also revoked the political asylum and Ecuadorian citizenship of Julian Assange, violating the international treaties under which these were granted, as well as Ecuadorian law.
Ironically, the Moreno government’s rejection of Correa’s successful economic policies is badly harming him politically. The irony is similar at the international level: with Trump’s support, the IMF and related institutions like the World Bank and Inter-American Development Bank have poured about $10 billion into Ecuador, but the accompanying austerity program has made that support worse than worthless. It is the same thing they are doing, with the largest IMF loan ever, to the right-wing, pro-Trump government of Argentina, where President Mauricio Macri will likely become another political casualty of IMF policy in this month’s election. If Moreno persists in following the IMF program, he will join Macri on the long list of former heads of government whose political careers were ended with help from the IMF.