“Progress Undone”: New Report Examines Ecuador’s Economy Since 2017

August 15, 2023

Contact: Dan Beeton, 202-293-5380 x104

Gains of 2007–2017 Period Have Been Erased as Poverty, Inequality, and Crime Have Spiked

Washington, DC — A new report from the Center for Economic and Policy Research examines key indicators for Ecuador’s economy and finds that significant gains of the 2007–2017 period have been erased by subsequent governments that returned to the International Monetary Fund and slashed spending. As a result, poverty and economic inequality have increased, as have crime, insecurity, and worsened health outcomes.

“The data make it clear: things have gotten much worse in Ecuador since 2017, with the return to the IMF and to destructive austerity,” CEPR Co-Director Mark Weisbrot said. “But in the 2007–2017 period, Ecuador experienced remarkable economic and social progress, which were all the more impressive considering that there were major external economic shocks to the Ecuadorian economy, including the world recession of 2009 and two oil price collapses.”

The report, “Ecuador: A Decade of Progress, Undone,” by Jake Johnston and Ivana Vasic-Lalovic compares the 2007–2017 period, when Rafael Correa was president, to the post-Correa era of Lenín Moreno and then current president Guillermo Lasso. It finds that from 2007 to 2017:

social spending, as a percentage of the economy, doubled;
poverty fell by over 41 percent;
inequality, as measured by the Gini coefficient, declined by 16.7 percent;
average annual per capita GDP grew by 1.6 percent, more than double the rate of the previous 25 years; and
Ecuador undertook significant institutional reforms that reduced debt and allowed the government to weather two large external shocks.

But since 2017:

government-imposed austerity measures pushed the economy into recession prior to the onset of the COVID pandemic;
in just two years, poverty increased by 17 percent, and inequality worsened, with both reaching the highest levels in more than a decade;
the country has had the worst-performing economy in South America, with per capita GDP still 5 percent below 2019 levels;
the economy is currently on the edge of recession after negative growth in the first quarter of 2023; and
Ecuador will be paying hundreds of millions of dollars each year to service IMF debt.

While the data include the negative impacts of the COVID-19 pandemic, the Ecuadorian government was poorly equipped to handle the pandemic after laying off 3,680 public health workers and dismantling many institutional reforms from the prior administration. In early 2020, Ecuador became a global hotspot for the outbreak, with one of the highest per capita death rates in the world.

The paper notes that the successes of the 2007–2017 period were not driven simply by a “commodities boom,” but from deliberate policy choices and reforms that the Correa government enacted, including ending central bank independence, defaulting on illegitimate debt, taxing capital leaving the country, countercyclical fiscal policy, and — in response to an oil price crash — tariffs implemented under the WTO’s provision for emergency balance of payments safeguards.

“Ecuador’s experience from 2007 to 2017 showed that even a relatively small, lower-middle income developing country is less restricted in its policy choices by ‘globalization’ than is commonly believed, and can achieve remarkable gains in living standards, with sound, independent economic policy-making,” Weisbrot said. “But Ecuador’s return to the IMF and self-defeating economic policies showed how quickly these gains can be eroded, to the point where poverty has increased substantially, Ecuadorians have lost confidence in their leaders, and people are fed up with out-of-control crime and insecurity.”

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