On April 23, a New York Times article by Nicholas Casey quoted a businessman in the earthquake-ravaged city of Portoviejo complaining about temporary tax increases that Rafael Correa’s government announced to pay for reconstruction which is presently estimated to cost US$2 to US$3 billion. Casey didn’t tell his readers that the areas impacted by the earthquake would be exempt from the new taxes and also given tax cuts.
The article inaccurately reported there would be “a one-time garnishing of government wages for those earning more than US$1,000 a month.” The measure would apply to all wages outside the disaster areas, not just “government wages.” Casey neglected to mention that most Ecuadorians earn less than US$1,000 per month. The average monthly salary is US$574 per month, not exactly a fact that would be common knowledge to the vast majority of NYT readers.
The biggest howler in the article is the assertion that the IMF has been “long shunned” in Ecuador “for its demands to cut government spending”. That’s like saying people avoid dealing with the Mafia because “they‘ve been known to be unpleasant”: true but wildly misleading. By the beginning of the 21st century, the IMF lost a tremendous amount of influence in Latin America because from 1980 to 2000 it had bullied governments into adopting disastrous policies which are known as “neoliberalism.”
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Ecuador’s real GDP per capita grew by a pitiful 5 percent from 1980 to 1998 compared to over 100 percent in the previous two decades. Then, in 1999, Ecuador’s banking sector collapsed under the weight of corruption and a neoliberal obsession with “central bank independence” and financial deregulation. By 2000, real GDP per capita fell below what it had been in 1980.
Casey quotes Jose Hidalgo, an economist who has praised Ecuadorian governments of the neoliberal era for having “saved” money. Those governments certainly “saved” for various huge bailouts of Ecuador’s super rich like the infamous “secretization” of 1983 and the bank bailouts in 1999. Those governments also “saved” in order to make interest payments to foreign investors for debt that had often been illegally contracted.
By the time Correa took office in 2007, decades of neoliberalism had left Ecuador’s roads, public hospitals, schools and other basic infrastructure in shambles. The World Economic Forum ranked Ecuador’s roads tenth among 18 countries in the region in 2006. By 2015 they were ranked as the best. The efficiency of Ecuador’s public services, as ranked by the Inter-American Development Bank, rose from next to last among the 16 countries it evaluated to sixth best in the region. Comparative studies by the U.N. found that the quality of Ecuador’s educational system is one of the most improved in the region since 2006.
Economists like Hidalgo don’t generally try to deny the vast improvements in Ecuador’s infrastructure under Correa’s government. Instead they vaguely decry “excessive public spending.” Presumably, Ecuador’s infrastructure and public services should have been left in a deplorable state. Imagine Ecuador’s government refusing to rebuild the damage from the recent earthquake and then bragging about how much money it “saved.”
That sums up the warped logic behind Hidalgo’s view, one that was tragically put into practice during the neoliberal era. Is a country better equipped to confront natural disasters when traveling through the country is badly hampered by dilapidated roads; when hospitals are in short supply and are under equipped and understaffed; when rescue workers and other public servants are poorly paid, inadequately trained and do not have proper equipment?
Casey wrote that oil prices “once fueled a government spending bonanza.” The “bonanza” actually had more to do with clamping down on tax avoidance by the rich and sensibly regulating its financial sector. Real per capita tax revenues doubled between 2006 (the year Correa was first elected) and 2012. At their highest point during Correa’s time in office, inflation-adjusted oil revenues per capita, accounting for costs of extraction, were lower than they were during much of the 1970s and 1980s.
Moreover, early on in Correa’s presidency, Ecuador’s economy suffered a massive external shock due to the global recession of 2009 which drove oil prices down. So even before oil prices collapsed in 2014, Correa’s government did not have exceptionally high oil revenues compared to previous governments.
Another blow from the 2009 global recession was a drop in remittances from Ecuadorians living abroad. One legacy of the neoliberal era is that remittances from Ecuadorians who fled their country during those years became very important to Ecuador’s economy. The fact that Ecuador has reduced poverty by about half during Correa’s time in office cannot be rationally attributed to luck.
Based on resilience to external shocks, there is also no credible argument for returning to economic policies endorsed by Casey’s article. In 2015, Ecuador avoided recession despite losing 7 percent of its GDP to the oil price collapse. In 1987, under the neoliberal government of Febres Cordero, Ecuador went into recession when export revenues dropped by only 1.84 percent of GDP.
Casey never seemed to consider that there were facts and counterarguments to the views expressed by his sources. In the United States, newspapers like the New York Times present Paul Ryan, who wants to eliminate the entire federal government (with the exception of the military) from the U.S. economy, as a serious policy expert. So it isn’t surprising that successful public investment in Ecuador is eagerly presented as wasteful. If you can’t identify extremists and charlatans at home, you probably won’t do so abroad either.