[p2p-research] good economic results for bolivia and ecuador
michelsub2004 at gmail.com
Thu Nov 5 00:17:45 CET 2009
Ecuador, Bolivia Show that Even Small Developing Countries Can Pursue
Independent Economic Policies, Stand Up for Their Rights, and Win
October 30, 2009 Mark
Among the conventional wisdom that we hear everyday in the business press is
that developing countries should bend over backwards to create a friendly
climate for foreign corporations, follow orthodox (neoliberal) macroeconomic
policy advice, and strive to achieve an investment-grade sovereign credit
rating so as to attract more foreign capital.
Guess which country is expected to have the fastest economic growth in the
Americas this year? Bolivia. The country’s first indigenous president, Evo
Morales, was elected in 2005 and took office in January 2006. Bolivia, the
poorest country in South America, had been operating under IMF agreements
for 20 consecutive years, and had a per capita income lower than it had been
27 years earlier. Evo sent the IMF packing just three months after he took
office, and then moved to re-nationalize the hydrocarbons industry (mostly
natural gas). Needless to say this did not sit well with the international
corporate community. Nor did Bolivia’s decision in May 2007 to withdraw from
the World Bank’s international arbitration panel (ICSID), which had a
tendency to settle disputes in favor of international corporations and
But Bolivia’s re-nationalization and increased royalties on hydrocarbons has
given the government billions of dollars of additional revenue (Bolivia’s
entire GDP is only about $16.6 billion, with a population of 10 million
people). These revenues have been useful for a government that wants to
promote development, and especially to maintain growth during the downturn.
Public investment increased from 6.3 percent of GDP in 2005 to 10.5 percent
for 2009. Bolivia’s growth through the current world downturn is even more
remarkable in that it was hit hard by falling prices for its most important
exports – natural gas and minerals, and also by a loss of important export
preferences in the U.S. market. The Bush administration cut off Bolivia’s
trade preferences that were granted under the ATPDEA (Andean Trade Promotion
and Drug Eradication Act), allegedly to punish Bolivia for insufficient
co-operation in the “war on drugs.” In reality, it was more complicated:
Bolivia expelled the U.S. Ambassador because of evidence that the U.S.
government was supporting the opposition to the Morales government, and the
ATPDA revocation followed soon thereafter. In any case, the Obama
administration has so far not changed the Bush administration’s policies
toward Bolivia; but Bolivia has proven that it can do quite well with or
without Washington’s cooperation.
Ecuador’s leftist president, Rafael Correa, is an economist who, well before
he was elected in December 2006, had understood and written about the
limitations of neoliberal economic dogma. He took office in 2007, and
established an international tribunal to examine the legitimacy of the
country’s debt. In November 2008 the commission found that part of the debt
was not legally contracted, and in December Correa announced that the
government would default on roughly $3.2 billion of its international debt.
He was vilified in the business press, but the default was successful.
Ecuador cleared a third of its foreign debt off its books by defaulting and
then buying the debt back at about 35 cents on the dollar. The country’s
international credit rating remains low, but no lower than it was before
Correa’s election – and it was even raised a notch after buyback was
The Correa government also incurred foreign investors’ wrath by
renegotiating its deals with foreign oil companies to capture a larger share
of revenue as oil prices rose. And Correa has bucked pressure from Chevron
and its powerful allies in Washington to drop his support of a lawsuit
against the company for massive pollution of ground waters, with damages
that could exceed $27 billion.
How has Ecuador done? Growth has averaged a healthy 4.5 percent over
Correa’s first two
And the government has made sure that it has trickled down: health care
spending as a percent of GDP has doubled, and social spending in general has
expanded considerably from 5.4 percent to 8.3 percent of GDP in two years.
This includes a doubling of the cash transfer program to poor households, a
$474 million increase in spending for housing, and other programs for
Ecuador was hit hard by a 77 percent drop in the price of its oil exports
from June 2008 to February 2009, as well as a decline in remittances from
abroad. Nonetheless it has weathered the storm pretty well. Other unorthodox
policies, in addition to the debt default, have helped Ecuador to stimulate
its economy without running too low on reserves. Ecuador’s currency is the
U.S. dollar, so that rules out using exchange rate policy and most monetary
policy for counter-cyclical efforts in a recession – a significant handicap.
Instead Ecuador was able to cut deals with China for a billion-dollar
advance payment for oil and another one billion dollar loan. The government
also has begun requiring Ecuadorian banks to repatriate some of their
reserves held abroad, expected to bring back another $1.2 billion, and has
started repatriating $2.5 billion in Central Bank reserves held abroad in
order to finance another large stimulus package. Ecuador’s growth will
probably come in at about 1 percent this year, which is pretty good relative
to most of the hemisphere – e.g. Mexico, at the other end of the spectrum,
is projected to have a 7.5 percent decline in GDP for 2009.
The standard reporting and even quasi-academic analysis of Bolivia and
Ecuador are that they are victims of populist, socialist, “anti-American”
governments – aligned with Venezuela’s Hugo Chavez and Cuba, of course – and
on the road to ruin. To be sure, both countries have many challenges ahead,
the most important of which will be to implement economic strategies that
can diversify and develop their economies over the long run. But they have
made a good start so far, by giving the conventional wisdom of the economic
and foreign policy establishment – in Washington and Europe — the respect
that it has earned.
This column was published in* The Guardian
* on October 28, 2009.
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