Less than a decade ago, Ecuador was struggling with political uncertainty, as presidents came and went with unnatural regularity. The election of economist Rafael Correa in 2007, the seventh president in 10 years, was the start of a new paradigm. Today, the South American nation is enjoying its most stable government it has had in modern history, and an economy and society that are developing apace.
A self-described Christian leftist, Correa is US educated, vocally critical of US policy, and ardently reform-minded. Immediately upon taking office in 2007, he set about on an ambitious agenda that has transformed the country’s political and social structure, starting with a sweeping new constitution.
Prior to his election, Ecuador was clearly in political crisis. Having assuaged hyperinflation at the end of the decade by dollarizing the economy, Ecuador’s leaders had since accomplished little else legislatively. Its political structure had made it nearly impossible to elect a legislative branch that would work with the presidency, while the exclusion of the country’s indigenous peoples was causing continuous unrest. Correa’s three successors had been swept from office by massive indigenous protests or back-room congressional infighting.
Correa overcame political impasse through a referendum on a new constitution, and its hallmark was that all major policies must also be submitted to a popular vote. That process gave Correa the political capital to make bold and decisive changes. Among the first was to declare Ecuador’s national debt illegitimate, arguing that it was contracted by governments that little understood its purpose. Although seeming a radical step at the time, Correa had in fact flagged his intentions to the market for over a year, and then successfully fought off actions by vulture funds that had purchased the bonds following the debt repudiation.
Correa then set about renegotiating oil contracts, and the government’s share of gross revenues was raised from 13% to 87%. Seven of the 16 international oil companies in Ecuador pulled out and were replaced by state oil companies, adding $870 million to the treasury.
The public budget has been impacted perhaps even more significantly by a dramatic increase in tax receipts, mostly due to a more consistent enforcement of corporate taxes.
Bolstered public finances have translated into major investments in infrastructure and the doubling of social spending compared to 2006. Today, Ecuador has free education, free universal healthcare, and a successful public housing program. Poverty has dropped from 37.6% to 28.6% in the past five years, and the country now has the highest portion of public spending to GDP in Latin America and the Caribbean (10%).
Diversification of the economy away from oil as well as reducing Ecuador’s dependence on the US market have been focal points for Correa. In line with his strategic thinking, while trade with the US has actually increased 20% since 2005, the US share of Ecuadorean exports has fallen from 50% to 35%, with an increasing number of goods going to China.
Biodiversity joins cultural and economic diversity on the Correa platform. The Yasuní-ITT biosphere reserve may be the world’s first concerted effort to reduce greenhouse gases by pledging to keep hydrocarbon resources in the ground. The biosphere is now becoming an eco-tourism hotspot.
Correa has also taken major steps to change Ecuador’s geopolitical relations. In June 2009 he brought Ecuador into the Bolivarian Alliance for the Americas, favoring regional autonomy and integration over status quo dependence on the US.
Correa’s staunch anti-imperialist policies may not have earned him universal admiration in the global business community. However, few can deny that he is an earnest economist and canny political operator, with a well-credentialed background to match.
After obtaining an undergraduate degree in economics from the Catholic University of Santiago de Guayaquil he spent a year on mission in Cotopaxi Province, working to increase literacy and create microenterprises among the indigenous population. The experience significantly shaped his highly pluralistic political
vision, and helped him add the local language Quechua to his portfolio of English, French, and native Spanish.
His first experience in government was in 1993 as a director in the Ministry of Education and Culture, where he supervised improvement programs funded by the Inter-American Development Bank. He went on to receive a Master of Arts in Economics from the Université Catholique de Louvain in Belgium and then a Master of Science in Economics as well as a PhD in Economics from the University of Illinois at Urbana-Champaign. The reformist Correa can be seen in his doctoral dissertation, where he uses econometric analysis to argue that market-based reforms—based on the so-called Washington consensus—hurt Latin America.
Correa then returned to his native country and became Minister of Finance and Economy under Alfredo Palacio. The seeds of his life-long pro-sovereignty and anti-poverty campaign began to bloom, as he butted heads with the International Monetary Fund (IMF) and vocally opposed a free-trade deal with the US. When the World Bank withheld a loan to Ecuador because of changes to the country’s oil fund in 2005, Correa resigned. At the time he had the highest credibility of any official in the Palacio administration—a 70% trustworthy rating according to nationwide polls.
He quickly founded the political movement PAIS Alliance. Although PAIS Alliance did not run congressional candidates in the 2006 campaign, the movement signed political alliances with the Ecuadorean Socialist Party and the Communist Party of Ecuador. Following those agreements, Correa, who had been calling for a referendum to draft a new constitution, was postulated as a candidate for president. Several other parties united with Alliance PAIS in the second electoral turn, and Correa was officially declared the 56th President of Ecuador on December 4, 2006. Although his first term was due to end in January 2011, the new constitution mandated general elections for April 2009, which he won in the first round with 51.9% of the votes. It was the first time in Ecuador’s history that a second-round, run-off poll was not required.
The man who famously said that comparing George W. Bush with Satan is unfair to the devil is certainly no coward to international controversy. Perhaps the brightest global spotlight has been shone on the debate over granting political asylum to Wikileaks founder Julian Assange. The Australian national, who faces extradition to Sweden for prosecutor questioning, walked into the Ecuadoran embassy in London on June 19, 2012 and claimed asylum. Assange feared that Sweden could pass him on to the US, which he angered after Wikileaks published more than 250,000 classified US State Department documents. A sealed indictment for Assange’s arrest is rumored to exist, although US authorities have so far refused to reveal whether secret charges have been in fact been prepared.
With the Ecuadorean president lending his support to an individual threatened by a powerful state, some see the situation as similar to the David and Goliath story that has colored Correa’s political struggle against neo-liberalism in Latin America.
While the Assange incident has garnered much attention, it appears not to have diverted the Correa administration’s domestic policy, as the economy looks set to continue its ascent and increases in social programs bear fruit across the country’s diverse socio-economic landscape.
Correa’s current presidential term is due to end in February 2013, though he is allowed to stand for reelection, which could extend his period in office until 2017. His current approval rating stands above 70%.
© The Business Year