[News] Latin America's economic rebels - Ecuador & Bolivia

[Anti-Imperialist News]

Latin America's economic rebels

Ecuador, Bolivia Show that Even Small Developing Countries Can Pursue 
Independent Economic Policies, Stand Up for Their Rights, and Win

October 29, 2009 By Mark Weisbrot
Source: 
<http://www.guardian.co.uk/commentisfree/cifamerica/2009/oct/27/bolivia-ecuador-economy>The 
Guardian Unlimited
http://www.guardian.co.uk/commentisfree/cifamerica/2009/oct/27/bolivia-ecuador-economy


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 against governments.

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 completed.

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 
<http://salsa.democracyinaction.org/dia/track.jsp?v=2&c=aapBLimPl%2B9kx67Of9mgx%2FRqBbTe%2FLNC>Correa's 
first two years.  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 low-income families.

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.




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