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<h1><font size=4><b>Latin America's economic rebels<br><br>
Ecuador, Bolivia Show that Even Small Developing Countries Can Pursue
Independent Economic Policies, Stand Up for Their Rights, and
Win</b></font></h1><font size=3>October 29, 2009 By <b>Mark Weisbrot</b>
<br>
Source:
<a href="http://www.guardian.co.uk/commentisfree/cifamerica/2009/oct/27/bolivia-ecuador-economy">
The Guardian Unlimited</a><br>
<a href="http://www.guardian.co.uk/commentisfree/cifamerica/2009/oct/27/bolivia-ecuador-economy" eudora="autourl">
http://www.guardian.co.uk/commentisfree/cifamerica/2009/oct/27/bolivia-ecuador-economy<br>
<br>
<br>
</a>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.<br><br>
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.<br><br>
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.<br><br>
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.<br><br>
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. <br><br>
How has Ecuador done? Growth has averaged a healthy 4.5 percent
over
<a href="http://salsa.democracyinaction.org/dia/track.jsp?v=2&c=aapBLimPl%2B9kx67Of9mgx%2FRqBbTe%2FLNC">
Correa's first two years</a>. 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.<br><br>
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.<br><br>
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. <br><br>
<br><br>
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