Rafael Correa, Ecuadorian Democracy, and Citizens’ Pocketbooks

Rafael Correa begins March 2013 as the longest-lasting president in Ecuadorian history, with a little over six years in power.[1]  His victory in the February 17, 2013, national elections guarantees him at least four more years, and opens the possibility of constitutional changes to permit permanent re-election.  The president not only won re-election with a resounding 57% of the valid vote, but he defeated his nearest challenger, banker Guillermo Lasso, by a 35-point margin.  Furthermore, Correa’s Alianza Patria Altiva I Soberana (Alianza PAIS) party obtained the first legislative majority since the country’s return to democracy in 1979 with 92 of the 137 seats in the unicamerical National Assembly.

Correa’s continuity and success is not an accident, but a byproduct of good fortune, targeted social policies and increased social expenditures, and a weak opposition. However, despite these electoral victories and unprecedented presidential stability, the short-term successes of the administration’s policies presage mixed long-term prospects for the Ecuadorian economy and democratic institutions.

The Economy, Social Spending, and Poverty
Correa’s overwhelming support in the election can be credited to a number of factors, including increased government reserves due to strong oil prices and increased tax revenues; an increase in social spending and increased access to health-care; and a growing economy and improved infrastructure.  The GDP has grown steadily since 2007, with a 5.2% increase in 2012 (Figure 1, chart 2). Further, the majority of this growth was outside the hydrocarbon sector, especially construction and aquaculture.  Crucially, this growth has not produced inflation.  The country closed 2012 with an annual inflation rate of 4.16% (Figure 1, chart 1), within the healthy range established by the Central Bank.

The central government has benefitted during this time from high oil prices, which have remained around $80 a barrel during Correa’s tenure (Figure 1, chart 3).  Although petroleum production represents only 12-13% of GDP (Figure 1, chart 1), earnings from the oil sector account for half of the government’s revenue (INEC 2013).  However, this revenue collection is not sufficient to cover the doubling of social spending in the country.  Part of this difference is being covered by improvements in the internal revenue service (Servicio de Rentas Internas, SRI), which has increased its coverage and effectiveness of tax collection in the country.  Discounting seasonality, collected tax revenue has doubled from around US$400 million to US$900 million monthly, as shown by the sustained increase of the tax take in Figure 1, chart 4 ("Yasuní and the future of Ecuadorean oil"  2013).

Notwithstanding the high oil prices and improved tax collection, the fiscal deficit has grown to nearly US$4 billion annually under Correa.  To cover these expenditures, the government has signed oil-for-cash agreements with China for nearly US$9 billion at terms worse than those proposed by the demonized International Monetary Fund ("Counting on Chinese credit"  2012).  It is precisely this type of deal that augers poorly for the sustainability of the social programs—or the country’s external debt.  Finite oil reserves and high interest rates on Chinese loans are even less advantageous to Ecuador than previous loans from foreign lenders that were bemoaned from the government; the country loudly escaped one type of dependency when it defaulted on its foreign debt in 2008, but it has now apparently traded that for a similar dependency on China.

Figure 1. Economic Indicators

Source: Instituto Nacional de Estadísticas y Censos (INEC) and the Ecuadorian Central Bank

The annual budget has doubled since the start of the Correa administration, increasing from 11 billion dollars in 2006 to over 26 billion dollars in 2012 (INEC 2013).  The government has invested heavily in infrastructure and education, and has provided cash-handouts to poor families through the Human Development Bond (BDH).  Under this program, poor families with children up to the age of 16 receive a monthly stipend of US$50, accounting for some 1.6 million people (Bono de Desarrollo Humano y Pensiones  2012).[2]  The results have been positive.  According to the Central Bank, since taking office in 2006, poverty has dropped 10 full percentage points, from 37.6 per cent in December 2006 to 35.09 per cent in December 2008 to 27.3 per cent in December 2012 (Figure 2, chart 1).[3]  Inequality has also dropped, as shown in Figure 2, chart 2, from a Gini coefficient of 0.54 to 0.48.  Lastly, unemployment has also experienced similar reductions, dropping from 9.03 per cent in January 2007 to 7.31 per cent in December 2008 to 5.04 per cent in December 2012 (Figure 2, chart 3), although this does not factor in underemployment that is common throughout the country.

Figure 2. Socio-economic indicators

Source: Instituto Nacional de Estadísticas y Censos (INEC) and the Ecuadorian Central Bank

Democracy
Offsetting many of these socio-economic gains, Correa has faced significant criticism for undercutting democratic institutions and directly challenging freedom of press.  Correa pursued libel charges against three directors and a journalist of the Guayaquil daily El Universo after publishing an opinion piece on the policy mutiny that was critical of the president.  The three directors were fined US$40 million, and all four were assessed three-years in prison.  Correa pursued similar charges against two journalists who wrote a book critical of business negotiations between the president’s brother, Fabricio Correa, and the government.  After months of negative international and domestic attention, including criticism from the Inter-American Court of Human Rights, President Correa announced in February 2012 that he would drop all charges ("Media battle is part of wider war"  2012; "Meting out punishment"  2012).

Somewhat ironically, Correa granted political asylum to WikiLeaks founder, Julian Assange, on August 16, 2012 ("Ecuador gambles on WikiLeaks founder Assange"  2012; "Ricardo Patiño anuncia que Ecuador concede el asilo a Julian Assange"  2012).  The administration publically claimed that this was a principled decision to protect freedom of speech, although it is consistent with an antagonistic foreign policy that is publicly critical of the U.S. and international financial institutions.  The administration has also garnered criticism for cultivating diplomatic links with authoritarian regimes, and hosted visits by Iranian president Mahmoud Ahmadinejad and the Syrian Vice Chancellor.  Correa also offered asylum to Syrian president Bashar al-Assad in an interview with the Brazilian daily Folha de São Paulo in October 2012 (Marreiro 2012).

In 2012, judicial reforms have garnered the most attention for undercutting democratic institutions. In the interest of eliminating judicial corruption, the Correa administration proposed a 3-person committee that would have full authority over a period of 18 months to reform the National Court of Justice. This 3-peson committee replaces the Transitional Judicial Council with the same responsibility as determined by the 2008 Constitution.  Critics suggest that the 3-person committee will be populated by loyalists to Correa and his party and that it unconstitutionally replaces a pre-existing institution. This and nine other proposals passed by popular referendum on 7 May 2011. [4]

The Future
Correa and Alianza PAIS’s success in the 2013 elections is an indicator of the president’s widespread popular approval and lack of popular investment in or regard for matters of horizontal accountability or balance-of-powers.  Ultimately, for the majority of Ecuadorian voters, economic voting took precedence over the more abstract matter of democratic accountability (Lewis-Beck 1988; Powell and Whitten 1993).  The increase in social spending, education, and health care are the most relevant yardsticks of government performance for most of the population.  However, the deficit of democratic institutions and increasing monetary and petroleum obligations to China will inevitably catch up to Ecuador.

Further, there is no political force on the horizon that appears capable of restricting the president’s power or offering a legitimate counterpoint to Alianza PAIS.  Much like Venezuela in its first decade under Hugó Chávez, the fragmented and debilitated opposition forces have not managed to unite around a common proposal, ideology or political strategy.  Until they coalesce around a common front, President Correa will continue to mold the Ecuadorian state as he wants, with certain socioeconomic and infrastructure gains, but at the cost of political pluralism and dialogue, and institutional independence.

This spells institutional change for Ecuador, with a deepening of the president’s Citizen’s Revolution and an increase in the concentration of state power in the executive.  The real prize for Correa in all of this is his supermajority in the assembly, which allows him a range of legislative possibilities in the 2013-2017 period.  For example, although the president publicly denied the possibility of changing the constitution to permit indefinite president re-election—a measure taken by ideological allies Chávez and Daniel Ortega—it would be unwise to discard this possibility.  In an interview regarding this topic after the elections, Correa responded by threatening that, “if these mediocre members of the partyocracy and press keep bothering me, I’ll run for re-election so these sufferers suffer” ("Rafael Correa: 'si siguen molestando me lanzo a la reelección'"  2013).[5]  By then, it will be clearer if the short-term economic gains are indeed sustainable in the long-run.



[1] This surpasses Isidro Ayora who ruled as dictator for five years (1926-1931).

[2] The value of the bond was previously US$35, but political one-upmanship drove it to US$50.  Speaking in the coastal city of Portoviejo in September 2012, presidential candidate Guillermo Lasso suggested proposed eliminating the government department of propaganda and using the recovered finances to fund this increase in the BDH (Pilco 2012). Not to be outdone, Correa responded by cutting out Lasso’s figurative feet from under him, proposing an identical increase and, as an added twist, financing the raise through further taxes on the banking sector.  This raise took effect through Presidential Decree 8/2013, issued on January 2, 2013.

[3] Poverty is considered to include those who live below US$2.54 a day.

[4] In November 2012, Correa also appointed his ex-personal secretary, Gustavo Jalkh, as the new president of the Consejo de la Judicatura (Judiciary Council), the state organ charged with assigning judges across the country.

[5] Textually, Correa said: “si siguen molestando estos mediocres de la partidocracia y de los medios de comunicación me les lanzo a la reeleción, para que sufran los sufridores”.


References
Bono de Desarrollo Humano y Pensiones. 2013. (10 diciembre 2012). Trámites Ecuador 2012 [cited 28 febrero 2013 2013]. Available from http://tramitesecuador.com/ministerio-de-inclusion-economica-y-social-mies/bono-de-desarrollo-humano/.

"Counting on Chinese credit." 2012. Latin American Regional Report (LARR), Febrero 2012, 12.

"Ecuador gambles on WikiLeaks founder Assange." 2012. Washington Post, 20/08/2012.

INEC. P.I.B. Instituto Nacional de Estadística y Censo (INEC) 2013 [cited 28 febrero 2013. Available from http://www.ecuadorencifras.com/cifras-inec/pib.html#tpi=371.

Lewis-Beck, Michael S. 1988. Economics and Elections: The Major Western Democracies. Ann Arbor: University of Michigan Press.

Marreiro, Flávia. 2012. "Equador avaliará eventual pedido de asilo de governo Assad, diz Rafael Correa." Folha de São Paulo, 10/12/2012.

"Media battle is part of wider war." 2012. Latin American Regional Report (LARR), Febrero 2012, 10-1.

"Meting out punishment." 2012. Latin American Regional Report (LARR), Abril 2012, 7.

Pilco, Carolina. 2012. "Guillermo Lasso ofreció aumentar el bono a USD 50." El Comercio, 29/09/2012.

Powell, G. Bingham, Jr., and Guy D. Whitten. 1993. "A Cross-National Analysis of Economic Voting: Taking Account of the Political Context." American Journal of Political Science 37 (2):391-414.

"Rafael Correa: 'si siguen molestando me lanzo a la reelección'." 2013. La Hora, 23 febrero 2013.

"Ricardo Patiño anuncia que Ecuador concede el asilo a Julian Assange." 2012. El Comercio, 16/08/2012.

"Yasuní and the future of Ecuadorean oil." 2013. Latin American Weekly Report (LAWR), 31 enero 2013, 5.