THE LEGATUM PROSPERITY INDEX™ 2019

Creating the Pathways from Poverty to Prosperity

Ecuador

Ecuador’s prosperity has improved considerably over the last decade. As the most improved country in the Latin America and the Caribbean region, it has risen five ranks to 14th out of 25 countries. As a result, Ecuadorian prosperity nearly matches that of the region as a whole. Only 13 countries in the rest of the world have seen a greater improvement in their prosperity than Ecuador over the past decade, and consequently Ecuador has risen 14 ranks to 80th in the world.

The most significant driver of improving prosperity in Ecuador has been the strengthening of the country’s institutions, partly brought about by people exercising their democratic right to vote out failing governments, as evidenced by three governments being ousted since 1996.

A fresh and innovative approach in how the state interacted with the country’s gangs had a significant impact in homicide rates falling by 70%, with a subsequent improvement from 115th in 2009 to 73rd currently for the Safety and Security pillar. Improvements in governance have also occurred, owing to better policy prioritisation, coordination and implementation of building and public service projects. Media freedoms, in particular, have also improved over the past two years, as has the freedom for people to assemble and associate, resulting in Ecuador rising 18 ranks to 59th for the Personal Freedom pillar.

Improvements to communications and infrastructure, and well targeted policies in education and poverty reduction have led to Ecuador rising nine ranks to 84th for the Market Access and Infrastructure pillar, 16 ranks to 70th for Education and four ranks to 89th for Living Conditions since 2009. However, Ecuador’s success story of strengthening prosperity over the past decade has been tempered since 2015 by an economy struggling under the weight of debt, after a decade of borrowing for infrastructure projects and other public services, combined with falling oil revenues.

Inclusive Societies

Revival in media freedoms

Media freedoms and freedoms of assembly and association declined throughout the three terms of Rafael Correa’s administration. During Correa’s third term in office between 2013 and 2017, the Ecuadorian Government appeared to be taking greater measures to subvert freedom in the country’s media. This began in 2013 with a law requiring news coverage to be “verified, balanced, contextualised and opportune”, with a “right to correction” for anyone feeling they had been unfairly treated by the press.

Whilst the law sought to address real issues of media bias within the country, its vagueness was exploited by the Government. Supercom, the country’s media regulator, was created, which issued 675 sanctions in four years after its creation and came to be feared by many journalists and commentators. Amongst many examples of media intimidation, Franco/Brazilian journalist Manuela Picq was beaten by police before being jailed and stripped of her visa whilst covering anti-government protests; and popular satirist Gabriel González received veiled threats against his family. Correa even used the eruption of Cotopaxi volcano, 30km south of Quito, as a pretext for censorship, claiming the need to defuse citizen panic.

However, in a move to disassociate himself with the previous administration, Lenin Moreno, who came to power in 2017, pledged to uphold media freedoms. Moreno put the fight against corruption at the centre of his mandate, and recognised media freedom as a key part of the process, through side-lining Supercom and aiming to reform the 2013 Communications Law. In a positive sign that reforms are being enacted, members of the media cite that they are now supported better by the judiciary in their work.

Consequently, freedoms are strengthening again, particularly in the realms of media censorship and the right to associate and organise. As a result, Ecuador has moved up 18 places in the rankings in the Personal Freedom pillar since 2017.

Second chance for Ecuador’s gangsters

In 2007, the Ecuadorian Government adopted an innovative new approach in the country’s fight against crime and high rates of homicide. Moving away from the historically ineffective police-centric reactive approach, to focus on policies of social inclusion, the Correa administration took the unprecedented decision to decriminalise street gangs, while not condoning criminal activity. This involved allowing gangs to remodel themselves as cultural associations, able to register for government grants, to help with job creation and education outreach as well as cultural activities and the recognition of gangs as cultural street organisations. This strategy encouraged gangs to collaborate and cooperate with formal state institutions.

Initially, only 20 or so members of gangs decided to legalise, as the move represented a significant and sudden transition out of a life characterised by violence and crime. However, now there are more than 1,000 Latin Kings and Queens (the oldest Hispanic gang worldwide) in Ecuador embracing a different kind of life, having seen the positive change affected amongst other gang members.

Homicide rates have fallen by 70%, from 17 per 100,000 population in 2008 to just over 6 per 100,000 now, owing to the provision of a space, both culturally and legally, in which social ties within gangs could be transformed into a vehicle for behavioural change. In terms of violent crime, Ecuador is now the fourth safest country in the Latin America and the Caribbean region. Challenges do exist for this transformational policy, and these include the swelling of legalised gangs, particularly in prisons, as criminals aim to tap into the benefits and protections afforded, as well as the sustainability of providing enough government resources to make rehabilitation attractive.

Open Economies

Infrastructure debts pile up

Heavy spending throughout Correa’s presidency has led to Ecuador’s infrastructure significantly improving over the past decade. However, this level of spending has led to rising debt. Coupled with a failure to adapt to the variation in oil revenues, this has created economic instability within the country.

High oil prices in the first two terms of Rafael Correa’s presidency, between 2007 and 2014, allowed the Government to invest substantial amounts in the country’s infrastructure, as well as social services and other government programmes. Transport infrastructure, including the quality of the country’s ports and ease of transporting goods, developed significantly in the first half of the 2010s, along with associated growth in other areas including internet usage, and the ease of connecting to the electrical grid. By the end of 2012, unemployment in Ecuador stood at just 3.2% – the lowest figure for 25 years – and poverty rates had dropped by 27% in six years. Moreover, when Correa was re-elected in 2013, interest payments on Ecuador’s public debt were less than 1% of GDP, and the country’s debt-to-GDP ratio was a modest 25%.

But towards the end of 2014, the country’s income from oil began to shrink dramatically, leaving the Government with a growing deficit and major outstanding debt, much of which owed to China. In a bid to fast-track projects, Correa had taken full advantage of China’s lending, most conspicuously for the $2.8 billion Coca Codo Sinclair hydroelectric dam, opened with great fanfare alongside Chinese President Xi Jinping in 2016. To add yet further complications, the dam was found by a German engineering firm to have major structural issues, forcing it to operate at half capacity – a damaging prospect in light of the fact that its generation capability would be used to repay construction costs.

It is this background of government spending, and consequential investment in communications and transport infrastructure that helps explain why Ecuador’s Market Access and Infrastructure pillar has strengthened so considerably over the last decade. However, GDP per-capita growth has entered negative territory, shrinking from +4.6% to -0.4% per annum in 10 years; and government debt has doubled as a percentage of GDP, from 25% to 50%. In 2006, Ecuador’s GDP was equal to 90% of Colombian GDP and 111% of Peruvian GDP, but today this has reduced to just 72% and 76% respectively. This demise has had an impact on the country’s Economic Quality pillar, which has weakened since 2015, falling by five ranks. In addition, in the face of falling commodity prices and mounting debt struggles, the country’s economy has become less dynamic, increasingly unproductive and more heavily regulated, the latter leading to a fall of six ranks since 2015 in the Enterprise Conditions pillar.

The country’s new administration under Lenín Moreno has inherited an economy in great need of reform. Many expected the new President, who himself had served as Correa’s deputy until gaining power in elections in 2017, to continue in the populist vein of his predecessor. But to the surprise of many, he has distanced himself considerably from Correa’s populist tune, and has seemed intent on building a very different type of legacy. The beginning of 2019 saw the country reach a $4.2 billion financing deal with the IMF, a deal which the President claims has saved the country from the fate of neighbours such as Venezuela.

Empowered People

Education reforms

Education has undergone considerable reform in Ecuador since 2006. Broadly, these reforms can be characterised under three sets of policies. Firstly, to restore state jurisdiction over the school system which was heavily decentralised in 2006; secondly to universalise school enrolment; and thirdly to improve the quality of education services. From 2007 onwards, the Government has set clear priorities for schooling, which have in many ways been highly successful, and have led to a rise of 16 ranks in the Education pillar over the past decade.

The 10 years of considerable political instability up to 2006 resulted in Ecuador’s school system having little or no state input or accountability, poor physical conditions within schools, and a devalued teaching profession. In 2006, the outgoing government under President Alfredo Palacio instigated a referendum and public consultation on reforming the education sector. Eight policies were submitted and approved by 66% of the electorate, including universalising provision between ages 0 and 15, improving the physical infrastructure of schools, increasing education funding by 0.5% of GDP each year up to 6% (it reached 5% in 2015), and strengthening the teaching profession through more rigorous entry requirements for teachers and greater levels of pre-service and in-service training.

As a result, primary completion rates are now at 100%, up from 95% in 2009 and the secondary enrolment rate has increased to 88%, from 56% in 2009 with secondary completion rates rising too, from 60% to 99%. In terms of quality, test scores at secondary level have also improved considerably. In a study that mapped national test scores onto the PISA international benchmark, Ecuador’s results are 15% stronger today than in 2009.

Ecuador’s education reforms also appear to be having a positive effect on skills in the population. The average number of years of schooling for women has grown from 10.3 to 11.2 years, and adult literacy has risen by two percentage points to 94.4% over the last decade.

One notable aspect of Ecuador’s education reforms is the increase in school attendance among the country’s historically neglected ethnic groups. Indigenous people and Afro-Ecuadorians have shown the greatest increase in school attendance in the 10 years to 2015, such that enrolment rates for both groups are now comparable with the national average.

Improving living conditions

Countries in the Latin America and the Caribbean region have achieved significant levels of poverty reduction since the turn of the millennium. Even against this backdrop, Ecuador stands out as a remarkable performer. In the last decade alone, poverty levels have halved, and the proportion of households reporting being able to live on their level of income has risen by eight percentage points, to 52%.

Rafael Correa’s election in 2007 brought about a shift of emphasis to economic redistribution. Ecuador’s share of social expenditure increased from 4.7% of GDP in 2006 to 8.3% in 2012, although this was still well below the regional average of 15.5%. Between 2007 and 2014, an expansion of the cash-transfer programme, Bono de Desarollo Humano, resulted in an additional 400,000 people being reached and the monthly payment also increased from $30 to $50. The programme achieved a positive impact, especially amongst the poorest households.

However, despite many being lifted out of poverty, significant disparities still exist in the distribution of poverty; of urban Ecuadorians, 16% are below the national poverty line, half that of the 35% of rural Ecuadorians. The gap for other aspects of living conditions, however, such as access to electricity and safe water, and availability of suitable housing is not as significant.

Conclusion

Ecuador’s success in improving its prosperity over the past decade has stemmed from its institutions, mostly through a relatively stable democracy and recent improvements in freedoms and especially press freedoms. Consequently, it has improved more than any other Latin American or Caribbean country over the past decade across the four Inclusive Societies pillars.

Well-directed attention has also been paid to improving the lives of the population through education reform and targeted welfare programmes. However, significant investments made to the country’s infrastructure by previous governments has created a precarious situation with rising levels of debt and falling oil prices, which has resulted in the economy stagnating in recent years. The current model of poverty reduction in the country has been reliant on continued and increased social spending which, given the economic problems now facing Ecuador, may be at risk of being reduced.