After eight years in power, Rafael Correa has not managed to solve nine economy-related problems. Scarce job creation, lack of an agricultural policy, change of the productive matrix, ecological devastation… are some of the liabilities. Analyst Pablo Dávalos draws a picture of the situation.
Pablo Dávalos resume: Economist with postgraduate studies in Leuven (Belgium) and Grenoble (France). Senior professor of Political Economy at the Pontifical Catholic University of Ecuador. Professor at the Central University. Social movement advisor.
The government says unemployment in Ecuador has dropped to single digits. Is this true?
If we talk about the number of unemployed we assume that everybody else is fully employed, but as it turns out between those who are unemployed and those who do have jobs there is a large cushion that absorbs the pressure; this is made up by those informally employed, the underemployed, hidden unemployment and those employed in unsuitable conditions. That underemployment is the economy’s cushion.
And has underemployment grown?
Yes. This means that Ecuadorians have to find any strategy to survive, to put bread on their tables in circumstances in which the cost of the basic food basket (the basic goods a family acquires such as rice, sugar, potatoes …) has increased. In 2007 the basic basket cost USD 400; currently it costs USD 650. That is, a family whose income does not surpass USD 650 lives in poverty.
This means the price of the basic basket has increased by 60%
Indeed. And the basket’s composition has not changed.
But inflation is between 2% and 3% annually…
Yes, but the people who go to the market feel another type of inflation because it is weighted. Potatoes can cost twice as much, but rents do not go up; therefore, when potatoes are weighted by two and rent is divided, the increase is not times two, but 20%, 15%, etc. They are mathematical, statistical calculations, and one of these is the living wage. The government invents data and says that more than one person in each household works.
To know what has happened in these eight years of the Citizens’ Revolution we must look at employment. How many Ecuadorians are formally employed? i.e. have contracts for longer than a year and wages above the minimum? Only half of the economically active population (EAP) works under these conditions. This means over 3.5 million Ecuadorians are unemployed, which has been the same since 2000.
The other major liability is the lack of agricultural and food policies. So much so, that most fruit is imported from Chile, Colombia and Peru. The same goes for vegetables, cereals, etc. A country that has the potential to be an exporter of agricultural goods has become an importer. Last year the government spent USD 400 million on agricultural development and imported 2.700 million for the basic basket. Farmers produce without any support from the regime, there are no country roads, no policies for financing production, setting up markets, storing and distributing the products.
Does the food sovereignty policy announced by the government not work?
No, it does not exist. And I base what I say on data issued by the Central Bank. The size of the agricultural sector in the economy has been decreasing; it currently represents 7% of domestic production. This is very serious because when the State withdraws from the agricultural sector, the large corporations move in leading to concentration of land-ownership, i.e., few people own a lot of land.
We have had the most intensive land-ownership concentration process of the last 30 years. Now large companies (Pronaca, Nestle, Ecuaquímica, etc.) are the owners of thousands of hectares and control the domestic market.
The third liability is linked to the change of the productive matrix. A review of the size of industry in relation to the Gross Domestic Product (GDP) reveals it has been stagnating at 12% since 2007. The data contradicts the “change of the productive matrix” discourse and shows that there is no such thing, because there never were any industrial policies.
The first industrial policy of all is the labor policy. The workers earn very little. The gap between what they earn and what the basic food basket costs is the highest since 2000. Before 2000 that gap amounted to 7%, i.e. there was a 37% deficit between what the basket cost and salaries; now this deficit amounts to 47%. The Ecuadorians of the Citizens’ Revolution are more thoroughly exploited than they were in the neoliberal era.
What is happening in the fiscal sector? The government has received millions in revenues…
Before talking about that I would like to mention the fourth liability: the environment. During this time natural conditions have deteriorated. Deforestation and ecological devastation rates are the highest in 40 years. Never before have we experienced such an aggressive ecological destruction process than during the past eight years. There are areas such as Esmeraldas and Manabí that have lost nearly all its forests.
The fifth liability is the destruction of our institutions. Ecuadorians no longer trust in Justice, in the constitutional courts, because every institution has become subordinate to the ruling party.
The sixth liability is related to social tension. If the presidency pursues (people), social fear is generated and fear destroys democracy.
And the seventh liability is the fiscal policy. No government in the history of the republic – and this is no exaggeration – has had as many fiscal resources. And has done so little with so much. It has had more than USD 220 billion. It could have built a system of country roads, addressed poverty and the housing deficit, financed an agricultural policy so that no food would have to be imported, as well as industrial restructuring in order to export value-added products. None of that has been done.
Instead, Alianza País (President Rafael Correa’s movement) used those resources to sustain a strategy of perverse subsidies. The largest expenditure has not been in health, education and roads; the money has been used to subsidize fuel, spending almost twice to keep its price down than in education and health. This makes clear the perversity of the fiscal policy, designed to make people vote for the ruling party.
Do you feel concerned about foreign trade and Ecuador’s dependence on China?
Those are liabilities too, this lack of a long-term agenda and an international one.
What are the assets on the balance sheet?
The first asset is stability, but that does not depend on Alianza País, but on the Ecuadorian society that has taken care of institutional stability. We used to have institutional instability and changed presidents.
This is relative, other institutions are in crisis, they are not independent.
Of course. But we have not experienced an atmosphere of profound instability since Sixto Durán Ballén’s government ended (1992-1996).
The second asset is the restoration of the State’s role. Neoliberals destroyed the State’s solidarity with society; they tore the social fabric making people feel resentment against that model. Because of neoliberals we lost our currency.
Ecuadorians value the restoration of the State, the fact that bureaucracy is not looked down on. Today, a government bureaucrat earns more than an employee in the private sector, in general terms and especially in the health sector. A hospital manager who used to be my student told me that in the list of expenditures there were requests for intensive care instruments, for example. But the government bought plasma TVs so that the waiting rooms would look pretty. There are more changes in the appearance than in the substance of things, but at least it is something.
Another asset is education, although the government follows a very Fordist scheme in the sense of large factories and mass production. This applies to the millennium schools.
In 2005, Ecuadorians voted in a plebiscite that the percentage spent in health and education should not be less than 10% of GDP. If these parameters were followed, the 2015 budget for these sectors should be USD 10,000 million, but it is only 6,500 million. The government is not assuming its commitment. It spends on education, but not much and not consistently or coherently.
What about roads, hydroelectric plants and other investments?
This is another asset. These works are positive. But, although we have a first-class network of highways, we lack country roads and we still need to integrate that network to a production structure.
Unfortunately, we lack a basic condition of any society: dialogue. This government avoids dialogue, it has broken it. And when that happens democracy is broken. Without dialogue, the solution to problems is the violence that is applied from the Government down. We live in a situation where the capacity to engage in dialogue is disqualified and devalued. I insult you because I find no value in what you say. The Alianza País project used the few good things it did to legitimize such violence. When this period is over we will have to work very hard to heal as a society. The final reflection should be how to think about the transition.
What is the forecast until 2017, when Alianza País’ period ends?
We are going to be hit by an economic crisis. Because this is a political model that could survive thanks to the high oil prices that gave it the liquidity with which the regime bought allegiances and agreements.
This regime contributed to the creation of a consumption bubble that hides the country’s main problems. What do we have? With the price of oil at half of what was budgeted, revenues will decrease. And we have an additional problem: we have no currency, we are dollarized. How many dollars we have depends on the debt, the transfers made by migrants and the exports.
However, when it comes to exports, oil is too important. Last year it generated resources amounting to nearly USD 15 billion. When oil revenues decrease, liquidity is affected. And the government’s only solution is electronic money, which means bi-monetarism, i.e. monetary emission and a transition from dollarization.
What should be the political transition model after 2017?
We need a different model of society. We have given every opportunity to Alianza País’ political model, but we need to change it now because it is sustained by fear, violence and confrontation. As Ecuadorians we must make consistent decisions and we cannot allow this model to be repeated in the future. All of President Rafael Correa’s Saturday programs are exercises in violence, confrontation and denigration. Ecuadorians cannot afford to waste another four years after 2017. We have urgent problems that need to be solved, such as employment.
What do you think about the knowledge revolution promoted by the Government?
It is a white elephant, because after the end of the Citizens’ Revolution, Yachay (City of Knowledge) will unfortunately disappear. Why? What should have been done was to support schools such as the National Polytechnic (University of Quito). Why were resources taken away from the Polytechnic, the Espol (University of Guayaquil) or the Chimborazo Polytechnic to give them to Yachay, when they have all the knowhow and experience?