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Ecuador’s Financial Reforms Help Explain Why Voters Likely to Re-Elect Correa

By Alex Main | CEPR Americas Blog | February 14, 2013

On Sunday Ecuadorians will head to the polls to vote for a president and vice president, members of the National Assembly, mayors, and other elected officials. As we’ve done ahead of other elections in Latin America, CEPR has published a report offering some economic context to help understand the choices that voters are likely to make.

The report, entitled Ecuador’s New Deal: Reforming and Regulating the Financial Sector, focuses on the innovative financial reforms that have been implemented since President Rafael Correa took office in 2007.  The report explains how these measures helped Ecuador recover from some of the hemisphere’s worst shocks during the world recession.  It also shows how the reforms contributed to a substantial increase in government revenue much of which has been channeled toward health, education, housing and other social spending.  Given these advances, it is not surprising that the latest polls put Correa at 50 percentage points ahead of his closest opponent.

Earlier today, CEPR issued the following press release outlining the contents of the paper:

A new paper from the Center for Economic and Policy Research (CEPR) examines the financial reforms carried out by the Rafael Correa administration, reforms which the paper concludes are in large part responsible for the economic success Ecuador has experienced over the past several years, including its successful counter-cyclical policies during the global recession after 2008. The paper, “Ecuador’s New Deal: Reforming and Regulating the Financial Sector,” examines the Correa government’s taking control of the Central Bank, implementation of capital controls, increased taxation of the financial sector, and other regulatory reforms. It concludes that these played a major role in bringing about Ecuador’s strong economic growth, increased government revenue, a substantial decline in poverty and unemployment, and other improvements in economic and social indicators.

Ecuador will hold presidential elections on Sunday, February 17. Correa is almost certain to be re-elected; Reuters reports that he “has a lead of as much as 50 percentage points over the nearest of his seven rivals in opinion polls.”

“Ecuador has gone against the conventional wisdom and shown that there are alternatives,” CEPR Co-Director Mark Weisbrot and lead author of the paper said. “By pursuing policies that have prioritized economic development, employment, and poverty reduction over financial and foreign interests, Ecuador has surmounted some of the problems that had previously held it back, and that have hampered progress in other countries.”

The paper notes that by the last quarter of 2012, unemployment had fallen to 4.1 percent, its lowest level on record (for at least 25 years), while the national poverty rate fell to 27.3 percent as of December 2012, 27 percent below its level in 2006.

The paper finds that financial reforms contributed significantly to an unprecedented rise in government revenue under Correa, from 27 percent of GDP in 2006 to more than 40 percent in 2012.  This not only allowed for vitally important expansionary fiscal policy, but also a large increase in social spending.  The biggest increase was in housing, but there were also significant increases in health care spending and other social spending.  The government’s most important cash-transfer program (the Bono de Desarollo Humano) increased by one-fourth, and education funding more than doubled, as a percent of GDP, from 2006-2009.

The paper concludes that “What is most remarkable is that many of these reforms were unorthodox or against the prevailing wisdom of what governments are supposed to do in order to promote economic progress. Taking executive control over the central bank, defaulting on one-third of the foreign debt, increasing regulation and taxation of the financial sector, increasing restrictions on international capital flows, greatly expanding the size and role of government – these are measures that are supposed to lead to economic ruin.  The conventional wisdom is also that it is most important to please investors, including foreign creditors, which this government clearly did not do.”

“While not all of Ecuador’s reforms went against orthodox policy advice,” Weisbrot said, “many of them did – and they succeeded. It should be no surprise that Correa is such a popular candidate heading into this Sunday’s elections.”

The paper notes that “Ecuador’s success shows that a government committed to reform of the financial system, can – with popular support – confront an alliance of powerful, entrenched financial, political, and media interests and win. The government also took on powerful international interests as well, in its foreign debt default, its renegotiation of oil contracts, and its refusal to renew the concession for one of the United States’ few remaining military bases in South America.” It notes that this success indicates that developing countries may have more and better policy options than is commonly believed to be the case.

February 15, 2013 Posted by | Economics | , , , , | 1 Comment

New York Times Coverage of Venezuelan Election Was Poor

By Michael McGehee | NYT eXaminer | October 8, 2012

Hugo Chávez won his third straight presidential election this past weekend, and as the New York Times correspondent William Neumann put it in his latest article, “Chávez Wins New Term in Venezuela, Holding Off Surge by Opposition,”: “Though his margin of victory was much narrower than in past elections, he still won handily.” By more than 10 percent, Chávez defeated center-right candidate for the Justice First party, Henrique Capriles.

The problem with Neumann’s article, and his pre-election article “Fears Persist Among Venezuelan Voters Ahead of Election” is that he said nothing about Capriles’ campaign while providing considerable space to hearsay and accusations he, and Times editors, didn’t back up with examples. What resulted was clear cases of anti-Chávez hysteria and poor journalism.

In Neumann’s pre-election article he wrote that “polls diverge widely, with some predicting a victory for Mr. Chávez and others showing a race that is too close to call,” but he offers no examples of these “too close to call” polls. When the Center for Economic and Policy Research looked at available data they found that “Capriles [had] a 5.7 percent probability of winning the election.”

And just as Neumann doesn’t provide any examples of those who have “anxiety” about  ”a new electronic voting system that many Venezuelans fear might be used by the government to track those who vote against the president” there are no examples provided of “[m]any government workers” whose names “were made public after they signed a petition for an unsuccessful 2004 recall referendum to force Mr. Chávez out of office” and subsequently ”lost their jobs.” This claim has been circulating for nearly ten years, and if Neumann has proof it occurred he should certainly share it. That would be more newsworthy than the unfounded fears of unknown persons.

The fearmongering does not stop there. Neumann also claims, without providing any supporting evidence, that “Government workers are frequently required to attend pro-Chávez rallies.” Despite having won three successive presidential elections by large margins, and whose voter base continues to grow, it seems Neumann cannot accept the fact that Venezuelans vote for and “attend pro-Chávez rallies” because they actually support the man and his policies.

Another problem with Neumann’s articles is that, on one hand of Neumann’s Anti-Chávez argument, Chávez has sown “fear” and rules by intimidation. This is why nearly eight million Venezuelans voted for him—an increase by more than half a million votes, or an almost ten percent gain in votes since the 2006 election. Then, on the other hand, we are told that Chávez rules by bribery. Neumann claims that the reason “it has been harder for Mr. Capriles to dent the strong support for Mr. Chávez in rural areas” is the government spending on poverty, which Neumann refers to as “the government largess [Mr. Chávez] doles out with abandon.”

In his post-election article Neumann continues with his bias, which would be more appropriate in the opinion section, when he offers advice to Capriles. Neumann warns that ”the opposition is a fragile coalition with a history of destructive infighting, especially after an election defeat,” and that “Mr. Capriles will have to keep this fractious amalgam of parties from the left, right and center together in order to take advantage of the new ground they have gained.”

While noting that “Mr. Chávez has trumpeted his programs to help the poor,” or the so-called “government largess” which Chávez “has pointed to a sharp reduction in the number of people living in poverty” as proof that he is delivering the goods, Neumann tries to explain this not so much as an actual agenda by Chávez but due to the fact that the president “has governed during a phenomenal rise in oil prices, which have soared from $10 in 1998, the year before he took office, to more than $100 in recent years and the high $80s now, pouring huge amounts of revenue into Venezuela.” When it comes to Neumann, Chávez can’t win for losing.

Neumann also spends an inordinate amount of time talking about Chávez’s health. In fact, he provides more coverage of that, as well as criticizing Chávez at every turn and giving voice to unqualified accusations, than he does talking about the actual campaigns of the candidates. While Neumann writes in his post-election article that Capriles “campaigned almost nonstop” he doesn’t say what Capriles campaigned on, and if he provided his readers with such information they might actually get a glimpse into why the opposition fared much better than the past two elections.

In an article published this past April, Reuters wrote that “Henrique Capriles defines himself as a center-left ‘progressive’ follower of the business-friendly but socially-conscious Brazilian economic model,” while Global Post wrote that “Capriles has based his campaign on improving education, which he sees as a long-term solution to the country’s insecurity and deep poverty,” and that ”Capriles’ methods are not to shout down Chavez — indeed, he praises many of the president’s ideas.” Far from being an “opposition” candidate, Capriles tried to appear as Chávez-lite.

New York Times coverage of the presidential election in Venezuela was bizarre, but typical. The political leanings of the “paper of record” are notorious for reflecting the views and interests of the political and economic establishment. And with Chávez not being an ally of the U.S. government and business community, and is instead encouraging the regional independence that has been unfolding for the past decade much to their ire, and with Chávez expected to and having “won handily,” it comes as no surprise that the Venezuelan election process, which former American president Jimmy Carter has hailed as the “best in the world,” would get picked over by the New York Times as being the results of intimidation and bribery.

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October 11, 2012 Posted by | Deception, Mainstream Media, Warmongering | , , , , | 2 Comments

Raising the Minimum Wage Is Cheap and Easy

By Dean Baker | opednews.com | July 24, 2012

There are some policies that are pretty much no-brainers. We all agree that the Food and Drug Administration should keep dangerous drugs off the market. We all agree that the government should provide police and fire protection. And, we pretty much all agree that workers should be able to count on at least some minimal pay for a day’s work.

The minimum wage is non-controversial. The vast majority of people across the political spectrum support the minimum wage. In fact, one of the big accomplishments of the Gingrich Congress in 1996 was a 22 percent increase in the minimum wage. The only real issue is how high it should be. There are good reasons for believing that the minimum wage should be considerably higher than it is today.

At the current rate of $7.25 an hour, a full-time year-round worker would have gross pay of less than $15,000 a year. This is less than half of what the average Fortune 500 CEO makes in a day. It would be hard enough for a single person to survive on this income, imagine trying to support a child or even two on this money. And, close to 40 percent of the workers who would be benefited by a minimum wage increase have kids.

The counter-argument against raising the minimum wage is that it would actually hurt the people we are trying to help by reducing employment. There is little basis for this claim. The impact of the minimum wage on employment is one of the most heavily researched topics in economics.

Most recent research finds that it has no impact on employment. Even the research that finds job loss shows that the effect is small, suggesting that a 20 percent increase in the minimum wage may reduce employment of young people by around 2 to 3 percent.

While it’s not desirable to see anyone lose their job, it is important to remember the character of these jobs. They tend to be high turnover jobs that people leave after working relatively short periods of time. Job loss in this context is not likely to mean people being fired, rather it means that firms might be somewhat slower to hire. This would cause a typical low-wage worker to spend somewhat longer between jobs.

The dollars and cents might mean, for example, that a typical low wage worker ends up working 2 percent fewer hours in a year, but they take home 20 percent more pay for each hour that they work. This nets out to an increase in pay of 18 percent, a deal that most workers would likely consider pretty good.

In terms of whether we can afford a higher minimum wage, it is worth remembering that the minimum wage in 1968 would be almost $9.22 an hour in today’s dollars. In spite of the high minimum wage in the late 1960s, the job creators of that period pushed the unemployment rate down to 3.0 percent.

And, the country has not gotten poorer in the last four and a half decades. We have policy wonks running around Washington who seem to think that cell phones, computers, the Internet, and all other innovations of the past four decades that we now take for granted have reduced our standard of living.

This is of course nonsense. Productivity has increased by more than 120 percent since the late 1960s. If the minimum wage had kept step with productivity growth and inflation it would be over $20 an hour today.

The real problem in our economy today is not a lack of productivity. The problem is that the gains from productivity growth have not been broadly shared. The wealthy have used their power to rig the deck so that most of the benefits of growth have gone those at the top. They have used their control of trade policy, the Federal Reserve Board, and more recently the Wall Street bailout, to ensure that those at the top have gained at the expense of everyone else.
A higher minimum wage is an important step toward reversing this rigging. It should not be too much to expect that workers today should get at least as much as they did 45 years ago, and perhaps some dividend to allow them to share in the benefits of economic growth over this period. A minimum wage of $10 an hour would be a big step in the right direction.

Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C.

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July 24, 2012 Posted by | Economics | , , , | Leave a comment