Ecuador: Alternative Facts of Ecuador’s Economy by 50 plus economists

Ecuador’s Macroeconomic Alternative Facts: Debunking the Distorted Analysis of 50+ Economists
econ101.usfq.edu.ec / Carlos Uribe-Teran and Pablo Vega-Garcia
Professors of Economics, School of Economics and Institute of Economics, Universidad San Francisco de Quito

In this post we refute the imprecise and false macroeconomic statements (or the so-called “alternative facts”) presented in the post written by Ha-Joon Chang and James K. Galbraith and signed by other 50+ economists that was published on March 26th, 2017 at CommonDreams. The goal of this post is to provide a simple but rigorous analysis to try to eliminate the misinformation and correct the distorted view of Ecuador’s economy presented in that post.

In particular, we focus on four “alternative facts” mentioned in that post regarding the following aspects of Ecuador’s economy: 1) the impact of oil prices in the economy’s performance, 2) the role of the central bank in the economy, 3) the fiscal policy cyclicality, and 4) the economic growth rate for selected periods.

Alternative Fact 1, from Chang and Galbraith post: “It has all but become conventional wisdom that the economic and social progress in Ecuador, such as it is recognized, resulted simply from a commodities boom and a spike in oil revenues. This explanation ignores the innovative and important reforms that the Ecuadorian government has enacted that have played an instrumental role and allowed the country to emerge, relatively unscathed, from the 2009 Global Recession and the more recent collapse in oil prices”.

Claiming that Ecuador’s economic progress as a result of the spike in oil prices is just conventional wisdom is an understatement. Claiming that the last collapse in oil prices (starting on the second half of 2014) left Ecuador’s economy unscathed denotes an absolute ignorance of Ecuador’s reality and also of the data. During Correa’s administration, oil prices explain not only Ecuador’s economic growth but also the economic downturns. The correlation between real GDP growth and oil prices during that period is 0.94. In contrast, between 2001 and 2006 the correlation falls to 0.27. Graph 1 shows the real GDP growth and the WTI price from 2001 to 2016.

It is also important to note that the collapse in oil prices in 2008-2009 and in 2014-2016 resulted in a severe slowdown of the economy in 2009 and in a deep recession in 2015 and 2016. This is not only clear from the data. Taxi drivers, hairstylists, owners of small, medium, and large businesses or even the informal sector could also date the beginning of the current recession within months after the collapse in oil prices and provide further evidence of how unscathed this collapse has left Ecuadorians. Read Article

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