Pink Tide in Ecuador: Reason of Economic Growth or the National Crisis – Borgen Project

SASKATOON, Canada In the early 2000s, the Pink Tide developed in various Latin American countries as an anti-imperialist, anti-capitalist movement to fight against neoliberal economic policies. Left-wing governments that drove the Pink Tide include Bolivia, Ecuador, Venezuela, and to a lesser extent Brazil and Argentina. Massive mobilizations against neoliberal policies in the public resulted in a transition to leftist governments. These then promoted growth based on production rather than speculation, increased the states role in wealth redistribution, reversed privatizations and expanded public services. Members of the Pink Tide had aligned goals to provide alternative forms of industrialization, trade and finance through various initiatives like the Community of Latin American and Caribbean States and the Union of South American Nations.

One key characteristic of the Pink Tide was neo-extractivism as a means to achieve economic and social progress. An abundance in raw materials drove growth and was a central source of state revenue for Latin America between 2000 and 2010. The classic use of extractivism included neoliberal policies of deregulation, transnationalization and privatization. The left-leaning governments of the region used extractive activities, especially mining, as an economic tool for increased social spending and poverty reduction, which is why it is referred to as neo-extractivism.

The Pink Tide in Ecuador began when Rafael Correa was elected in 2006 in part due to indigenous-led movements to fight oil and mining extractivism on Amazonian territories. During his presidency, he adopted a national plan based on the Indigenous-Andean philosophy buen vivir which emphasizes reciprocity, solidarity, welfare and an equal relationship between humans and earth.

Correa rewrote the constitution during his first term as president and included components of buen vivir. Using buen vivir as a foundation in the constitution showed a clear shift from the dominant system and challenged the global capitalist order with collectivist notions. Throughout Correas decade-long role as President, there was a 38% reduction in poverty and a 47% reduction in extreme poverty. Of total GDP percentage, social spending more than doubled. Enrollment in education increased substantially and Ecuador had the biggest share of GDP spent on higher education.

When Correa came into power, Ecuador had limitations on monetary policy due to the adoption of the US Dollar as its currency in 2000. Correa combated this by centralizing the bank and requiring that banks bring 45% of their liquid assets back into the country, which eventually increased to 80% by 2015.

Correa stopped using financing from institutions like the World Bank and the International Monetary Fund. Turning to China instead, he accepted more than $11 billion. The loan terms agreed that Ecuador would pay primarily through oil, mining and developing hydroelectric plants. This led to a deepening of dependence on natural resources.

The success of poverty reduction and improvement in social spending is paradoxical. Correa implemented buen vivir into the constitution and promised to implement it in his public policy. Yet his methods for better economic and social outcomes were achieved through neo-extractivism. One of his election campaign promises was that Amazonian lands such as the Yasuni National Rainforest would be protected from extractive activities. Instead, Correa promoted large-scale mining projects and removing protections on the Amazon. Giving rights to nature in the constitution was what made Correa popular throughout Ecuador and led to his election. His decisions caused environmental protests and criticisms throughout the country.

Alongside the rest of Latin America, the commodity boom eventually came to an end in Ecuador as oil prices dropped worldwide. Its GDP declined in 2014 for the first time since 1999. Neo-extractivism indeed brought positive outcomes for Ecuador, but it also produced overvalued exchange rates, weak linkages to the national economy, increased national debt, relatively low employment levels, no attention to rural development and a fractured relationship with environmentalists and indigenous peoples.

In 2017, Lenin Moreno was elected due to diminishing support for Correa from environmentalists and the economic crash following the commodity boom. From the beginning of Morenos presidency, he changed the economic policy by electing officials to reverse Correas state-oriented macroeconomic policies. Furthermore, he stopped the use of foreign debt to finance public investment. Moreno promised not to remove social spending but to open the economy again and establish trade with the United States and countries in the Trans-Pacific Partnership.

In March 2019, Moreno announced that he would use the International Monetary Funds financial support to achieve a stronger and more stable economy. Reforms included policies that would remove rigidities in the labor, product and financial sector. He entended these reforms to make Ecuador a more attractive business destination. Additionally, the goals were to encourage private investment, international trade and create better conditions for women to participate in the labor market.

Whether or not Ecuador elects a neoliberal or leftist leader in the future, economic stability will require some level of economic openness. Nonetheless, neo-extractivism allowed Correa to improve living conditions throughout the country and see significant GDP growth. However, a resource-based economy proved futile when international prices dropped in 2014. To protect Ecuadors most vulnerable and continue to alleviate poverty, different measures will be necessary: diversify the economy, reduce dependency on natural resources and the national debt and invest in education and social programs.

Charlotte Severns Photo: Flickr

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Pink Tide in Ecuador: Reason of Economic Growth or the National Crisis - Borgen Project