Tuesday, February 19, 2013

Rafael Correa wins re-election in a laugher

One of Joseph's Stiglitz's more ardent admirers, Rafael Correa, won Sunday's re-election in a laugher.  Now Stiglitz is one of the few economists with any linkage back to the Progressives that used to have so much influence in the formation of USA public policy—back when economics was still important to the left.  Well economics IS important to Correa—he actually has a Ph.D in economics from the University of Illinois (one of those colossal land-grant schools in the USA Midwest.)  They still teach development economics in rare corners of the land-grant system and as a Big Ten grad, I am very proud of him.  In Ecuador, he has amazing economic development problems including grinding poverty, a history of incredible levels of political corruption, and an utterly Predatory upper class.  But because Ecuador is also a member of OPEC, he has resources.

There are very few examples these days of anyone trying economic policies that were not hatched in the fevered imaginations of some neoliberal somewhere.  Correa is one so his experiment bears watching.  They seem to love him in Ecuador—of course not the old corrupt oligarchy but apparently most everyone else.

Ecuador's Rafael Correa easily wins re-election

Ecuadorean President Rafael Correa cruised to a re-election victory on Sunday, winning 57 percent of the vote compared to 24 percent for closest rival Guillermo Lasso, with almost 40 percent of votes counted.

By FRANCE 24   18/02/2013

Ecuadorean President Rafael Correa swept to a re-election victory on Sunday that allows him to strengthen state control over the OPEC nation's economy and gives a timely boost to Latin America's alliance of socialist leaders.

The charismatic leftist had 57 percent support compared with 24 percent for runner-up Guillermo Lasso, with almost 40 percent of votes counted. The electoral authority said it did not expect the results to change significantly.

"Nobody can stop this revolution," a jubilant Correa told supporters from the balcony of the presidential palace, after claiming victory.

"The colonial powers are not in charge anymore. You can be sure that in this revolution it's Ecuadoreans in control."

The combative, U.S.-trained economist took power in 2007 and has won strong support among the poor by using booming oil revenues to build roads, hospitals and schools in rural areas and shantytowns.

"Our Ecuador needs a president like Rafael Correa. He has been strong and has not allowed anyone to intimidate him," said Julieta Moira, 46, who is unemployed, as she celebrated outside the presidential palace. "I'm very excited, happy and thankful."

Supporters also gathered in a park in the upscale north end of Quito, waving the signature neon-green flags of Correa's Alianza Pais party.

Dedicates win to Chavez

Correa, 49, may now be in line to become Latin America's main anti-American voice and de facto leader of the ALBA bloc of leftist governments as Venezuelan President Hugo Chavez has been silenced during his battle with cancer.

Correa said he dedicated his victory to Chavez.
The fractured opposition failed to make a consolidated challenge. It fielded seven candidates, making it easy for Correa, and he is now on track for a decade in office.

That is rare stability in a country where three presidents were pushed from office by coups or street protests in the decade before Correa took power in 2007.

He is already the longest-serving president since the return to democracy in the 1970s following a military dictatorship.

Correa's success has hinged in part on high oil prices that allowed for liberal state spending, including boosting cash handouts to 2 million people, and spurred solid economic growth.

He is likely to continue spending heavily to maintain his popularity, but state revenues would dry up if oil prices fell. (Yeah, that's going to happen...NOT)

He now hopes to diversify the economy away from its dependence on oil, in part by bringing in new investment for the mining sector. Despite promising reserves of gold and copper, mining operations have barely gotten off the ground.

In a news conference on Sunday after polls closed, Correa played down the need for more foreign investment. He insisted the ultimate goal was to ensure economic growth rather than "mortgaging" the country to bring in cash from abroad.

"We welcome foreign investment, and we're already getting plenty of it," Correa said.

"Ecuador is one of the most successful economies in Latin America."

Lasso, a wealthy ex-banker and Correa's closest rival, had tried to woo voters with promises of lower taxes. He congratulated Correa on his victory but also took pride in his Creo party taking a quarter of the vote.

"We are now the second-largest political force in the country," said Lasso, who was beaming despite losing.

Congress battle

The other six opposition candidates included former Correa ally Alberto Acosta, former President Lucio Gutierrez and banana magnate and five-time presidential candidate Alvaro Noboa.

Pollsters say some of them focused their campaigns too much on attacking Correa and failed to put forward concrete proposals to entice voters.

Ecuadoreans also chose a new Congress on Sunday.

The Alianza Pais party was expected to win a majority in the legislature, which would let Correa push ahead with controversial reforms, including a media law and changes to mining legislation, without having to negotiate with rivals.

The results of the vote for Congress are not expected to be known for several days, but Correa said he was confident.

"I think we are going to get a majority and we will manage that majority with great responsibility," he told Latin America's Telesur TV network, set up by Chavez and his allies as an alternative to established media.

Correa never shies away from a fight, be it with international bondholders, oil companies, local bankers, the Catholic Church or media that criticize his policies.

He vowed on Sunday to expand state regulations over media groups he has called "dogs" and "hired assassins."

"One of the things we have to fix is an unethical and unscrupulous press that wants to judge, legislate and govern," Correa said. "That goes against the rule of law and we will not allow it."

His criticism of the U.S. "empire" and his clashes with foreign investors and the World Bank have fueled Correa's popularity as a strong-minded leader who stands up to foreign powers that many say meddled in Ecuador's affairs for decades.

He took the global limelight last year when he granted asylum to WikiLeaks' founder Julian Assange. Critics say he did it to brush off accusations that he is curbing freedom of expression in Ecuador. more
Correa, the economist, isn't afraid to tackle convention wisdom OR his central bank.  Not surprisingly, his economy is one of the best run in Latin America.

Why Ecuador loves Rafael Correa

It's not luck but good financial judgment that has set the president on the path to victory in forthcoming elections

Mark Weisbrot guardian.co.uk, 15 February 2013 

Rafael Correa is far ahead of his nearest rival in Sunday's presidential election in Ecuador, and expected to easily win another four-year presidential term. It's not hard to see why.

Unemployment fell to 4.1% by the end of last year – a record low for at least 25 years. Poverty has fallen by 27% since 2006. Public spending on education has more than doubled, in real (inflation-adjusted) terms. Increased healthcare spending has expanded access to medical care, and other social spending has also increased substantially, including a vast expansion of government-subsidised housing credit.

If all that sounds like it must be unsustainable, it's not. Interest payments on Ecuador's public debt are less than 1% of GDP, which is quite small; and the public debt-to-GDP ratio is a modest 25%. The Economist, which doesn't much care for any of the left governments that now govern the vast majority of South America, attributes Correa's success to "a mixture of luck, opportunism and skill". But it was really the skill that made the difference.

Correa may have had luck, but it wasn't good luck: he took office in January of 2007 and the next year Ecuador was one of the hardest hit countries in the hemisphere by the international financial crisis and world recession. That's because it was heavily dependent on remittances from abroad (eg workers in the US and Spain); and oil exports, which made up 62% of export earnings and 34% of government revenue at the time. Oil prices collapsed by 79% in 2008 and remittances also crashed. The combined effect on Ecuador's economy was comparable to the collapse of the US housing bubble, which contributed to the Great Recession.

And Ecuador also had the bad luck of not having its own currency (it had adopted the US dollar in 2000) – which means it couldn't use the exchange rate or the kind of monetary policy that the US Federal Reserve deployed to counteract the recession. But Ecuador navigated the storm with a mild recession that lasted three quarters; a year later it was back at its pre-recession level of output and on its way to the achievements that made Correa one of the most popular presidents in the hemisphere.

How did they do it? Perhaps most important was a large fiscal stimulus in 2009, about 5% of GDP (if only we had done that here in the US). A big part of that was construction, with the government expanding housing credit by $599m in 2009, and continuing large credits through 2011.

But the government also had to reform and re-regulate the financial system. And here it embarked on what is possibly the most comprehensive financial reform of any country in the 21st century. The government took control over the central bank, and forced it to bring back about $2bn of reserves held abroad. This was used by the public banks to make loans for infrastructure, housing, agriculture and other domestic investment.

It put taxes on money leaving the country, and required banks to keep 60% of their liquid assets inside the country. It pushed real interest rates down, while bank taxes were increased. The government renegotiated agreements with foreign oil companies when prices rose. Government revenue rose from 27% of GDP in 2006 to over 40% last year. The Correa administration also increased funding to the "popular and solidarity" part of the financial sector – co-operatives, credit unions and other member-based organisations. Co-op loans tripled in real terms between 2007 and 2012.

The end result of these and other reforms was to move the financial sector toward something that would serve the interests of the public, instead of the other way around (as in the US). To this end, the government also separated the financial sector from the media – the banks had owned most of the major media before Correa was elected – and introduced anti-trust reforms.

Of course, the conventional wisdom is that such "business-unfriendly" practice as renegotiating oil contracts, increasing the size and regulatory authority of government, increasing taxes and placing restrictions on capital movements, is a sure recipe for economic disaster. Ecuador also defaulted on a third of its foreign debt after an international commission found that portion to have been illegally contracted. And the "independence" of the central bank, which Ecuador revoked, is considered sacrosanct by most economists today. But Correa, a PhD economist, knew when it was best to ignore the majority of the profession.

Correa has had some bad press for going against the conventional wisdom and – perhaps worse in the eyes of the business press – succeeding. The worst media assault came when Ecuador offered asylum to WikiLeaks journalist Julian Assange. But here, as with economic policy and financial reform, Correa was right. It was obvious, especially after the UK government made an unprecedented threat to invade Ecuador's embassy, that this was a case of political persecution. How rare, and refreshing, for a politician to stand firm against such powerful forces – the US and its allies in Europe, and in the international media – for the sake of principle. But Correa's tenacity and courage has served his country well. more 

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