Open Letter from 40+ Economists Regarding Ecuador and the Dollar
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Not only has leading presidential candidate Andrés Arauzemphasized that he is committed to maintaining the dollar as the national currency, he and his party have a long track record of taking strong measures to make sure that dollarization did not come under threat.
As economists, we share a general concern when economic issues are widely misunderstood in political debates that can determine policy, sometimes with lasting consequences. This appears to be a problem in Ecuador at the moment, in the heat of an election campaign.
Media reports have repeated, without any evidence, false allegations about the economic program of one of the presidential candidates. Andrés Arauz, a former minister and Director General of the Central Bank who is currently leading in most polls, has been accused of seeking to abandon the country’s current use of the dollar as its national currency. There is no evidence that he or his political party would do anything at all in this direction.
A transition from the dollar back to a national currency would be costly and involve risks that would be exacerbated by the current dire and precarious economic situation. This false allegation is clearly an attempt to scare voters, and indeed those promoting it have warned of a resulting economic collapse if the dollar is abandoned.
In fact, not only has Arauz emphasized that he is committed to maintaining the dollar as the national currency, he and his party have a long track record of taking strong measures to make sure that dollarization did not come under threat. These included reforms which kept billions of dollars within Ecuador, such as taxing capital leaving the country, financial regulation—including regulations on foreign banks within the country—increased accountability of the Central Bank; and other reforms and policies that kept the economy stable and avoided crises for the 10 years of the Rafael Correa presidency (2007 to 2017).
These policies and reforms prevented even the slightest threat to Ecuador’s commitment to the dollar, even when Ecuador was hit hard by the world recession of 2009, as well as other severe external shocks including a collapse of oil prices in 2014, and steep falls in remittances.
As a result of this prudent economic management, the economy did very well during the Correa years, and the gains were widely distributed. Income per person rose by 20 percent and poverty fell by more than 38 percent from 2006 to 2017. The Gini coefficient for net household income (which measures inequality) fell by almost 15 percent between 2006 and 2017. During these years, social spending more than doubled as a percent of GDP. Much of this went to healthcare and education, with enrollment rates in secondary education increasing 26 percent; the number of people treated in public hospitals rose by 56 percent.
Ironically, it is some of Arauz’s opponents who are proposing measures that could put Ecuador’s dollarization at risk, by doing away with the necessary financial regulation. Guillermo Lasso—Arauz’s main competitor—has called for the elimination of capital controls, which would make the country vulnerable to balance of payments crises that could threaten the dollar’s place as Ecuador’s currency.
In contrast to the previous presidency, the economy under the current government has run into serious trouble. GDP is estimated by the IMF to be over 10 percent lower in 2020 than it was in 2017. Of course, much of this was a result of the Covid-19 pandemic, but a large part of these losses were a result of bad decisions. GDP per capita fell 1.5 percent from 2017to 2019, even before the Covid-19 crisis hit. And in 2019, the government signed an IMF agreement committing to a fiscal tightening of 5 percent of GDP over the next three years.
Some of the required spending cuts provoked widespread protests, which were met with serious repression. This repression, which left at least 9 dead and over 1500 injured, was investigated by the United Nations Office of the High Commissioner for Human Rights, which called for further investigations into numerous reports of “unnecessary and disproportionate use of force” by security forces. Indigenous groups were especially affected, with Ecuador’s largest indigenous organization filing a lawsuit against the Ecuadorian government for alleged “crimes against humanity.”
Another false economic claim has been promoted in the current election cycle: that the Correa government ran up an unsustainable debt which the current government had to reduce. In fact, the Correa government left office with a debt of 45 percent of GDP. Under the current government, Ecuador’s debt increased to 69 percent of GDP.
Voters need to have accurate information about the most important issues, including economic issues, that are facing the country when they choose a government. In the United States, we have seen the dangers of misinformation multiplied to dangerous levels during the past four years. We hope that Ecuador can avoid these kinds of problems in its upcoming election.
Original signers (in alphabetical order)
(name, affiliation for identification purposes)
James K. Galbraith, Lloyd M. Bentsen Jr. Chair in Government/Business Relations and Professor of Government, LBJ School of Public Affairs, University of Texas at Austin
Jayati Ghosh, Professor of Economics, University of Massachusetts Amherst
Mark Weisbrot, Co-Director, Center for Economic and Policy Research
Signers (in alphabetical order)
(name, affiliation for identification purposes)
Eileen Appelbaum, Co-Director, Center for Economic and Policy Research
Alan Aja, Professor & Chair, Dep. of Puerto Rican & Latino Studies, Brooklyn College (CUNY)
Michael Ash, Professor of Economics & Public Policy, UMass Amherst
Amiya Bagchi, Emeritus Professor, Institute of Development Studies Kolkata, Adjunct Professor, Monash University
Ron Baiman, Associate Professor of Economics
Dean Baker, Senior Economist, Center for Economic and Policy Research
Peter Bohmer, Faculty emeritus in Economics and Political Economy, The Evergreen State College
Korkut Boratav, Turkish Social Science Association
Manuel Branco, Professor, University of Évora, Portugal
Jim Campen, Professor of Economics, Emeritus, University of Massachusetts Boston
Anis Chowdhury, Adjunct Professor, Western Sydney University, Australia
Alan Cibils, Chair, Political Economy Departmente, Universidad Nacional de General Sarmiento, Argentina
Nathaniel Cline, Associate Professor, University of Redlands
Andrew Cornford, Geneva Finance Observatory
Dante Dallavalle, Adjunct Lecturer of Economics, John Jay College
Peter Dorman, Professor of Economics Emeritus, Evergreen State College
Jeff Faux, Distinguished Fellow, Economic Policy Institute
Sujatha Fernandes, Professor, Department of Sociology and Social Policy, The University of Sydney
Kevin Gallagher, Director, Global Development Policy Center, Boston University
Daphne T. Greenwood, Professor of Economics, University of Colorado-Colorado Springs
Fadhel Kaboub, Denison University
Mary C. King, Professor of Economics Emerita, Portland State University
Gabriele Köhler, Independent Development Consultant
Michael A. Lebowitz, Professor Emeritus, Economics Department, Simon Fraser University
Stephan Lefebvre, Assistant Professor, Bucknell University
Arthur MacEwan, Professor of Emeritus of Economics, University of Massachusetts Boston
Ann Markusen, Professor Emerita, Humphrey School, University of Minnesota
Michael Meeropol, Professor Emeritus of Economics, Western New England University
Lara Merling, Policy Advisor, ITUC
Mritiunjoy Mohanty, Professor, Indian Institute of Managment Calcutta, Kolkata, India
Isabel Ortiz, Director, Global Social Justice Program, IPD, Columbia University
Mustafa Özer, Professor, Anadolu University
Christian Parenti, Associate Professor of Economics, John Jay College, CUNY
Mark Paul, Assistant Professor of Economics, New College of Florida
Alicia Puyans, Economics Ptoffeso Facultad Latinoamericana de Ciencias Socialed
Philippe Quirion, Senior scientist/Directeur de recherche, CNRS (France)
Miriam Rehm, Professor, University of Duisburg-Essen
Joseph Ricciardi, Associate Professor of Economics, Babson College
C. Saratchand, Assistant Professor, Department of Economics, Satyawati College, University of Delhi
Saskia Sassen, The Robert S. Lynd Professor of Sociology, Columbia University
Max B. Sawicky, Senior Research Fellow, Center for Economic and Policy Research
Stephanie Seguino, Professor of Economics, University of Vermont
Tazdaït Tarik, Senior Researcher, CNRS (France)
Rolph van der Hoeven, Professor, Erasmus University, The Netherlands
Irene van Staveren, Professor of Pluralist Development Economics, International Institute of Social Studies of Erasmus University Rotterdam
Matías Vernengo, Professor, Bucknell University
Scott Weir, Economics (retired), Wake Technical Community College
John Willoughby, Professor, Department of Economics, American University
John Womack Jr., Robert Woods Bliss Professor of Latin American History and Economics, emeritus, Harvard University
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Economist James K. Galbraith is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is the author of “The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too” and “Inequality: What Everyone Needs to Know.”
Jayati Ghosh is Professor of Economics and currently also Chairperson at the Center for Economic Studies and Planning, School of Social Sciences, at the Jawaharlal Nehru University, in New Delhi, India. With C.P. Chandrasekhar, she co-authored “Crisis as Conquest: Learning from East Asia.” Jayati is also a contributor to Foreign Policy In Focus. E-mail: jayatijnu@gmail.com
Mark Weisbrot is Co-Director of the Center for Economic and Policy Research(CEPR), in Washington, DC. He is also president of Just Foreign Policy. His latest book is “Failed: What the “Experts” Got Wrong about the Global Economy” (2015). He is author of co-author, with Dean Baker, of “Social Security: The Phony Crisis” (2001). E-mail Mark: weisbrot@cepr.net
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