El desempeño de la economía de Ecuador desde 2007

Personas que observan a la economía podrían ser perdonadas por haber esperado que Ecuador
sufriera terriblemente en 2009, cuando tanto las exportaciones de petróleo como las remesas del
exterior sufrieron un colapso. Además, sin su propia moneda, las opciones del gobierno para
responder fueron limitadas. Pero Ecuador perdió sólo un 1,3 por ciento del PIB durante tres
trimestres, y la economía volvió rápidamente a los niveles de producción anteriores a la recesión.
El éxito de Ecuador contó con soluciones creativas para estimular el crecimiento en una economía
dolarizada. El sector de construcción ha liderado la recuperación, apoyado por nuevos programas
de asistencia de vivienda. La liquidez ha regresado, gracias a las tasas bajas de interés, y a nuevos
requisitos para los bancos de mantener al menos el 45 por ciento de sus reservas en Ecuador.
Finalmente, se ha fortalecido la red de seguridad social, con la expansión del Bono de Desarrollo
Humano a través del acercamiento a las familias elegibles y un aumento en la financiación de la
educación. Como resultado, una recuperación rápida y sostenida del PIB ha sido acompañada por
una caída en la pobreza y el desempleo y un aumento dramático en la matrícula escolar.

Sara Kozameh*
Rebecca Ray**

* Research assistant at the Center for Economic and Policy Research. Holds two M.A. degrees, one in Latin American Studies, another in Natural Resources and Peace. Correo electrónico: kozameh@cepr.net

** Research associate at the Center for Economic and Policy Research. Holds an M.A. in International Development Studies. Correo electrónico: ray@cepr.net

Recibido: 21-05- 2012 Aceptado: 04-10-2012 Recibido versión final: 18-10-2012.

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Resumen

Personas que observan a la economía podrían ser perdonadas por haber esperado que Ecuador sufriera terriblemente en 2009, cuando tanto las exportaciones de petróleo como las remesas del exterior sufrieron un colapso. Además, sin su propia moneda, las opciones del gobierno para responder fueron limitadas. Pero Ecuador perdió sólo un 1,3 por ciento del PIB durante tres trimestres, y la economía volvió rápidamente a los niveles de producción anteriores a la recesión. El éxito de Ecuador contó con soluciones creativas para estimular el crecimiento en una economía dolarizada. El sector de construcción ha liderado la recuperación, apoyado por nuevos programas de asistencia de vivienda. La liquidez ha regresado, gracias a las tasas bajas de interés, y a nuevos requisitos para los bancos de mantener al menos el 45 por ciento de sus reservas en Ecuador. Finalmente, se ha fortalecido la red de seguridad social, con la expansión del Bono de Desarrollo Humano a través del acercamiento a las familias elegibles y un aumento en la financiación de la educación. Como resultado, una recuperación rápida y sostenida del PIB ha sido acompañada por una caída en la pobreza y el desempleo y un aumento dramático en la matrícula escolar.

Palabras clave: Ecuador, la recesión, el estímulo económico, la política fiscal, política monetaria, el empleo, la educación, la salud, la pobreza.

Abstract

Outside observers might have expected Ecuador to suffer a deep recession in 2009, when both petroleum exports and remittances from abroad plummeted. Furthermore, lacking its own currency, the government's options were limited. But Ecuador lost only 1.3 percent of GDP over three quarters and quickly returned to the pre-recession level of output. Ecuador's success relied on creative solutions for spurring growth in a dollarized economy. The construction sector has led the recovery, supported by new housing assistance programs. Liquidity has returned, thanks to low interest rates and new requirements for banks to keep at least 45 percent of their reserves in Ecuador. Finally, the safety net has strengthened, with the bono de desarrollo humano expanded through outreach to eligible families and with education spending increased. As a result, a rapid and sustained recovery in GDP has been accompanied by falling poverty and unemployment and dramatically rising school enrollment rates.

Keywords: Ecuador, recession, economic stimulus, fiscal policy, monetary policy, employment, education, health, poverty.
JEL classification: E01, E5, E62, E63, F3, H5, H6, I1, I2, I3, J0, O1,

Résumé

Ceux qui observent l'économie peuvent être pardonnées d'avoir attendre que l'Equateur soubisse terriblement en 2009 après l'effondrement des exportations de pétrole et des dévises. D'autant plus que, sans sa propre monnaie, les options de réponse du gouvernement étaient limitées. Cependant, l'Equateur a seulement enregistré une perte de 1,3% de son PIB pendant trois trimestres, et l'économie a rapidement retrouvé les niveaux de production qui existaient avant la récession. Le succès de l'Equateur est lié à des solutions créatives mises en œuvre pour stimuler la croissance dans une économie dolarisée. Le secteur de la construction a été le principal moteur de la reprise, soutenu par de nouveaux programmes d'assistance au logement. Le pouvoir d'achat s'est rétablie grâce à des taux d'intérêts reduits, et à des nouvelles conditions obligeant les banques de maintenir au moins 45% de leurs réserves en Equateur. Finalement, les politiques sociales ont été renforcées avec l'expansion du Bonus de Dévelopement Humain grâce a un effort de sensibilisation auprès des familles éligibles, et l'augmentation du budget de l'éducation.

Mots clés: Equateur, récession, relance économique, politique budgétaire, politique monétaire, emploi, éducation, santé, pauvreté.

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I. Executive Summary

Outside observers could be forgiven for expecting Ecuador to suffer terribly during and after the recent global crisis. Two of the country's largest sources of foreign earnings, petroleum exports and remittances from abroad, crashed during the global recession. Furthermore, lacking its own currency, the government's options for responding were limited. But instead of a deep, protracted recession, Ecuador lost only 1.3 percent of GDP during three quarters of contraction. After four additional quarters the economy returned to the pre-recession level of output, and two years after the recession started, it reached its 20-year growth trend.

How did Ecuador emerge so soon and with relatively little damage from the recession? The government acted creatively to work around the challenges of spurring growth in a dollarized economy, while expanding social spending:

• Government spending was an important factor in economic growth, as the government responded to the recession with countercyclical fiscal stimulus.

• It implemented fiscal stimulus by extending widespread housing assistance programs to low-income households, nearly doubling the amount of housing finance in three years. It also expanded its main cash transfer program, the Bono de Desarrollo Humano, by nearly one-fourth, through outreach to eligible families who were not already enrolled. By using existing private-sector financial institutions for the distribution of funds in each of these programs, it limited the bureaucracy and time needed for implementation.

• In terms of monetary policy, it kept interest rates low and expanded liquidity by requiring banks to keep at least 45 percent of their reserves in Ecuador.

• It accelerated an existing plan to increase education funding, more than doubling it as a percent of GDP between 2006 and 2009.

As a result, poverty and unemployment fell below their pre-recession levels, while school enrollment rose:

• Poverty fell from a recession peak of 36.0 to 28.6 percent; prior to the recession, its lowest level had been 35.0 percent. Urban poverty fell from 25.5 to 17.4 percent, an improvement on its pre-recession record low of 22.0 percent.

• Unemployment fell from 9.1 to 4.9 percent. This is its lowest level on record since the series began in early 2007. The lowest level it reached in the last boom was 6.4 percent.

• School enrollment has risen dramatically, especially in the pre-primary level as enrollment is now mandatory at age five. But even at the secondary school level, gross enrollment jumped by over 10 percentage points in two years, from 69.0 percent in 2007 to 80.4 percent in 2009.

II. Introduction

Rafael Correa has just become the first president in more than eighty years of Ecuador's history to reach five years in office. Now is an appropriate time to examine the economic and social indicators during his term so far. Ecuador emerged much sooner and more intact from the latest recession than might be expected given that the global downturn hit two of the country's largest sources of foreign earnings simultaneously and drastically: petroleum exports and remittances from abroad. Moreover, as a dollarized economy without its own currency, its options for responding to the slump were limited. But Ecuador was able to restore growth quickly by acting creatively to work around the challenges of spurring growth in a small, dollarized economy. This paper takes a detailed look at the fiscal, monetary, and other economic and social policies implemented during the last five years, as well as the role of the external sector in the economy. It then examines economic and social outcomes including levels of poverty, inequality, and unemployment as well as education and health outcomes for children.

III. Economic Policy and Outcomes

Ecuador's economy suffered only a mild recession during the 2008-2009 global downturn, a remarkable feat given that Ecuador has the U.S. dollar as its currency. As such it has no control over its exchange rate, and extremely limited use of monetary policy – two of the three most important macroeconomic policy tools that can be used to counteract falling private demand. The government fought the recession in two main ways: through expansionary fiscal policy – including expanding access to housing finance – and through what limited monetary policy it had available, keeping interest rates low and limiting the amount of bank reserves that could leave the country.

A) National Accounts and Fiscal Policy

Figure 1 shows GDP growth over the last 20 years, comparing actual performance to its long-term trend. Table 1 shows annual growth for each industry and type of expenditure. The recent recession was not very deep in Ecuador; it lasted three quarters from late 2008 to mid-2009. The total loss of GDP was 1.3 percent during the recession; after four additional quarters the economy returned to the pre-recession level of output and two years after the recession started, it caught up to its 20-year growth trend. As explained below, the recession was met with strong countercyclical policy that helped move towards recovery.

Construction has seen strong growth for the last several years, as Table 1 shows, but this has accelerated dramatically in 2011, with construction accounting for over 40 percent of total GDP growth for the year. 2011 has also seen strong growth in other sectors, including agriculture, commerce and manufacturing, but agriculture's growth is a recovery from the previous year's decline.

The recent construction boom is largely due to expanded access to housing financing, through bono de la vivienda programs and concessional mortgage loans issued through the Social Security Institute (IESS). The bono de la vivienda programs, combinations of grants and loans targeted for specific low-income and senior citizen groups, began in 2007¹. The IESS loans began in the second half of 2009, and this timing helps explain the timing of the boom, which began in early 2010. The results of the IESS loan program can be seen in Figure 2; total housing credit in Ecuador grew by nearly 50 percent in 2009, and IESS now accounts for over half of all housing credit.

This housing boom will not last forever, of course. The scope of the bono programs and IESS loans is limited by their focus on first-time homeowners. But for that same reason it is unlikely to turn into the type of bubble seen elsewhere in recent years.

The initiation of these housing loans was part of an economic stimulus plan announced in late 2009. The stimulus amounted to nearly 5 percent of GDP in total and was made of three major initiatives to use new lines of credit to bolster the economy. Apart from housing loans, the stimulus also included a large, temporary increase in the Crédito de Desarrollo Humano microcredit program, as shown in Table 2.

The 2009 stimulus was funded largely from reserves, which had accumulated during the oil boom prior to the last quarter of 2008, more than doubling in two years. Since 2008, reserves have fallen to levels roughly comparable to their 2006 levels (Figure 3). Because Ecuador has the U.S. dollar as its national currency, its need for international reserves is lower than it would otherwise be.

The countercyclical policies implemented during the recession did not cause a spike in government spending in 2009. Overall government spending rose by only one half of 1 percent of GDP that year actually falling in absolute terms; but the central budget deficit was 4.3 percent of GDP in that year due to falling revenue. Since then, spending and revenue have both resumed growing and the deficit has steadily shrunk to about 1 percent of GDP (projected) in 2011.

In mid-2007 Ecuador established a public debt audit commission, the CAIC, with a mandate to review current debt arrangements. The commission's December 2008 final report recommended that two major bonds be declared illegal: the Global 2012 and Global 2030. These bonds were the product of restructuring prior debt, which included debt assumed under military dictatorship as well as debt transferred from the private sector under the "sucretización" bailout process.

The commission found both of these arrangements to have been illegal, and also cited irregularities in the restructuring process such as the absence of a competitive bid process when Solomon Smith Barney was chosen to direct the process².

As Figure 4 shows, the debt default had a moderate impact on the already low level of public debt. However, it had a larger impact on the amount spent on interest payments, due to the comparatively high interest rates on the Global 2012 and 2030 bonds. This has freed up public-sector revenues for social spending, as discussed below.

B) Inflation and Monetary Policy

Without the ability to create its own currency, the central bank's monetary policies are limited to control over banks' required reserve ratios, and some influence on interest rates. Since the beginning of the recession, it has pursued expansionary policy in both areas.

The Banco Central del Ecuador (BCE) has resisted the temptation to raise interest rates in the face of volatile headline inflation. Like much of the world, Ecuador saw rising inflation in 2008, and volatile inflation since then. But as Figure 5 shows, food has been the overwhelming driver of this inflation. Hospitality, consisting largely of restaurant meals, has been another important category. The spike in these prices in 2008 follows the worldwide spike in food prices that year and was most likely a result of that external shock rather than overheating domestic demand³. The inflation was therefore mostly a result of external shocks.

Given the concentration of inflation within the categories of food and hospitality, the BCE's decision to hold interest rates stable was appropriate. Dampening demand by raising interest rates would not have much impact on inflation that had its origin outside the Ecuadorian economy, but it would worsen the recession. Instead, the policy variable rate actually fell throughout most of 2008, from nearly 6 percent in January to just 0.2 percent by December, and has held steady since early 2009. Figure 6 shows the resulting average effective interest rates, both nominal and real.

The BCE acted on bank reserve requirements policy in 2009 with two banking regulations that, taken together, raised both banking reserves and liquidity. First, the Fondo de Liquidez was formed in February 2009 as a reserve fund and lender of last resort to back private bank deposits. Initially, banks were required to contribute 3 percent of their deposits, and each year must contribute an additional 0.25 percent⁴. Secondly, in March 2009, the BCE introduced regulations requiring private banks to hold at least 45 percent of their reserves (not counting their contributions to the Fondo de Liquidez) domestically, creating the Coeficiente de Liquidez Doméstica⁵.

The desired effect seems to have occurred, as shown in Figure 7. After falling throughout 2008 and early 2009, both the number of loans given by the private financial sector and the total amount of credit bounced back. The total value of credit doubled from its trough in late 2008 to January 2012, and the number of loans nearly doubled.

C) The External Sector

Ecuador's progress is especially impressive given the huge fall-off in revenue from exports and remittances over the last few years. Between 2008 and 2009, revenue from exports of goods fell by more than 25 percent, leading to the first current account deficits in several years.

In 2009, Ecuador's current account balance dropped significantly before falling into negative territory in 2010, for the first time in six years, as oil prices fell worldwide. In response, Ecuador enacted a series of WTO-approved temporary safeguard measures in 2009, raising tariffs on 8.7 percent of tariff lines comprising 23 percent of imports in 2008. The import restrictions limited the current account damage for 2009, but they expired in mid-2010, leading to a worsening current account deficit and the first trade deficit in goods since 2002 (World Trade Organization, 2009, 2011).

Of course, diversifying exports could help stabilize the balance of payments. Figure 9 shows exports of goods disaggregated by industry. There has been little increase outside of the petroleum and to a lesser extent in traditional agricultural sectors. Dollarization makes diversification into non-traditional goods difficult, as the BCE can't use the exchange rate to make exports more competitive in the global market; or to promote the growth of import-competing industries.

However, the distribution of Ecuador's exports among countries of destination has changed some. This can be seen in Figure 10. For example, over half of all exports in goods went to the U.S. in 2006, but in 2010 this had fallen to just over one-third. After the 2008 export peak, exports to the U.S. fell by over half, while other exports fell by only 16 percent. Moreover, exports to the U.S. did not recover in 2010, whereas other exports surpassed their 2008 levels. However, only one country saw a substantial increase from 2008 to 2010: Panama. Exports to Panama have almost as volatile a history as those to the U.S., though, having fallen from 14 percent of total exports in 2004 to seven percent in 2006, mainly due to its role as an intermediate destination for oil exports, so further diversification could help buffer Ecuador from future world recessions.

The other major source of current account revenue for Ecuador is remittances (Figure 11), which have fallen by about a quarter in dollar value and by over half as a percent of GDP since their peak before the recession. They peaked at 7.4 percent of GDP in 2006 and since then have fallen by nearly 4 percentage points of GDP. In absolute (dollar) value, this represents a loss of about 800 million dollars per year. Remittances from the United States have fallen from $442 million in the third quarter of 2007 to $270 million four years later, and those from Spain have fallen from $375 million to $228 million. Neither the United States nor Spain appears to have strong enough labor market conditions to bolster prospects of higher remittances in the foreseeable future.

IV. Human Development

Over the last five years, human development has grown as a priority within government spending, especially in the areas of education and health.

A) Government Social Spending

Between 2006 and 2009, social spending nearly doubled as a percent of GDP (Figure 12). In fact, government spending on education did double – from 2.6 to 5.2 percent of GDP – and spending on social welfare⁶ more than doubled – from 0.7 to 1.8 percent of GDP.

B) Labor Market

Ecuador's recovery from the recent recession has been robust enough to show real progress in the labor market. Unemployment is currently at 4.9 percent (its lowest point since the current methodology began in 2007), while the minimum wage has risen by about 40 percent in real terms over the last five years (Banco Central del Ecuador, No Date– b). It is important to note that this unemployment rate includes "hidden" unemployment; those who have given up looking for a job are still counted in the labor force if they are willing and able to work. So the drop in the unemployment rate is not due to discouraged workers leaving the workforce.

Moreover, worker pay has gotten a recent boost: with the introduction of the salario digno, any business earning a profit must first distribute that profit among its employees, until either the employees' total earnings rise to the level of a living wage or the entire profit has been distributed before reporting the remainder as its final profit (Ministerio de Relaciones Laborales, 2012).

Underemployment in urban areas has fallen to its lowest level since the series began, from 52.6 in 2007 to 43.5 percent in 2012. The definition that INEC uses, which we use here, defines underemployment very broadly, applying to anyone who is working but willing and able to change their work arrangement to improve the "duration or productivity" of their work. Because of this broad definition, Ecuador has higher levels of underemployment than in countries with a more narrow definition. Meanwhile, the proportion of workers who are enrolled in the social security system has grown dramatically. Labor law reforms in 2011 and 2012 have mandated enrollment of employees into the social security system by their employers and defined penalties for those that do not comply. Domestic workers, gardeners and chauffeurs are also covered under the new law⁷. At the end of 2007, less than 30 percent of workers were covered by social security; by late 2011 that rate rose to over 40 percent (Instituto Ecuatoriano de Seguridad Social, 2007, 2011, author's calculations and Banco Central del Ecuador, No Date- b).

C) Poverty

Income poverty has fallen dramatically since 2009. Before the recession, urban poverty had fallen to 22 percent, but then rose during the downturn, reaching 25.5 percent by mid-2009. In the last two years it has fallen by about one third, to 17.4 percent. Rural poverty rose from 58 to 59.7 percent during the recession, but fell back sharply to 50.9 percent by the end of 2011. Nationwide, it has fallen by about one-fourth over the last five years.

An important factor in improving income, public health, and education has been the bono de desarrollo humano (BDH), a cash transfer program for those in the lower 40 percent of income distribution who are mothers of children under age 16, are above the age of 65, or are disabled⁸. The BDH was designed in 2003 to be conditional on regular medical checkups and school attendance for children. However, in practice, proof of meeting these requirements is only needed for initial registration, not for continued participation. Thus once families are enrolled, it becomes an unconditional cash transfer program. Nevertheless, even with its unconditional format, several recent studies have found significant, positive health and education effects associated with poor children's receiving the BDH⁹.

In August 2009, the BDH expanded its reach dramatically, increasing the number of beneficiaries by 25 percent. Most of the new enrollees were mothers, but an important increase also occurred among older adults. Prior to 2009, registration was piecemeal and depended on potential recipients seeking out and applying for the program. In 2008, surveyors canvassed potential recipients in a concerted effort to find eligible households not already receiving the BDH. While the poverty rate did increase some in 2009 – as would be expected due to the recession – as shown in Table 4, the increase was small compared to that of the BDH roster. Thus, the expansion of the BDH shows expanded coverage, not just expanded eligibility.

V. Health Outcomes

As shown in Figure 12, above, public health spending rose by about 50 percent as a percent of GDP between 2006-2010. The health sector has improved coordination among its various institutions, and has created the Red Pública Integral de Salud, in order to guarantee free and universal coverage to the public health systems¹⁰.

Given the expansion of the Bono de Desarrollo Humano, designed to be conditioned upon regular school attendance, health checkups for children, we would expect to see an increase in vaccination rates in the short term translating into lower child mortality in the long term. Vaccination rates have, in fact, soared. Total vaccines given across the country were fairly flat from 2007 to 2008, falling from 2.6 to 2.5 million, but then jumped to 3.3 and then 3.6 million in 2009 and 2010, respectively (Secretaría Nacional de Planificación y Desarrollo, 2011). It will bear watching child mortality rates for the 2010 to 2015 time period to see the size of the impact on overall child health.

Ecuador has already achieved remarkable progress in child health. To adequately analyze this progress, it is important to give context because of the diminishing returns that inevitably come as countries reach lower mortality rates. Table 5 provides this context by comparing Ecuador's reduction in mortality to that of countries with similar levels of GDP and mortality in 2000, the year the table begins¹¹. Ecuador began the period slightly ahead of its peers: mortality rates were 2 to 3 percent lower in Ecuador than in the overall group. But these gaps have continued to widen, both in absolute and relative terms. By 2000, Ecuador's infant and child mortality rates had fallen to nine and 12 percent, respectively, below the group average.

VI. Education

The quality of education in Ecuador has historically lagged behind that of others in the region (Telam, 2012), with low levels of education spending, low enrollment and graduation rates, and wide disparities in access to education between different economic and ethnic groups, as well as between urban and rural groups.

In late 2006, under the administration of President Alfredo Palacio, Ecuador passed a ten-year education plan with the intention of overhauling the educational system to improve the quality and reach of public education. The Plan Decenal de Educación de Ecuador 20062015 was implemented in 2007, during the first days of the Correa administration, and focuses on eight goals for educational reform that, on one front, aim for the universalization of pre-primary (0-5 years old) and primary education, achieving a secondary school graduation rate of 75 percent of students in the relevant age group, and ending illiteracy. On another front, the plan calls for improving infrastructure and equipment in schools, developing a national evaluation system, increased training and professional development for teachers, as well as improved teacher working conditions.

In order to attain these goals, an annual increase of 0.5 percent of GDP to the education budget was mandated under the Ley Orgánica de Financiamiento y Educación (Law of Financing and Education) until 2012, or until the education budget reaches at least 6 percent of GDP. Since the implementation of the ten-year education plan, the government has consistently met its goal of increasing the education budget, reaching 5.2 percent of GDP in 2011 (See Figure 12) (Ministerio de Educación and Consejo Nacional de Educación, 2007)¹².

At 3.5 percent of GDP in 2008, Ecuador's education spending, which had already risen from a low of 2.3 percent of GDP in 2003, still fell below the 4.6 percent average for spending on education as a percent of GDP across upper-middle income countries. By 2010, Ecuador had increased education spending to 5.2 percent, surpassing the 2008 average for upper-middle income countries (World Bank, No Date)¹³. (It is worth noting that Ecuador's per capita income puts it at the bottom of the range of the World Bank's "Upper Middle Income" category, with $4000 in a grouping that ranges from $3,976 to $12,275 per capita in Purchasing Power Parity dollars. Thus, Ecuador is being compared here with countries that are two and three times as rich in per capita income).

Under the ten-year plan for education, all school fees were eliminated, the free breakfast program was expanded, and the government began providing school children with free textbooks, school materials and uniforms¹⁴, increasing accessibility to children of impoverished families who may previously have been unable to attend school.

Figure 15 shows gross enrollment rates through 2009¹⁵. Gross enrollment rises above 100 percent when non-traditional age students enroll, as shown here. Of course these rates will not remain above 100 percent indefinitely; as completion rates rise among older students, fewer will return to school. Thus, gross enrollment for primary school – which has been above 100 percent for decades – has fallen slightly while net enrollment has remained fairly constant between approximately 97 and 98 percent since 2000. In 2005, a new law mandating compulsory pre-primary education beginning at age five led to the rise in pre-primary enrollment rates. It continued to rise, surpassing 100 percent in 2008, due to the enrollment of children returning to or repeating pre-primary school, as well as non-traditional age students newly enrolling as a result of the new law. Nonetheless, the large increases beginning in 2006 in pre-primary and secondary enrollment show a dramatic expansion of coverage.

Despite the large expansion in coverage and the numerous projects that have been undertaken in order to improve the educational system, the gaps in completion rates among students remain high. Students from the poorest quintiles still attend school for only 6.7 years on average, while those from the most affluent quintile attend school for an average of 14.2 years (PREAL, Fundación Ecuador and Grupo FARO, 2010). The disparity also continues to be strong for children from ethnic minorities and children living in rural areas, both of whom are completing fewer years of education than their non-minority and urban counterparts. The government has recently acknowledged the challenges to meeting all of the goals proposed in the ten-year education plan and has announced new policies, including the implementation of nationwide standards for education (Salazar, 2011).

VII. Conclusion

Since the recession of 2008-2009, Ecuador has taken a creative approach to economic and social policy. The Correa administration pursued countercyclical fiscal stimulus through concessional loans, using already-existing infrastructure of private banks to jump-start the recovery without delays or burdensome additions to bureaucracy. Their monetary policy got around the limits of not having a local currency by using bank regulation to add liquidity, requiring banks to keep at least 45 percent of their reserves in Ecuador. Strong boosts to government spending increased the implementation of available social safety networks and accelerated an existing plan to increase education funding, more than doubling it as a percent of GDP between 2006 and 2009. Finally, faced with low participation in their main cash transfer program, they set out to find the missing households eligible to receive the Bono de Desarrollo Humano and enroll them – improving access to health care and education, and lowering poverty and inequality along the way.

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1. For more information on the bono de la vivienda programs, see Ministerio de Desarrollo Urbano y Vivienda 2011a, b, c.

2. For more on the CAIC audit, see Comisión para la Auditoría Integral del Crédito Público (2008) and Weisbrot and Sandoval (2009).

3. For more on the world food price trends, see FAO (No Date.)

4. For more information on the Fondo de Liquidez, see BCE (2010a) and (2011).

5. For more on the Coeficiente de Liquidez Doméstica, see BCE (2011) and Correa (2010).

6. The Social Welfare category consists of funding for a variety of social programs including the Bono de Desarrollo Humano and other cash transfer programs, the Instituto para la Niñez y la Familia, an institute supporting child and family development, the food security program Alimentate Ecuador and other nutritional development programs, as well as funding for the construction and maintenance of a diverse array of community centers. The Ministry for Economic and Social Inclusion (MIES) implements some of the country's most important social programs. Among other prominent programs for social protection (Programas de Protección Social- PPS) that the MIES heads are pensions for seniors, people with disabilities and for people with severe health problems. It also manages the Crédito de Desarollo Humano which provides small loans to poor families. For more on the MIES and PPS programs, see Nehring (2012) and ANDES (2012). For a breakdown of spending for the Social Welfare category, see UNICEF (2010).

7. El Comercio, (2012).

8. BDH is also occasionally given to fathers, in cases of absent or deceased mothers. For more, see Ministerio de Inclusión Económica y Social (No Date - b) and Weisbrot and Sandoval (2009).

9. See Fernald and Hidrobo (2011), Paxson and Schady (2010), and Schady et al. (2008). It remains to be seen whether these improvements will be sustained or decline over time. Paxson and Schady found most parents thought the BDH was conditional on taking children to regular medical checkups, and Schady et al. found a large, significant relationship among BDH recipients between children's school attendance and the mistaken belief that the BDH was conditional. Over time, parents may realize that this is not the case, and the program may need to implement its originally planned conditionality to maintain these improvements.

10. Lucio, Villacrés, and Henríquez (2011).

11. We define "similar countries" here as those with per-capita GDP within $250 of Ecuador's level (between $1,041 and $1,541 USD), and mortality rates within 20 deaths per 1,000 of Ecuador's level, in 2000.

12. Ministerio de Educación and Consejo Nacional de Educación (2007). Also, the calculation by the Ministerio de Finanzas uses money that was spent by the government rather than money that was budgeted. Since budgeting and spending occur at different paces, other indices of public and social spending might appear to show contradicting amounts of social and public spending.

13. Data after 2008 for average education spending in upper-middle income countries is unavailable, but for the years 1999-2008 the average has fluctuated between 4 and 4.6 percent, suggesting that in 2010 a similar average would remain.

14. For more information on these programs, see http://www.pae.gob.ec/.

15. Unfortunately more recent data is not available, nor is net enrollment data for pre-primary or secondary levels.

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References

ANDES. (2011). "Desempleo cayó 1,2% en el último año en el Ecuador y un 2% de los más pobres ya tienen trabajo".15 de julio. http://andes.info.ec/2009-2011.php/?p=74588.

ANDES. (2012). "En Ecuador más de 1,2 millones de personas reciben el Bono de Desarrollo Humano." 30 de julio. http://andes.info.ec/actualidad/4728.html

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