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Ecuador's Oil-Driven Economy Boosts Correa's Reelection Chances

The popular President is leading ahead of Sunday's vote. But in the long-term, economists say Ecuador must diversify -- and dump the dollar as official currency.

Article illustrative image Partner logo Correa has the popular touch

GUAYAQUIL - “Do you like this hat? It’s 19 dollars, but you can have it for 15...”

In the artisans' market of Guayaquil, the cheapest products -- usually woven wallets -- are never less than two U.S. dollars. Larger items can go for up to $10. Alexandra Paucar is at her stand in the outdoor market since early in the morning, selling woven scarves. And she isn't happy: “We see fewer and fewer tourists. Since we have had the dollar, people prefer to go to other places, where things are cheaper. I work all day and still do not have enough money.”

Alexandra says that she doesn’t know who she will vote for in Sunday's national elections. She does not like any of the candidates, and is convinved that the result is already decided. All polls predict a victory for President Rafael Correa. “It is true that he has done some things," she says, noting some major public works projects. "But life is still hard here."

In the center of Guayaquil, Ecuador’s most populous city with some 2.3 million inhabitants, temperatures top 80 degrees Fahrenheit for much of the year. In the plaza in front of the church of San Francisco, which doubles as the city's financial center, a group of young people with green colored shirts symbolizing Correa’s campaign give out brochures.

Guillermo Lasso, the former banker trailing Correa in the polls, was in the neighborhood two days earlier.

Boom times in Guayaquil (photo:Alfredo Molina)

Economics have indeed been at the center of the campaign. Even though a big chunk of the population believes they have benefited from income redistribution policies of the Correa government, the president's focus on the oil and mining industries leave an uncertain future for the country.

“During these years, the economy has grown an average of 4.3%, not a very good number considering the resources available in the country," says Jaime Carrera, director of Ecuador's Fiscal Policy Observatory. "The dependency on oil has gotten worse."

Carrera says public spending and debt have consolidated the state-controlled, oil-centric economic model.  “Subsidies of all types have been created: for fuels, transportation, human development," Carrera says. "They have also increased public-sector wages.”

The monthly minimum wage is $318, and the average income per family is close to $550 dollars, which is higher than in other Latin American countries, but lower than the basic food basket, which was set last month at $595. Inflation is expected to reach 4% this year.

Poverty, according to the National Statistics Institution, is at 27% and in rural areas it rises to 49%. But that is down 10 percentage points than when Correa took over as President in 2007. Some 60% of exports are petrolieum, with 20% traditional products such as bananas, coffee and cocoa and another 20% by semi-manufactured goods.

Still some worry if the model, which is dependent on imports, is sustainable in the long-term. Sociologist Franklin Ramírez, researcher from the Latin American Social Sciences Institute in Ecuador (FLACSO), points out the necessity to “diversify the production matrix, to step away from the dependency on oil”.

In 2000, under the government of President Jamil Mahuad and a ferocious economic crisis, the country adopted the US dollar as its currency. None of the presidents that followed him dared to reverse this system. The dollar has given the country a certain level of stability, after decades of anxiety. Correa himself has been very critical about the dollarization of the economy, but admits that the system cannot be reversed from one day to the other. It remains to be seen if it would be part of the next administration.

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