Latin America has historically been characterised by very high levels of persistent poverty and inequality. Since the beginning of the 21st century, however, the region has experienced deep transformations that have resulted in more inclusive economic growth, and a dramatic reduction in poverty and inequality. Even in this progressive context, Ecuador stands out. While in 2000, when the country was hit by an economic and financial crisis, 20% of the population lived in extreme poverty (defined as less than $1.25 a day), only 4% do so today. Income inequality measured by the Gini coefficient declined by 6 points (from 0.54 to 0.48) between 2007 and 2013, a fall of more than twice the regional average. Remarkable improvements were also observed in human development, especially for the poorest. Moreover, differentials between the richest and the poorest are narrowing: the gap in primary school attendance fell from 21% in 1999 to 11% in 2006 and 2.5% in 2014, and for secondary education, from 67% in 1999 to 48% in 2006 and 22% in 2014.
This case study illustrates and explains Ecuador’s progress in reducing poverty and inequality, focusing on the period between 2000 and 2012. Drawing on primary interviews and secondary analyses, we argue that Ecuador’s success can be explained by four main economic and political factors. First, high oil prices helped the country to achieve economic stability and growth in a context of dollarisation. Second, growth gave way to changes in the labour market that benefited the poorest people, through a decline in unemployment and an increase in real wages. Third, Rafael Correa’s election in 2007 brought about radical change in adopting highly redistributive social policies. These were financed through measures to create fiscal space such as the re-writing of oil contracts, the restructuring of the public debt and the channelling of all oil revenues into the budgeting process. The poorest people also benefited from the expansion of the cash transfer programme, Bono de Desarrollo Humano, and the improved provision of health and education services, though these have often been used for political ends.
Today, Ecuador faces the challenge of advancing and deepening the progress it has achieved in changing domestic and international circumstances, in particular the falling price of oil and the ending of Correa’s final presidential term. Further reduction of poverty will require paying greater attention to social sectors that have not shared fully in the benefits of growth, especially those living in rural areas, in certain geographical regions and the Afro-Ecuadorian and indigenous populations. In addition, the country will need to build upon the momentum it has established and channel it into a process of structural transformation.
The following corrections were made on 22/12/15
In the abstract and on page 14, a correction was made to the Gini coefficient for 2007 – this was .54 not .56 as previous reported. The corresponding fall in Latin America was between 2 and 3 points, not 4.
On page 20, the figures on percent change in the average hourly real wage and that of the bottom 10% between 2000 and 2006 were corrected.
On page 32, the paragraph on share of social spending in GDP in both Ecuador and in Latin America was corrected to amend slight errors to the Latin American average figures.
Summary and translation:
Amendments were made in line with the above and also to the average wage figures on page 4 of the summary (page 5 of the translation).