LIBERALIZATION OR JUST DOLLARIZATION? Twenty-First-Century Economic Reform in Ecuador

By Castillo, Marco | World Affairs, Fall 2017 | Go to article overview

LIBERALIZATION OR JUST DOLLARIZATION? Twenty-First-Century Economic Reform in Ecuador


Castillo, Marco, World Affairs


The Latin American nation of Ecuador has long struggled with its approach toward the management of its national economy. At times, Ecuador has utilized more statist methods toward economic development, utilizing protectionism, subsidies to specific industries, and import substitution economic development strategies to drive economic growth; at other times, Ecuador has moved in the opposite direction, enacting free-market policies and taking a liberal approach toward the issue of economic development (Hey and Klak 1999; Kennemore and Weeks 2011; Molyneux 2008). This tension between economic centralization and liberalization illustrates a national conundrum for the nation of Ecuador, one that it has struggled with and constantly seeks to resolve through its national politics and policy.

But this tension goes beyond the nation of Ecuador and the Latin American region; it is one that is increasingly being faced by countries throughout the world and beyond the realm of less-developed nations. For the past several decades, the Western world and its global financial institutions have been active in promoting free-market neoliberal economic ideology to less-developed nations, with the implicit promise that adopting free-market reforms would inevitably lead these nations toward national economic growth and development patterns similar to that of the Western world. But current world events and international dynamics are increasingly illustrating that the path of neoliberal economic development is inherently a disruptive one, as nations of the developed world are now struggling themselves with the destabilizing effects of the global free-market system, making lessons derived from the Latin American context extremely relevant both to Western-world nations and to scholars of international affairs.

In this article, I review the state of economic policy in Ecuador and address Ecuador's current national stance with respect to the liberalization of its economy. I begin with an overview of the Ecuadorean economy, emphasizing the substantial economic growth and development Ecuador experienced since the turn of the twenty-first century. Much of this growth occurred since the advent of dollarization, an economic policy reform that represents an apex in Ecuador's shift toward economic liberalization, which culminated at the end of the twentieth century (Beckerman and Solimano 2002; Jameson 2003; Vos and Leon 2006). After discussing both the positive and the negative effects associated with these liberal reforms, I discuss Ecuador's twenty-first-century backlash against economic liberalism and address its political shift toward greater government intervention in the economy. I conclude with a discussion of the current state of economic policy in Ecuador and a discussion of the core barriers that advocates for liberalism will need to address for the enactment of a successful and sustainable program of economic liberalization.

The Ecuadorean Economy

Ecuador has undergone significant change since the turn of the twenty-first century, rapidly transforming from a politically and economically unstable nation into a more modern one, with a stronger economy, improved infrastructure, and a greater array of social programs and investments to fight poverty and protect the health and welfare of the citizenry. Although the twentieth century brought many challenges to the nation of Ecuador, including bouts of natural disasters, economic hardship, and even a military takeover of the government in the 1970s, Ecuador has since emerged from these troubled conditions, now exhibiting considerable progress along a host of metrics of national well-being. For instance, Ecuador's gross domestic product (GDP) has grown substantially since the turn of the twentieth century, growing from US$18.3 billion in 2000 to over US$90 billion in 2014 (World Bank 2015a). This economic growth has had broad-based positive effects, benefiting the general Ecuadorean population by reducing poverty levels and income inequality. …

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