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The Jig Is Up for Rafael Correa

By: Oswaldo Toscano - @otoscano_ec - Aug 17, 2015, 2:27 pm
The Libertarian Movement of Ecuador joined the broad coalition in opposition to 21st-century socialism and its central planning. (Libertarian Movement)
The Libertarian Movement of Ecuador joined the broad coalition, including many indigenous individuals, in opposition to 21st-century socialism and central planning. (Libertarian Movement)

EspañolAbout 54 years ago, the German Democratic Republic (GDR) established the first temporary barriers separating Soviet-controlled East Berlin from West Berlin.

They were the prelude to a larger wall that would for decades prevent people from escaping the GDR, a communist regime that impoverished citizens while trampling on their freedoms.

Communist officials erected the Berlin Wall in part to keep GDR citizens ignorant of how Germans prospered on the other side. But the wall eventually crumbled in 1989, revealing — yet again — the shortcomings of a centrally planned economy.

Unfortunately, many governments still haven’t learned this lesson.

On Thursday, August 13, several social groups in Ecuador joined forces to protest against the national government, most notably indigenous groups that used to support President Rafael Correa.

These groups have revolted against a similarly inefficient, centralized economy. While it may be a far cry from Soviet communism, the Ecuadorian government has circumvented civil society and placed all planning in the hands of a political elite.

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The ruling party‘s socialist plan couldn’t have unfolded under more favorable conditions. A second boom in oil prices allowed the Ecuadorian government to roll out a model based on insatiable state spending and interventionism.

The numbers demonstrate the state’s overbearing role in an economy dependent on oil revenues. During Correa’s tenure, the public sector has bloated from 35 percent to 44 percent of GDP. Under the guise of “social investment,” government ministers have carried out enormous projects at disproportionate costs.

When oil prices came tumbling down, and the US dollar recovered some value, Ecuador’s underlying fiscal problems, corruption, and inefficient allocation of resources revealed themselves. Despite high revenues from petroleum exports, the domestic and foreign debt topped US$31 billion in February — roughly 30 percent of GDP.

Undeterred by the circumstances, the government then issued more bonds to the tune of $750 million at a 10.5 percent yield.

Furthermore, private investment in Ecuador has decreased. The country ranks near the bottom of the barrel when it comes to direct foreign investment in Latin America. Correa’s proposals to increase taxes on inheritance and capital gains have brought the construction sector to a virtual halt. According to Ecuador’s central bank, construction will “grow” zero percent this year.

Nevertheless, the government refuses to listen to the opposition, and has even begun a campaign to discredit the groups that took part in the national strike.

Correa’s government is now airing a television ad featuring ruling-party supporters denouncing the protests as illegitimate. Audio, photographs, and memes feed into the smear campaign circulating on the airwaves and social media. Much of the content comes from spying on politicians, journalists, and activists that the government deems part of the opposition.

However, the Correa administration only has itself to blame for the current crisis. The Ecuadorian government seems to have adopted Mussolini’s slogan: “All within the state, nothing outside the state, nothing against the state,” as if the consequences of these failed ideas have disappeared from history books.

Translated by Vanessa Arita.

Oswaldo Toscano Oswaldo Toscano

Oswaldo Toscano is an Ecuadorian professor, businessman, and columnist for outlets in Ecuador, Colombia, and Spain. A History PhD candidate at Francisco Marroquín University in Guatemala, he also studies at SMC University for a master's degree in political economy. Follow him: @otoscano_ec.