On October 16, 2024, a Canadian think tank, the Fraser Institute, released its annual Economic Freedom of the World (EFW) Index. The results, based on official 2022 data, paint a bleak picture for Ecuador, which dropped six positions and now ranks equal to China: 104th out of 165 jurisdictions.
Ecuador’s economic freedom has declined to its lowest level since 2018, when the country began moving away from the socialist and authoritarian Citizen Revolution of Rafael Correa (2007–2017). Successive governments have lacked the leadership and commitment necessary for meaningful reform. They have neither encouraged entrepreneurship nor ensured legal security. Thus, the private sector is struggling to offer growth and opportunity.
If authorities continue to prioritize short-term solutions over long-term economic reforms—focused on prosperity and wealth creation—Ecuador will continue to fall behind and bleed its best talent. Ecuador’s blissfully ignorant political class appears focused not on ideology or long-term outcomes but on convenience and short-term people pleasing.
The Worst Performance in Five Years
The EFW Index evaluates 45 social, political, and economic indicators, grouped into five categories: government size, legal system and property rights, sound money, freedom to trade internationally, and regulation. Each category and the overall score range from zero to 10, with 10 being the best performance. The ranking then places countries from one to 165, with one being the most economically free.
Ecuador’s ranking reached its lowest point under the Correa administration in 2014, falling to the 130th with a score of 5.7 out of 10. The following year, however, the country improved to 107th, with a score of 6.2. In 2021, Ecuador climbed to 98th position with a score of 6.39. However, in the latest index, it dropped back to 104th, with a score of 6.19.
Ecuador’s highest-scoring category has been sound money, thanks to the dollarized economy established in 2000. In the latest publication, the category—comprising indicators like money growth, inflation rate, and foreign currency bank accounts—fell below seven points for only the second time since 2014, reaching 6.53.
This is despite Ecuador maintaining a moderate post-COVID-19 inflation rate of 3.47 percent, compared to the regional average of 8.2 percent, and its legal currency being the US dollar. This category’s score will hardly improve in the assessments of 2023 and 2024 indicators, given that political instability has encouraged capital outflows. Moreover, the 2024 VAT increase (from 12 percent to 15 percent) and power shortages have raised production and consumption costs.
Worsening Living Conditions
WEF Index’s authors—Matthew Mitchell, the Fraser Institute senior fellow on economic freedom, and economics professors Robert Lawson and Ryan Murphy—explain that countries with greater economic freedom enjoy a better quality of life. For this, they make some socioeconomic indicator comparisons:
- GDP per capita among the top 10 free economies is $52,877, while among the 10 least free, it is $6,968.
- The poorest percentile in the top 10 free economies have an average annual income of $7,610, compared to an average annual income of $952 in the least free economies.
- Similarly, authors find better results in life expectancy, mortality rates, child labor, and factors related to social inclusion and anticorruption efforts.
Although countries with higher economic freedom report greater life satisfaction, Ecuadorian officials continue to increase public spending and taxes to fund it. This fosters a downward spiral of ever higher deficits and servicing costs on consequent debt. Rather than implementing reforms, political leaders have avoided critical decisions that could risk their popularity.
Leadership Challenges in Ecuador
Guillermo Lasso, president from 2021 to 2023, campaigned on a platform of market freedom and a limited state. However, he faced governance challenges that led to an early exit from office. His administration lacked legislative support and struggled with a growing security crisis as criminal groups embedded in the state retaliated without their former allies in power.
Lasso’s successor, Daniel Noboa (2023–present), initially gained strong approval as a novel alternative. He distanced himself from both supporters and opponents of Correismo. However, his approval ratings have dropped sharply due to an ongoing energy crisis and insufficient action against escalating violence, potentially jeopardizing his reelection chances.
Ecuador struggles with up to 14-hour blackouts nationwide. Although not a solution to the problem, the central government has softened outrage by dispensing with electricity bills for four months, at least for means-tested individuals.
Both Lasso and Noboa have failed to enact policies with long-term benefits, such as reducing public spending, strengthening the legal system, or clarifying investment and trade regulations. Early this year, Ecuador signed a free-trade agreement with China, but attempts to join the Pacific Alliance and sign a prior trade agreement with Mexico have stalled.
As Ecuador heads into presidential and legislative elections in February 2025, the ruling party and those ruling at local governments have resorted to populist tactics to attract votes. Unfortunately, this bread-and-circus approach deepens protectionism and fosters dependence within the population.
If Ecuadorian leaders do not commit to economic freedom as a pathway to improved living standards, the country will continue to suffer from populism: governments focused on urgent issues for quick electoral wins at the expense of long-term prosperity.
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