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Petroleum Development in the Ecuadorian Amazon: Setting the Record Straight (Part II: Oil wealth & socioeconomic progress in Ecuador)

By Douglas Southgate -- February 16, 2012

[Ed. Note: This series addresses key issues at the heart of Ecuador’s claims of “reckless environmental damage” against Chevron, and, through them, international oil companies (IOCs). Part I challenged the facade that Ecuador’s passive view of its own resources led to exploitation by Big Oil. Part III tomorrow addresses the misperception that environmental damage in this small, South American nations is the responsibility of foreign firms alone.]

 Oil and gas has been a 40-year economic driver in Ecuador. With the national treasury benefiting from oil and gas revenue, any lack of socioeconomic progress during the last decades cannot be blamed on international oil company (IOC) profit-making there.

Indeed, no serious observer claims that Ecuador has failed to experience development. Criticism has focused instead on waste and misallocation of the large cash bounty that multinational investment created for Ecuador.

Who Got the Money?

Much of the blame for misallocation rests with the uniformed services, which have received a sizable portion of the country’s petrodollars. Military expenditures averaged 45 percent of the national budget from 1972 through 2000, which has enabled the armed forces to acquire a fleet of oil tankers, an airline, and other commercial enterprises.[1] However, oil wealth also has been spent on social services and subsidies for the public at large.

Despite waste, corruption, and misallocation, gross national income (GNI) per capita improved during this period. So did non-economic indicators of human well-being, including the infant mortality rate (IMR) and life expectancy at birth, thanks to better water supplies and public sanitation, wider access to pharmaceuticals, and, most importantly, improved nutrition.

Conditions in 1967

At the time when oil was discovered in the Oriente, mean GNI in Ecuador ($260) was barely half the Latin American and Caribbean average ($478); only in Haiti’s GNI per capita was appreciably lower. [2] The country’s standing in terms of non-economic measures was a little better.

For example, its IMR (97 infant deaths per thousand live births) was slightly under the regional average and below rates in Brazil, Peru, and several other nations with higher mean incomes. Even though the country’s life expectancy at birth (57 years) was two years less than the Latin American and Caribbean average, it was longer than expected life-spans in El Salvador, Guatemala, Nicaragua, and Peru, each of which had higher mean earnings.

In the late 1960s, better infant survival and longer life-spans had yet to have an impact on the total fertility rate (TFR). At 6.5 births per woman, human fertility in Ecuador was similar to what it had been for generations. Population growth in 1967 (3.0 percent per annum) was higher than for the region as a whole (2.7 percent) in 1967. Indeed, the rate of expansion in Ecuador exceeded rates in fourteen other Latin American and Caribbean nations.

The Situation in 1992

Twenty-five years later, when Texaco’s partnership with Petroecuador ended, various measures of human well-being were better and fertility rates and population growth were lower. Nominal GNI per capita was actually a smaller share of the regional average in 1992 than it had been in 1967. But with a correction for purchasing power parity, to account for the low prices that Ecuadorians paid for food and many other items, GNI per capita in Ecuador ($3,960) actually amounted to 77 percent of the Latin American and the Caribbean average ($5,156).

Gains in non-economic indicators were particularly impressive. The IMR fell by more than 50 percent between 1967 and 1992, to 43 infant deaths per thousand live births. This progress translated into significant increases in life expectancy at birth. Whereas life expectancy had been lower in Ecuador than in the rest of Latin America and the Caribbean in 1967, an Ecuadorian baby born in 1992 could expect to live 70 years, versus the regional average of 69 years.

Between 1967 and 1992, Ecuador’s TFR fell from 6.5 births per woman to 3.4 births per woman, as the regional average declined from 5.6 births to 3.1 births per woman. One reason for the small gap that remained in 1992 was that the rural share of Ecuador’s population (44 percent) was still higher than the share for the entire region (28 percent). Likewise, annual demographic expansion had declined, from 3.0 percent in 1967 to 2.2 percent a quarter century later, but continued to exceed the regional pace.

Ecuador Today

In no respect was the socioeconomic progress registered in Ecuador after 1967 ephemeral. On the contrary, the positive transformation financed largely with petrodollars remained obvious after four decades. In 2005, Ecuador’s IMR (20 infant deaths per thousand live births) was 10 percent lower than the Latin American and Caribbean average and its life expectancy at birth (75 years) was two years longer than the region’s.

Today, an Ecuadorian newborn can expect to live nearly as long as a U.S. infant (78 years). The national TFR is now 2.6 births per woman, which is a little above the replacement level of 2.1 births. Between diminished human fertility and increased emigration, human numbers are now increasing at an annual rate of 1.0 percent, which is less than the regional pace of 1.2 percent.

Ecuadorians today are much better off than their parents and grandparents were 45 years ago—as a direct result of petroleum development, not in spite of it.

[1] Allen Gerlach, Indians, Oil, and Politics:  A Recent History of Ecuador (Wilmington:  Scholarly Resources, 2003), 35.

[2] Gross national income (GNI) per capita, IMRs, and other socioeconomic data reported here have been obtained from:  World Bank, World Development Indicators Online, accessed via the Ohio State University Library System on 18 August 2009.

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