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Ecuador |
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Country information
ECONOMY
Basic Economic Facts
GDP: $48.5 billion (2008 forecast)
GDP (official exchange rate): $32.73 billion (2006 est.)
GDP - real growth rate: 1.8% in 2007 (IMF)
GDP - per capita (PPP): $3,514 (2008 estimate)*
Inflation rate: 8.83% (2008)
* Banco Central de Ecuador
Major Industries: Oil, bananas, fishing, fresh cut flowers, shrimp farming, timber.Major trading partners: United States, Latin American countries, European Union, Japan, Korea.
Ecuador is the world’s leading exporter of bananas and a major producer of agricultural commodities and shrimp, in addition to coffee, cocoa and tuna fish. Non-traditional agricultural products such as flowers and winter vegetables are also important.
The economy is largely dependent on oil export revenues, followed by remittances from Ecuadorians overseas, and exports. It is therefore highly vulnerable to external shocks. The aftermath of the weather phenomenon El Niño and the depressed oil market of 1997-98 contributed to half of Ecuador’s banks collapsing overnight in 1999. The failure led to an unprecedented default on external loans, ignited hyperinflation, and caused a 70% depreciation of then currency, the Sucre. The economic breakdown set off massive migration principally to the US and Europe, but also to other Latin American countries. The economy only started to stabilise after the country took the highly controversial decision to adopt the US Dollar as its currency in 2000.
Dollarisation dampened inflation until 2006 when it began to pick up again, accelerating in 2008 to just under 9%. Inflation has since slowed as a result of the global economic slowdown, but so have oil revenues, remittances and export earnings, giving rise to predictions that the government could experience financing difficulties in 2009 if the oil price remains depressed and Correa maintains the extraordinarily high rate of public spending. The situation has been complicated by continued uncertainty over employment following the passage of a labour law by the constituent assembly in April 2008. This put widespread restrictions on outsourcing and prohibited intermediation. Experts foresee a rise in unemployment in 2009 as exports fall.
Correa’s response to the global financial crisis has included an assertion that if the need arose he would suspend payments on the foreign debt in order to continue high levels of social spending. Such news has propelled Ecuador’s risk rating upward. In November 2008 a government-appointed commission tasked with examining the country’s external debt issued its report, which condemned much of the debt as illegal and illegitimate. Since the report, the government has sent mixed messages to the market, declaring a moratorium on some of the debt and servicing other parts. This has restricted Ecuador’s access to international credit, although some multilaterals have tacitly approved Ecuador's handling of debt issues, including its repurchase of Global 2012 and 2030 bonds, by continuing to lend. In 2009 the government introduced import restrictions in an effort to reduce a widening trade balance. It has said that it will review these measures at a later date.
Ecuador had been negotiating a free trade agreement (FTA) with the US, Ecuador’s biggest export market. Since taking office President Correa halted the talks on the grounds that they are not in Ecuador’s national interest. Ecuadorian exporters will continue to benefit from tariff free trade with US for certain goods, under the Andean Trade Partnership and Drug Eradication Agreement (ATPDEA) until December 2009, with a six-monthly review at the half way point. To reduce economic dependence on the US the government is seeking new trading partners, particularly in Asia and the Middle East. As a member of the Andean Community, Ecuador has participated, along with Peru and Colombia (but not Bolivia) in talks aimed at achieving an Association Agreement between the Andean Community and the EU, in which trade will be an important pillar. As of September 2009 Ecuador has suspended its participation in negotiations with the EU.
Ecuador continues to be affected by drug trafficking activities in neighbouring countries. Chronic corruption in all sectors of Ecuadorian society continues. Whilst Transparency International’s corruption perceptions index (CPI), continues to classify Ecuador as one of the most corrupt countries in Latin America, it also acknowledges that public opinion in Ecuador recognises the government’s efforts to combat corruption are having an effect.
