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Economy of Ecuador

President Correa's economic priorities include higher social spending, increased government control over strategic sectors, and ensuring a greater share of natural resource revenues for the state. However, after 4 years in office, the government’s economic policies continue to evolve, creating some uncertainty for the business community. The World Economic Forum's Global Competitiveness Index rated Ecuador 105th out of 139 countries for 2010-11. The Ecuadorian economy is based on petroleum production, manufacturing primarily for the domestic market, commerce, and agricultural production for domestic consumption and export. Principal exports are petroleum, bananas, shrimp, flowers, and other primary agricultural products. In 2010, crude and refined petroleum products accounted for 56% of total export earnings. Ecuador is the world's largest exporter of bananas and plantains (about $2 billion) and a major exporter of shrimp ($828 million) and cacao ($402 million). Exports of nontraditional products such as flowers ($598 million), canned fish ($601 million), and automobiles ($375 million) have become more important in recent years. The oil sector typically accounts for 50%-60% of the country’s export earnings, 15%-20% of GDP, and 30%-40% of government revenues. Oil production is primarily carried out by the government, as well as by small domestic and several large foreign companies. Oil production declined between 2006 and 2009 due to insufficient investment, before leveling out in 2010. In late 2010 and early 2011, the government renegotiated all oil concession contracts, moving from a production-sharing arrangement to service (fee) contracts. Several oil companies declined to renegotiate; those operations were devolved to the state oil company, increasing the state’s share of national oil production from 62% in 2010 to roughly 71% in 2011. With oil contract renegotiations complete, public and private investment in the sector is expected to increase, along with production levels. Additional oil concessions for certain marginal fields and new large tracts in the southern part of the country are expected to be offered in mid-2011. The mineral sector has been developing slowly. However, in early 2011, government negotiations commenced with mining companies interested in moving from an exploratory phase into production. To foster diversification of Ecuador’s economy, the Ecuadorian Government enacted a Production, Trade, and Investment Code in late 2010. The code is intended to promote production of higher value-added products, in particular by small and medium-sized businesses located in regions outside the major business centers of Quito and Guayaquil. Ecuador adopted the dollar as its national currency in 2000, following a major banking crisis and recession in 1999. Dollarization led to stability, which helped Ecuador achieve solid economic performance through 2006. From 2000 to 2006, growth averaged 4.9% per year, supported by high oil prices, strong domestic consumer demand, increased non-traditional exports, and growing remittances (about $3 billion in 2006) from Ecuadorians living abroad. In 2007, economic growth slowed, constrained by declining petroleum production and reduced private sector investment. In 2008, the economy recovered, posting a 7.2% real annual growth rate due to higher oil prices, increased government spending and strong domestic demand. By the end of 2008, the global financial crisis and economic downturn led to falling remittances and declining oil revenue for Ecuador. In December 2008 the government defaulted on certain debt issuances (its 2012 and 2030 Global bonds, with a total face value of approximately U.S. $3.2 billion). In June 2009, the government repurchased 91% of these bonds at a 65%-70% discount in a modified Dutch auction. Although oil prices rebounded in 2009, economic growth slowed due to a fall in internal demand resulting from the international financial crisis and reduced domestic investment. Remittances from foreign workers, Ecuador’s second-largest source of external revenues, after petroleum, declined 12% due to the worsening economic conditions in the United States and Spain, the two most important origins for remittances. According to official statistics, the real annual growth rate for Ecuador’s economy in 2009 was 0.36%. As the global economy began to recover in 2010, Ecuador’s economy rebounded with a 3.6% growth rate. However, limited access to international financing, following the 2008 sovereign default, forced the government to reduce expenditure levels and cover a budgetary financing gap with loans from international financial institutions, funds from Ecuador’s Social Security Institute, and financing from China. Ecuador has received almost $3 billion in direct financing from China since 2009. This financing has usually taken the form of contracts with the Ecuadorian Government for forward sales of oil, and often carry interest rates above those generally charged by international financial institutions, such as the World Bank. Remittances from workers abroad continued to decline in 2010, falling 7% from the 2009 level. Between 2000 and 2010, per capita income increased from $1,324 to an estimated $4,013, while the poverty rate fell from 51% to 33%. The Ecuadorian Government’s official forecast for GDP growth in 2011 is 5.1%. The Ecuadorian Government’s budget for 2011 totals $23.95 billion, with a $3.7 billion budget deficit and $4.95 billion financing gap. The 2011 budget is premised on an average price per barrel of Ecuadorian crude of $73.30. Higher export oil prices stemming from unrest in the Middle East are expected to provide Ecuador with substantial extra-budgetary revenue in 2011. Additional financing is expected to be in the form of loans from international financial institutions and disbursements from China for the forward sale of oil. GDP: (2010 preliminary) $56.99 billion; (2009) $52.02 billion; (2008) $54.2 billion. Real annual growth rate: (2011 forecast) 5.06%; (2010) 3.58%; (2009) 0.36%; (2008) 7.24%. Per capita GDP: (2010 preliminary) $4,013; (2009) $3,714; (2008) $3,927. Natural resources: Petroleum, fish, shrimp, timber, gold, and copper. GDP by activity (2009): Oil and mining 14.2% (oil and natural gas extraction, and mining); commercial trade (wholesale and retail) 11.4%; construction 10.6%; manufacturing 9.2% ( types --food processing, wood products, textiles, chemicals, and pharmaceuticals). Other major contributors to GDP (2008): Transportation/warehousing 6.6%; and agriculture, including seafood 6.1% ( products --bananas, seafood, flowers, coffee, cacao, sugar, tropical fruits, palm oil, palm hearts, rice, corn, and livestock). Trade: Exports --$17.4 billion (2010); $13.8 billion (2009). Types --petroleum, bananas, shrimp, cacao, coffee, cut flowers, wood, canned fish. Major markets (2010)--U.S. 35%, Latin America excluding Andean Community 24%, Andean Community 18%, European Union (EU) 13%, and Asia 6%. Imports --$18.9 billion (2010); $14.1 billion (2009). Types --industrial materials, fuels and lubricants, nondurable consumer goods, industrial capital goods. Major suppliers (2010)--Latin America more than 40%, U.S. 26%, Asia 21%, and EU 9%. Currency: U.S. dollar.

Geography of Ecuador

Location: Western South America, bordering the Pacific Ocean at the Equator, between Colombia and Peru Geographic coordinates: 2 00 S, 77 30 W Map references: South America Area: total: 283,560 sq km land: 276,840 sq km water: 6,720 sq km note: includes Galapagos Islands
Area-comparative: slightly smaller than Nevada Land boundaries: total: 2,010 km border countries: Colombia 590 km, Peru 1,420 km Coastline: 2,237 km
Maritime claims: continental shelf: claims continental shelf between mainland and Galapagos Islands territorial sea: 200 nm Climate: tropical along coast becoming cooler inland Terrain: coastal plain (costa), inter-Andean central highlands (sierra), and flat to rolling eastern jungle (oriente)
Elevation extremes: lowest point: Pacific Ocean 0 m highest point: Chimborazo 6,267 m Natural resources: petroleum, fish, timber Land use: arable land: 6% permanent crops: 5% permanent pastures: 18% forests and woodland: 56% other: 15% (1993 est.) Natural hazards: frequent earthquakes, landslides, volcanic activity; periodic droughts Environment-current issues: deforestation; soil erosion; desertification; water pollution; pollution from oil production wastes Environment-international agreements: party to: Antarctic-Environmental Protocol, Antarctic Treaty, Biodiversity, Climate Change, Desertification, Endangered Species, Hazardous Wastes, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber 94, Wetlands, Whaling signed, but not ratified: Climate Change-Kyoto Protocol Geography-note: Cotopaxi in Andes is highest active volcano in world.

Government of Ecuador

The 2008 constitution provides for 4-year terms of office for the president, vice president, and members of the National Assembly. Presidents may be consecutively re-elected for an additional term. The executive branch currently includes 38 cabinet members, (including coordinating ministries with inter-governmental responsibility and national secretariats). Provincial leaders (called prefects) and councilors, mayors, city councilors, and rural parish boards are directly elected. The National Assembly elected in April 2009 replaced the interim Legislative Commission on July 31, 2009. The National Assembly is unicameral with 124 total legislators. The seven members of the Citizen Participation Council, under the transparency and social participation branch of government, were sworn in on March 18, 2010, for a 5-year term. Justices of the National Court of Justice will be selected by a Judicial Council through a merit-based process for a 9-year term, with no immediate reappointment. A special committee, composed of members selected by all branches of government, will appoint the members of the Constitutional Court to serve a 9-year term, with no reappointment. POLITICAL CONDITIONS Ecuador has been caught in cycles of political instability, reflecting popular disillusionment with traditional power structures and weak institutions. Ecuador's political parties have historically been small, loose organizations that depend more on populist, often charismatic, leaders to retain support than on programs or ideology. Frequent internal splits have produced great factionalism. Beginning with the 1996 election, the indigenous population abandoned its traditional policy of shunning the official political system and participated actively. The indigenous population established itself as a force in Ecuadorian politics, and participated in the Gutierrez administration before joining the opposition. Rafael Correa is the first president since the 1979 return to democracy to enjoy sustained popularity in all regions of the country and among a broad array of class and demographic groups. President Correa has criticized the traditional political parties. As a result of this criticism and their weak showings in recent elections, opposition parties are weakened and seeking ways to revive themselves. As of February 2011, President Correa's Proud and Sovereign Fatherland (PAIS) movement was the predominant political force in Ecuador, though PAIS did not hold an outright majority of seats in the National Assembly. Principal Government Officials President--Rafael CORREA Vice President--Lenin MORENO Minister of Foreign Affairs--Ricardo PATINO Minister of Defense--Javier PONCE Ambassador to the United States--Luis GALLEGOS Chiriboga (Note: The United States Government declared Ambassador Gallegos persona non grata on April 7, 2011 following the Government of Ecuador's April 5 decision to declare U.S. Ambassador to Ecuador Heather Hodges persona non grata.) Ambassador to the Organization of American States--Maria Isabel SALVADOR Ambassador to the United Nations--Francisco CARRION Mena Ecuador maintains an embassy in the United States at 1050 - 30th Street NW, Washington, DC 20007 (tel. 202-465-8120) and consulates in Atlanta, Boston, Chicago, Dallas, Denver, Houston, Jersey City, Los Angeles, Miami, New Orleans, New York, San Francisco, and San Juan, Puerto Rico. Government Type: Republic. Constitution: August 11, 1998. Independence: May 24, 1822 (from Spain). Branches: Executive--president and 15 cabinet ministers. Legislative--unicameral Congress. Judicial--Supreme Court, Provincial Courts, and ordinary civil and criminal judges. Administrative subdivisions: 22 provinces. Political parties: Over a dozen political parties; none predominates. Suffrage: Obligatory for literate citizens 18-65 yrs. of age; optional for other eligible voters; active duty military personnel may not vote

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History of Ecuador

Advanced indigenous cultures flourished in Ecuador long before the area was conquered by the Inca Empire in the 15th century. In 1534, the Spanish arrived and defeated the Inca armies, and Spanish colonists became the new elite. The indigenous population was decimated by disease in the first decades of Spanish rule--a time when the natives also were forced into the "encomienda" labor system for Spanish landlords. In 1563, Quito became the seat of a royal "audiencia" (administrative district) of Spain. Independence After independence forces defeated the royalist army in 1822, Ecuador joined Simon Bolivar's Republic of Gran Colombia, only to become a separate republic in 1830. The 19th century was marked by instability, with a rapid succession of rulers. The conservative Gabriel Garcia Moreno unified the country in the 1860s with the support of the Catholic Church. In the late 1800s, world demand for cocoa tied the economy to commodity exports and led to migrations from the highlands to the agricultural frontier on the coast. A coastal-based liberal revolution in 1895 under Eloy Alfaro reduced the power of the clergy and opened the way for capitalist development. The end of the cocoa boom produced renewed political instability and a military coup in 1925. The 1930s and 1940s were marked by populist politicians, such as five-time President Jose Velasco Ibarra. In January 1942, Ecuador signed the Rio Protocol to end a brief war with Peru the year before. Ecuador agreed to a border that conceded to Peru much territory Ecuador had previously claimed in the Amazon region. After World War II, a recovery in the market for agricultural commodities and the growth of the banana industry helped restore prosperity and political peace. From 1948-60, three presidents--beginning with Galo Plaza--were freely elected and completed their terms. Political turbulence returned in the 1960's, followed by a period of military dictatorship between 1972 and 1979. The 1980's and beginning of the 90's saw a return to democracy, but instability returned by the middle of the decade. Recession and popular unrest led to a return to populist politics and domestic military interventions in the 1960s, while foreign companies developed oil resources in the Ecuadorian Amazon. In 1972, a nationalist military regime seized power and used the new oil wealth and foreign borrowing to pay for a program of industrialization, land reform, and subsidies for urban consumers. With the oil boom fading, Ecuador returned to democracy in 1979, but by 1982, the government faced an economic crisis, characterized by inflation, budget deficits, a falling currency, mounting debt service, and uncompetitive industries. The 1984 presidential elections were narrowly won by Leon Febres-Cordero of the Social Christian Party (PSC). During the first years of his administration, Febres-Cordero introduced free-market economic policies, took strong stands against drug trafficking and terrorism, and pursued close relations with the United States. His tenure was marred by bitter wrangling with other branches of government and his own brief kidnapping by elements of the military. A devastating earthquake in March 1987 interrupted oil exports and worsened the country's economic problems. Rodrigo Borja of the Democratic Left (ID) party won the presidency in 1988. His government was committed to improving human rights protection and carried out some reforms. Most notably, Borja opened Ecuador up foreign trade. The Borja government concluded an accord leading to the disbanding of the small terrorist group, "Alfaro Lives." However, continuing economic problems undermined the popularity of the ID, and opposition parties gained control of Congress in 1990. In 1992, Sixto Duran-Ballen won in his third run for the presidency. His government succeeded in pushing a limited number of modernization initiatives through Congress. Duran-Ballen's Vice President, Alberto Dahik, was the architect of the administration's economic policies, but in 1995, Dahik fled the country to avoid prosecution on corruption charges following a heated political battle with the opposition. A war with Peru erupted in January-February 1995 in a small, remote region where the boundary prescribed by the 1942 Rio Protocol was in dispute. Abdala Bucaram, from the Guayaquil-based Ecuadorian Roldosista Party (PRE), won the presidency in 1996 on a platform that promised populist economic and social policies and the breaking of what Bucaram termed as the power of the nation's oligarchy. During his short term of office, Bucaram's administration drew criticism for corruption. Bucaram was deposed by the Congress in February 1997 on grounds of alleged mental incompetence. In his place, Congress named interim President Fabian Alarcon, who had been president of Congress and head of the small Radical Alfarist Front party. Alarcon's interim presidency was endorsed by a May 1997 popular referendum. Congressional and first-round presidential elections were held on May 31, 1998. No presidential candidate obtained a majority, so a run-off election between the top two candidates--Quito Mayor Jamil Mahuad of the Popular Democracy party and Alvaro Noboa of the Ecuadorian Roldosista Party (PRE)--was held on July 12, 1998. Mahuad won by a narrow margin. He took office on August 10, 1998. On the same day, Ecuador's new constitution came into effect. Mahuad concluded a well-received peace with Peru on October 26, 1998, but increasing economic, fiscal, and financial difficulties drove his popularity steadily lower. On January 21, 2000, during demonstrations in Quito by indigenous groups, the military and police refused to enforce public order. Demonstrators entered the National Assembly building and declared a three-person "junta" in charge of the country. Field-grade military officers declared their support for the concept. During a night of confusion and negotiations, President Mahuad was obliged to flee the presidential palace. Vice President Gustavo Noboa took charge and Mahuad went on national television in the morning to endorse Noboa as his successor. Congress met in emergency session in Guayaquil the same day, January 22, and ratified Noboa as President of the Republic in constitutional succession to Mahuad. By completing Mahuad’s term, Noboa restored some stability to Ecuador. He implemented the dollarization that Mahuad had announced, and he obtained congressional authorization for the construction of Ecuador’s second major oil pipeline, this one financed by a private consortium. Noboa turned over the government on January 15, 2003, to his successor, Lucio Gutierrez, a former army colonel who first came to the public’s attention as a leader of the January 2000 events that led to Mahuad’s departure from the presidency. Anti-corruption was a main theme of Gutierrez’s campaign. Gutierrez’s party has a small fraction of the seats in Congress, and he therefore depends on the support of other political parties to pass legislation. He has attempted some economic reforms. On November 9, 2004, an opposition coalition tried but failed to create a Special Congressional Commission to impeach the president on various grounds.

People of Ecuador

Ecuador's population is ethnically mixed. A large majority of the population is mestizo (mixed Amerindian-Caucasian), followed by smaller percentages of indigenous, Afro-Ecuadorian, and European descendent criollos . Although Ecuadorians were heavily concentrated in the mountainous central highland region a few decades ago, today's population is divided about equally between that area and the coastal lowlands. Migration toward cities--particularly larger cities--in all regions has increased the urban population to over 60% of the total. The tropical forest region (or Amazon region) to the east of the mountains remains sparsely populated and contains only about 3% of the population. Due to an economic crisis in the late 1990s, more than 600,000 Ecuadorians emigrated to the U.S. and Europe from 2000 to 2001. According to the 2000 U.S. census there were 323,000 persons who claimed Ecuadorian ancestry. Including undocumented migrants, it is unofficially estimated that there are approximately one million to two million Ecuadorians currently residing in the U.S. Nationality: Noun and adjective --Ecuadorian(s). Population (2010 census): 14,306,876. Annual population growth rate (2010 census): 1.52%. Ethnic groups: Mestizo (mixed Amerindian and Spanish) 65%, indigenous 25%, Caucasian and others 7%, African 3%. Religion: Predominantly Roman Catholic (95%), but religious freedom recognized. Languages: Spanish (official), indigenous languages, especially Quichua, the Ecuadorian dialect of Quechua. Quichua and Shuar are official languages of intercultural communication. Education: Years compulsory --ages 5-18. Attendance (through 6th grade)--77% urban, 78% rural. Literacy --97.3%. Health: Infant mortality rate-- 22.1/1,000. Life expectancy-- 76.62 yrs.