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Economics

In a nutshell

Despite its richness in natural resources like oil, Ecuador remains highly in debt, and debt repayment is responsible for a significant portion of the country's expenses.

The county's oil-trade based expansion in the 1970's was accompanied by an increasing debt that, together with over-liberal budget management, is largely to blame for the country's struggle to pay foreign debt interest (100 % of the GDP in 1999).

The last agreement signed with the IMF in March of 2003 includes short-term budgetary limitations, as well as customs, public services, and taxation system reforms. The state has committed to liquidating the bankrupt banks that were destabilizing the country's economy.

Aided by the rise of oil prices, the balance of trade has been positive since 2004. The oil industry generates up to 20% of the GDP, 50 % of export receipts, and more than 25% of the budgetary income.

Despite radical changes resulting from dollarization of the currency in January of 2000, which forced companies to become more competitive, other exports (such as banana and shrimp) are on the rise.

Ecuador is currently faced with two economic challenges: improving its economic competitiveness and defining a unified frame for public finance.

 

In the words of an Ecuadorian

"A massive flow of income is currently dynamiting the economy of Ecuador. The sources of income are diverse (...)"

OIL

Oil prices are very high and improve the level of income in the country. In 2006, there was a significant rise in the income related to oil trade, up to 900 million dollars of extra-income, while 2 billion dollars is the forecast figure for 2007, thanks to a reform of the Oil and Gas Act that evens the participation of the state in the extraordinary income due to the rise of oils prices. This participation is nevertheless very favorable to the transnational companies (...). 

MIGRANTS 

The Ecuadorian economy is also dependant on a very important flow of resources coming from migrants working abroad. The migrants are sending more and more money back to our country. According to the Central Bank, this income ("remesas") reached 1.7 billion dollars in 2005. The InterAmerican Bank of Development gives an estimate of 2 billions of dollars. This income is more than useful for the economy of the country. 

PRIVATE EXTERNAL DEBT 

A third of the amount of our economy's resources comes from the increase of the private external debt. 

When the dollarization of our currency occurred in 2000, the private external debt was close to 2 billion dollars. It currently amounts to over 8 billion dollars. 

(...) 

EXPORTATION OF MATERIALS 

This trend is determined by the increase in demand from the United States, and also other countries such as India and China. Our country benefits from this situation, thanks to the rise of prices of oil and other materials. 

DOLLAR / EURO 

I would add, as a possible resource for our economy, the recent changes in the euro/dollar exchange rate. This is a good opportunity for our country, because this change was a catalyst of exportations and allowed us to gain a more competitive position. 

RECESSION 

However, the Ecuadorian economy is currently in a recession process. 

The industrial and agricultural sectors have not been relaunched, especially in the countryside. 

Most of the resources come from exportation of materials such as oil and others have a less important macro economical impact, in terms of employment and consequences on the rest of the economy. 

THE CURSE OF ABUNDANCE 

Ecuador is going through a period during which the country lives with the curse of abundance and I could say that Ecuador definitely is a poor country but rich of natural resources. It's rich of natural resources, with a society that does not naturally take exportation into account, in which most of the country does not evenly benefit from the income of exportation, and that has no program to strengthen the democratic process. "[1]

 

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Economy of Ecuador

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[1] ALBERTO ACOSTA, ecuador's Ministry of energy, interviewed by Cristiano Morsolin - Alter.com - 17 January 2007