Colonial Ecuador

Colonial Ecuador

Ecuador

Ecuador , officially the Republic of Ecuador is a representative democratic republic in South America, bordered by Colombia on the north, Peru on the east and south, and by the Pacific Ocean to the west. It is one of only two countries in South America, along with Chile, that do not have a border...

 was governed first by the Viceroyalty of Peru

Viceroyalty of Peru

Created in 1542, the Viceroyalty of Peru was a Spanish colonial administrative district that originally contained most of Spanish-ruled South America, governed from the capital of Lima...

 and then by the Viceroyalty of Nueva Granada. Ecuador differed significantly from the viceroyalty centers (Lima

Lima

Lima is the capital and the largest city of Peru. It is located in the valleys of the Chillón, Rímac and Lurín rivers, in the central part of the country, on a desert coast overlooking the Pacific Ocean. Together with the seaport of Callao, it forms a contiguous urban area known as the Lima...

 and Bogotá

Bogotá

Bogotá, Distrito Capital , from 1991 to 2000 called Santa Fé de Bogotá, is the capital, and largest city, of Colombia. It is also designated by the national constitution as the capital of the department of Cundinamarca, even though the city of Bogotá now comprises an independent Capital district...

), however, in that mining never became a vital part of the economy. Instead, crop cultivation and livestock raising dominated the economy, especially in the Sierra. The Sierra's temperate climate was ideal for producing barley

Barley

Barley is a major cereal grain, a member of the grass family. It serves as a major animal fodder, as a base malt for beer and certain distilled beverages, and as a component of various health foods...

, wheat

Wheat

Wheat is a cereal grain, originally from the Levant region of the Near East, but now cultivated worldwide. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...

, and corn

Maize

Maize known in many English-speaking countries as corn or mielie/mealie, is a grain domesticated by indigenous peoples in Mesoamerica in prehistoric times. The leafy stalk produces ears which contain seeds called kernels. Though technically a grain, maize kernels are used in cooking as a vegetable...

. The Costa became one of the world's leading producers of cacao. Sugarcane

Sugarcane

Sugarcane refers to any of six to 37 species of tall perennial grasses of the genus Saccharum . Native to the warm temperate to tropical regions of South Asia, they have stout, jointed, fibrous stalks that are rich in sugar, and measure two to six metres tall...

, bananas, coconuts

COcOnuts

COcOnuts is the second album released by Jane, comprising Animal Collective member Panda Bear, and Scott Mou. It was originally self-released on CD-R's, but later became the first album released by Psych-o-path Records in 2005. The Psych-o-path version was remastered by Rusty Santos and Edik Kleyner....

, tobacco

Tobacco

Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...

, and cotton

Cotton

Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. The botanical purpose of cotton fiber is to aid in seed dispersal....

 also were grown in the Costa for export purposes. Foreign commerce expanded gradually during the eighteenth century, but agricultural exports remained paramount. Manufacturing never became a significant economic activity in colonial Ecuador, but busy sweatshops, called obrajes, in Riobamba

Riobamba

Riobamba is the capital of the Chimborazo Province in central Ecuador, which is located at the Chambo River Valley of the Andes. It is south of Ecuador's capital Quito and located at 2754 m on the Avenue of the Volcanoes...

 and Latacunga

Latacunga

Latacunga is a plateau town of Ecuador, capital of the Cotopaxi Province, south of Quito, near the confluence of the Alaques and Cutuchi rivers to form the Patate, the headstream of the Pastaza. At the time of census 2001 Latacunga had 51,689 inhabitants, largely mestizo and indigenous.Latacunga...

 made Ecuador an exporter of woolen and cotton fabrics; a shipyard in Guayaquil

Guayaquil

Guayaquil , officially Santiago de Guayaquil , is the largest and the most populous city in Ecuador,with about 2.3 million inhabitants in the city and nearly 3.1 million in the metropolitan area, as well as that nation's main port...

 was one of the largest and best in Spanish America; and sugar mills manufactured sugar

Sugar

Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...

, molasses

Molasses

Molasses is a viscous by-product of the processing of sugar cane, grapes or sugar beets into sugar. The word molasses comes from the Portuguese word melaço, which ultimately comes from mel, the Latin word for "honey". The quality of molasses depends on the maturity of the sugar cane or sugar beet,...

, and rum

Rum

Rum is a distilled alcoholic beverage made from sugarcane by-products such as molasses, or directly from sugarcane juice, by a process of fermentation and distillation. The distillate, a clear liquid, is then usually aged in oak barrels...

 made from molasses.

1830-1950

When Ecuador gained complete independence in 1830, it had a largely rural population of about one-half million. The rural economy came to rely on a system of peonage, in which Sierra and Costa Indians were allowed to settle on the lands belonging to the hacendado, to whom they paid rent in the form of labor and a share of their crop. The economy of the new republic, based on the cultivation of cash crops and inexpensive raw materials for the world market and dependent on peonage labor, changed little during the remainder of the nineteenth and first half of the twentieth century. Vulnerable to changing international market demands and price fluctuations, Ecuador's economy was often characterized by instability and malaise.

During the second half of the nineteenth century, cacao production nearly tripled, and total exports increased tenfold. As a result, the Costa became the country's center of economic activity. Guayaquil dominated banking, commercial, and export-import affairs. During the first two decades of the twentieth century, cacao exports continued to be the mainstay of the economy and the principal source of foreign exchange, but other agricultural products like coffee

Coffee

Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...

 and sugar and fish products were also important exports. The decline of the cacao industry in the 1930s and 1940s, brought about by chronic pestilence

Infectious disease

Infectious diseases, also known as communicable diseases, contagious diseases or transmissible diseases comprise clinically evident illness resulting from the infection, presence and growth of pathogenic biological agents in an individual host organism...

 and the loss of foreign markets to competitors, had debilitating repercussions for the entire economy. During the 1950s, government-sponsored replanting efforts contributed to a partial revival of the cacao industry, so that by 1958 Ecuador was the world's sixth leading exporter of cacao. Nonetheless, by the early 1950s bananas had replaced cocoa beans as the country's primary export crop.

1950-1980

The Ecuadorian economy made great strides after 1950, when annual exports, 90 percent of which were agricultural, were valued at less than US$30 million, and foreign-exchange reserves stood at about US$15 million. Between 1950 and 1970, a slow, steady expansion of nonagricultural activities took place, especially in the construction, utilities, and services sectors. Construction, for example, made up only 3 percent of the GDP in 1950, but it contributed 7.6 percent to the GDP in 1971. Agriculture's annual share of the GDP was 38.8 percent in 1950 compared with a 24.7 percent share in 1971.

The 1960s saw an acceleration and diversification of the manufacturing sector to meet domestic demand, with an emphasis on intermediate inputs and consumer durable goods. By 1971 these accounted for about 50 percent of industrial output. Still, manufactured products—mainly processed agricultural goods—made up only about 10 percent of Ecuador's exports in 1971. Industry was still at an early stage of development, and about 50 percent of the labor force worked in agriculture, forestry, and fishing. Traditional industries, such as food processing, beverages, and textiles, were largely dependent on agriculture. The small size of the domestic market, the high production cost in relation to available external markets, and an undeveloped human, physical, and financial infrastructure all combined to limit the expansion of consumer durable goods in the Ecuadorian economy.

The discovery of new petroleum fields in the Oriente

Oriente (Ecuador)

The Oriente is a region of eastern Ecuador, comprising the eastern slopes of the Ecuadorian Andes and the lowland areas of rainforest in the Amazon basin.- Geographical Location :...

 (eastern region) after 1967 transformed the country into a world producer of oil and brought large increases in government revenue beginning in 1972. That year saw the completion of the Trans-Ecuadorian Pipeline, a 503-kilometer-long oil pipeline leading from the Oriente to the port city of Esmeraldas

Esmeraldas, Ecuador

Esmeraldas is a coastal city in northwestern Ecuador. It is the seat of the Esmeraldas Canton and the capital of the Esmeraldas Province. It has an international sea port and a small airport ....

. A refinery also was constructed just south of Esmeraldas. In addition, in 1970 large quantities of natural gas

Natural gas

Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...

 deposits were discovered in the Gulf of Guayaquil

Gulf of Guayaquil

The Gulf of Guayaquil is a large body of water of the Pacific Ocean in western South America. Its northern limit is the city of Salinas, in Ecuador, and its southern limit is Punta Pariñas, in Peru.The gulf takes its name from the city of Guayaquil...

. Largely because of petroleum exports, Ecuador's net foreign-exchange earnings climbed from US$43 million in 1971 to over US$350 million in 1974.

The production and export of oil that began in the early 1970s, coupled with dramatic international price increases for petroleum, contributed significantly to unprecedented economic growth. Real GDP increased by an average of more than 9 percent per year during 1970 to 1977 as compared with only 5.9 percent from 1960 to 1970. The manufacturing sector alone experienced a 12.9 percent average annual GDP real growth rate during 1975-77. Ecuador became a lower middle-income country, although it remained one of the poorer countries of South America. Economic growth had negative side effects, however. Real imports increased by an annual average of 7 percent between 1974 and 1979; this spawned an inflationary pattern that eroded income. During the same period, the country's external debt

External debt

External debt is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such...

 grew from US$324 million to about US$4.5 billion.

1980-1990

In the early 1980s, the economy faltered as the international price of petroleum began a gradual decline and the country lost some foreign markets for its traditional agricultural products. Dramatic climatic changes caused by El Niño during 1982-83 produced coastal floods, torrential rains, and severe drought, which were highly damaging to crops and to the transportation and marketing infrastructures. The economy also began to feel the pinch of the country's growing external debt, which amounted to US$8.4 billion in 1984. Debt servicing in that year absorbed approximately 60 percent of the country's export earnings. Foreign sources of credit began to dry up as early as 1982, leaving the national government and hundreds of state-owned companies short of capital. Inflationary pressures mounted during the early 1980s; consumer prices, which rose 14 percent in 1980, increased by 25 percent in 1982 and by 53 percent in 1983.

In March 1983, the government, with an eye toward rescheduling the external debt, introduced several austerity measures, including a second devaluation

Devaluation

Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....

 of the sucre

Sucre

Sucre, also known historically as Charcas, La Plata and Chuquisaca is the constitutional capital of Bolivia and the capital of the department of Chuquisaca. Located in the south-central part of the country, Sucre lies at an elevation of 2750m...

 in two years, this time a 21-percent devaluation of the sucre, a 16-percent rise in the commercial interest rate, and a deceleration of government spending. The government's stabilization program, which included new exchange controls and the reduction of fuel and export subsidies, was unpopular domestically, but it enabled Ecuador to successfully negotiate a new debt repayment schedule with the International Monetary Fund

International Monetary Fund

The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

, which also proved willing to grant Ecuador an additional US$107 million in financial assistance. The government, after several months of negotiation, also concluded multiyear rescheduling agreements with foreign private banks in December 1984 and with the Paris Club

Paris Club

The Paris Club is an informal group of financial officials from 19 of some of the world's biggest economies, which provides financial services such as war funding, debt restructuring, debt relief, and debt cancellation to indebted countries and their creditors...

 (a financial consortium of Western banks and governments) in April 1985. By successfully refinancing nearly all of the public-sector debt, the government narrowly avoided defaulting on payments, and, for the period 1985-89, the external debt service ratio

Debt service ratio

In economics and government finance, debt service ratio is the ratio of debt service payments of a country to that country’s export earnings. A country's international finances are healthier when this ratio is low...

 was reduced from 60 percent of export earnings to a manageable 30 percent. From 1985 until the beginning of 1987, Ecuador paid only the interest on its external debt.

The Ecuadorian economy recovered during 1984, partly as a result of temporary stability in the international price of crude oil and partly because of a rebound in the agricultural sector. By late 1984, the balance-of-payments current account

Current account

In economics, the current account is one of the two primary components of the balance of payments, the other being the capital account. The current account is the sum of the balance of trade , net factor income and net transfer payments .The current account balance is one of two major...

, which had reflected a US$58 million deficit in 1983, had a US$19 million credit, and the trade surplus reached US$1 billion. The real GDP growth rate was 4 percent, nearly a 7-percent increase over 1983. These improvements in the economy, combined with wage restraints and a tight national government budget, made it possible to reduce the inflation rate in 1984 to 25 percent; for the next two years, the inflation rate was contained at about 24 percent.

In 1985 Ecuador withdrew for one year from the Organization of Petroleum Exporting Countries (OPEC) in order to free itself from that organization's export quotas and thus increase oil export revenue. In 1984 petroleum had accounted for about 70 percent of all commodity exports and about 50 percent of the central government's revenues. In 1985 Ecuador earned over US$1.8 billion in revenue from petroleum exports, two-thirds of Ecuador's export revenue that year. But a sharp decline in international oil prices in 1986 resulted in a US$1.1-billion drop in petroleum export revenue. The balance-of-payments current account, which registered a surplus of US$149 million in 1985, showed a US$613-million deficit for 1986. Foreign-exchange reserves declined to US$145 million by mid-1986, and real GDP growth for 1986 came to only 1.7 percent, compared with 3.8 percent in 1985. To meet the economic crisis, in January 1987 the government suspended debt repayments to all private lending institutions and imposed a 25-percent surcharge on many imported items.

León Febres Cordero

León Febres Cordero

León Esteban Febres-Cordero Ribadeneyra was President of Ecuador for a four-year term from 10 August 1984 to 10 August 1988...

 had entered office promising prosperity and neoliberal economic reforms featuring governmental efficiency, a free-enterprise approach in managing the economy, and a free-market exchange system that would promote economic deregulation. To fulfill these promises, Febres Cordero removed government price controls, devalued the currency, and eliminated most import quotas. In addition, he reduced import tariffs on industrial raw materials by one-half and invited new foreign investment into the country. Although GDP growth had bounced back from a negative 2.8 percent in 1983 to a healthy 4.0 percent in 1984 and 3.8 percent in 1985, the sharp drop in petroleum export revenue in 1986 and the resulting increase in the fiscal deficit, 81 percent of which was financed through foreign borrowing, brought the nation to the brink of an economic crisis. In 1986 GDP growth fell to 1.7 percent, unemployment went up, and per capita income fell to its lowest level since 1978.

In March 1987, an earthquake destroyed about forty kilometers of the Trans-Ecuadorian Pipeline and its pumping stations, causing a nearly six-month suspension in crude petroleum production and the loss of an additional US$700 million in export revenue. Meanwhile, revenue from other exports—cocoa, coffee, and shrimp—did not increase and failed to compensate for the decline in oil income. The Ecuadorian government acquired a World Bank

World Bank

The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...

 loan of US$80 million to help finance the reconstruction of the damaged pipeline, but repairs cost the government a total of US$150 million. GDP fell to -5.2 percent in 1987, inflation inched up to 32.5 percent, and the trade deficit stood at US$33 million. The government responded to its financial emergency by raising domestic gasoline prices by 80 percent and bus and taxi fares by 14 percent. To help make up for the oil revenue shortfall, a consortium of international banks loaned Ecuador an additional US$220 million, bringing public-sector external debt at the end of 1987 to about US$9.6 billion, one of the world's highest on a per-capita basis. (Ecuador's GDP for 1987 was US$10.6 billion.)

During Febres Cordero's last two years in office, his economic team concentrated on implementing monetary reforms, renegotiating the external debt, and encouraging foreign investment. Its efforts were only partially successful. The government failed to hold wages down, and, despite efforts to curtail government spending, public-sector expenditures increased dramatically in 1987 and in the first half of 1988. Ecuador's halting experiment with neoliberal economic measures unofficially came to a close on March 3, 1988, when Febres Cordero announced the end of the free-market foreign-exchange system. Two months later, on May 8, 1988, Febres Cordero's longtime rival, Rodrigo Borja of the center-left Democratic Left (Izquierda Democrática, ID) was elected president with 46 percent of the vote.

In contrast to Febres Cordero, Borja advocated an expanded state role in the national economy. During the campaign, he promised to promote industrialization and nontraditional exports and stressed the importance of agrarian reform. Borja, however, inherited a rapidly worsening economy as he assumed office on August 10, 1988; within a month he announced a national economic austerity program that included a sharp devaluation of the sucre, tax increases, new import restrictions, a reduction in public-sector spending, a 100-percent increase in fuel prices, and a 40-percent boost in electricity rates for private households. Borja also opened new negotiations with foreign creditors to whom Ecuador was in arrears for almost US$1 billion. The president, however, refused to lift the suspension of foreign debt payments, imposed by Febres Cordero in 1988, until April 1989.

Borja's austerity policies and the resulting climb in the unemployment rate to 13 percent by the end of 1988, the highest in ten years, spawned strikes by labor unions, public employees, and students. The government, however, continued its anti-inflationary program. Despite government cost-cutting efforts, inflation reached 86 percent in 1988, the highest in the country's history. On the positive side of the economic ledger, GDP expanded by 8 percent in 1988, as petroleum exports returned to pre-earthquake levels.

In an attempt to blunt criticism of his policies, Borja introduced a new package of economic liberalization measures in 1989, including a relaxation of import restrictions, a further devaluation of the official exchange rate to prod exports, and a loosening of banking controls to stimulate the manufacturing sector. About 62 percent of the import items that had been barred since mid-1988 were to be allowed into the country beginning in 1990.

1990-present

In the late 1990s, Ecuador faced a major banking crisis

1998-99 Ecuador banking crisis

The 1998–99 Ecuador banking crisis resulted in about 70% of the country's financial institutions closing. In 1999 economic activity decreased by 7-8% and the currency depreciated by 195%. Per-capita income in US dollar terms plummeted by 32% during the year. Unemployment increased from 9% to 17%...

.