Economy of Ecuador
Encyclopedia
The economy of Ecuador is based mostly on exports of banana
s, oil
, shrimp
, gold
, other primary agricultural
products and money transfers from nearly a million Ecuador
ian emigrants employed abroad. In 2002, oil accounted for about one-third of public sector
revenue and 40% of export earnings. Ecuador is the world's largest exporter of bananas ($936.5 million in 2002) and a major exporter of shrimp ($251 million in 2002). Exports of nontraditional products such as flowers ($291 million in 2002) and canned fish ($333 million in 2002) have grown in recent years. Industry is largely oriented to servicing the domestic market.
Deteriorating economic performance in 1997-98 culminated in a severe financial crisis in 1999. The crisis was precipitated by a number of external shocks, including the El Niño weather phenomenon in 1997, a sharp drop in global oil prices in 1997-98, and international emerging market instability in 1997-98. These factors highlighted the Government of Ecuador's unsustainable economic policy mix of large fiscal deficits and expansionary money policy and resulted in an 7.3% contraction of GDP, annual year-on-year inflation
of 52.2%, and a 65% devaluation
of the national currency in 1999.
On January 9, 2000, the administration of President Jamil Mahuad
announced its intention to adopt the U.S. dollar as the official currency of Ecuador to address the ongoing economic crisis. Subsequent protest led to the 2000 Ecuadorean coup d'état
which saw Mahuad's removal from office and the elevation of Vice President Gustavo Noboa
to the presidency.
The Noboa government confirmed its commitment to convert to the dollar as the centerpiece of its economic recovery strategy, successfully completing the transition from sucre
s to dollars in 2001. Following the completion of a one-year stand-by program with the International Monetary Fund
(IMF) in December 2001, Ecuador successfully negotiated a new $205 million stand-by agreement with the IMF in March 2003.
Buoyed by higher oil prices, the Ecuadorian economy experienced a modest recovery in 2000-01, with GDP rising 2.3% in 2000 and 5.4% in 2001. GDP growth leveled off to 3.3% in 2002. Although final figures are not yet available, it is expected to fall further, to about 1.7%, for 2003. GDP growth is estimated to recover to over 4% in 2004, due largely to expanded oil exports. Inflation fell from an annual rate of 96.1% in 2000 to an annual rate of 22.4% in 2001; although final figures are not yet available, it is expected to drop below 7% for 2003. Despite recent gains, 40% of the population lives below the poverty line, more than double the rate five years ago.
The completion of the second Transandean Oil Pipeline (OCP in Spanish
) in 2003 will enable Ecuador to expand oil exports. The OCP will double Ecuador's oil transport capacity, but Ecuador will need to attract additional foreign investment to realize the full economic potential of the added capacity.
as a port), highland Quichua-speaking peoples (with Quito
as a center, and the Amazon
or jungle region, with several indigenous populations continually facing intrusions by "colonos" (colonists) seeking to use land for farming including palm oil, or for oil and resource exploitation. Various studies have noted the threats to the country's cultures and the continuing growth in population that has contributed to poverty and are a reflection of unsustainable development. Migration of more than 500,000 Ecuadorians following crisis in 1999 also highlights the population growth and inability of the resource base to sustain it, as well as the lack of appropriate economic planning in the country to fit historical traditions or the resource base.
Political tensions with neighboring countries like Peru
over mining
and other resources to support the growing population, and struggles between the growing urban mestizo
population and indigenous peoples over land and resources have underlined the political struggles in recent years. Though foreign-driven economic approaches have mostly focused on exports and on resource exploitation and development rather than on sustainable economic development and stability within the regions and the micro-environments, some economic teams, such as one led by David Lempert, have sought to focus on sustainability.
Banana
Banana is the common name for herbaceous plants of the genus Musa and for the fruit they produce. Bananas come in a variety of sizes and colors when ripe, including yellow, purple, and red....
s, oil
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
, shrimp
Shrimp
Shrimp are swimming, decapod crustaceans classified in the infraorder Caridea, found widely around the world in both fresh and salt water. Adult shrimp are filter feeding benthic animals living close to the bottom. They can live in schools and can swim rapidly backwards. Shrimp are an important...
, gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
, other primary agricultural
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
products and money transfers from nearly a million 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...
ian emigrants employed abroad. In 2002, oil accounted for about one-third of public sector
Public sector
The public sector, sometimes referred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.Examples of public sector activity range...
revenue and 40% of export earnings. Ecuador is the world's largest exporter of bananas ($936.5 million in 2002) and a major exporter of shrimp ($251 million in 2002). Exports of nontraditional products such as flowers ($291 million in 2002) and canned fish ($333 million in 2002) have grown in recent years. Industry is largely oriented to servicing the domestic market.
Deteriorating economic performance in 1997-98 culminated in a severe financial crisis in 1999. The crisis was precipitated by a number of external shocks, including the El Niño weather phenomenon in 1997, a sharp drop in global oil prices in 1997-98, and international emerging market instability in 1997-98. These factors highlighted the Government of Ecuador's unsustainable economic policy mix of large fiscal deficits and expansionary money policy and resulted in an 7.3% contraction of GDP, annual year-on-year inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
of 52.2%, and a 65% 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 national currency in 1999.
On January 9, 2000, the administration of President Jamil Mahuad
Jamil Mahuad
Jorge Jamil Mahuad Witt is an Ecuadorian lawyer and politician and the 51st President of Ecuador from August 10, 1998 to January 21, 2000. There was a severe economic crisis in Ecuador , which had led to a 60% cut in the armed forces budget...
announced its intention to adopt the U.S. dollar as the official currency of Ecuador to address the ongoing economic crisis. Subsequent protest led to the 2000 Ecuadorean coup d'état
2000 Ecuadorean coup d'état
The 2000 Ecuadorean coup d'état took place on 21 January 2000 and resulted in President Jamil Mahuad being sent into exile, and replaced by Vice President Gustavo Noboa...
which saw Mahuad's removal from office and the elevation of Vice President Gustavo Noboa
Gustavo Noboa
Gustavo José Joaquín Noboa Bejarano is an Ecuadorian politician, former President of Ecuador and Vice President during Jamil Mahuad's government.- Education :...
to the presidency.
The Noboa government confirmed its commitment to convert to the dollar as the centerpiece of its economic recovery strategy, successfully completing the transition from sucre
Ecuadorian sucre
The sucre was the currency of Ecuador between 1884 and 2000. Its ISO code was ECS and it was subdivided into 10 decimos or 100 centavos. The sucre was named after Antonio José de Sucre.-History:...
s to dollars in 2001. Following the completion of a one-year stand-by program 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...
(IMF) in December 2001, Ecuador successfully negotiated a new $205 million stand-by agreement with the IMF in March 2003.
Buoyed by higher oil prices, the Ecuadorian economy experienced a modest recovery in 2000-01, with GDP rising 2.3% in 2000 and 5.4% in 2001. GDP growth leveled off to 3.3% in 2002. Although final figures are not yet available, it is expected to fall further, to about 1.7%, for 2003. GDP growth is estimated to recover to over 4% in 2004, due largely to expanded oil exports. Inflation fell from an annual rate of 96.1% in 2000 to an annual rate of 22.4% in 2001; although final figures are not yet available, it is expected to drop below 7% for 2003. Despite recent gains, 40% of the population lives below the poverty line, more than double the rate five years ago.
The completion of the second Transandean Oil Pipeline (OCP in Spanish
Spanish language
Spanish , also known as Castilian , is a Romance language in the Ibero-Romance group that evolved from several languages and dialects in central-northern Iberia around the 9th century and gradually spread with the expansion of the Kingdom of Castile into central and southern Iberia during the...
) in 2003 will enable Ecuador to expand oil exports. The OCP will double Ecuador's oil transport capacity, but Ecuador will need to attract additional foreign investment to realize the full economic potential of the added capacity.
Diversity and sustainability
Ecuadorians often describe the country as a series of "micro-environments" and economic-cultural regions that are reflected in the country's cultural and geographic diversity of coastal fishing and trade (with GuayaquilGuayaquil
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...
as a port), highland Quichua-speaking peoples (with Quito
Quito
San Francisco de Quito, most often called Quito , is the capital city of Ecuador in northwestern South America. It is located in north-central Ecuador in the Guayllabamba river basin, on the eastern slopes of Pichincha, an active stratovolcano in the Andes mountains...
as a center, and the Amazon
Amazon Basin
The Amazon Basin is the part of South America drained by the Amazon River and its tributaries that drains an area of about , or roughly 40 percent of South America. The basin is located in the countries of Bolivia, Brazil, Colombia, Ecuador, Guyana, Peru, and Venezuela...
or jungle region, with several indigenous populations continually facing intrusions by "colonos" (colonists) seeking to use land for farming including palm oil, or for oil and resource exploitation. Various studies have noted the threats to the country's cultures and the continuing growth in population that has contributed to poverty and are a reflection of unsustainable development. Migration of more than 500,000 Ecuadorians following crisis in 1999 also highlights the population growth and inability of the resource base to sustain it, as well as the lack of appropriate economic planning in the country to fit historical traditions or the resource base.
Political tensions with neighboring countries like Peru
Peru
Peru , officially the Republic of Peru , is a country in western South America. It is bordered on the north by Ecuador and Colombia, on the east by Brazil, on the southeast by Bolivia, on the south by Chile, and on the west by the Pacific Ocean....
over mining
Mining
Mining is the extraction of valuable minerals or other geological materials from the earth, from an ore body, vein or seam. The term also includes the removal of soil. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock...
and other resources to support the growing population, and struggles between the growing urban mestizo
Mestizo
Mestizo is a term traditionally used in Latin America, Philippines and Spain for people of mixed European and Native American heritage or descent...
population and indigenous peoples over land and resources have underlined the political struggles in recent years. Though foreign-driven economic approaches have mostly focused on exports and on resource exploitation and development rather than on sustainable economic development and stability within the regions and the micro-environments, some economic teams, such as one led by David Lempert, have sought to focus on sustainability.
Current infrastructure development
The industrial sector has had enormous difficulty to emerge significantly. The industrial sector's main problem is the deficit of energy, which the current government has tackled with the improvement of performance on existing hydro plants, and the creation of new ones. Such projects currently include negotiation of the Coca-Codo hydroplant. Incentives of financing, tributary incentives, tariffs, and others will be implemented, that is intended to benefit areas of tourism, foods process, renewable and alternative energies, bioenergies, pharmaceutical and chemical products, biochemical and environmental biomedecine, services, automotive metallurgical industry, footwear, and automotive parts and pieces, among others.See also
- Banking in EcuadorBanking in Ecuadorthumb|right|Bankers Club Building , the highest building in [[Guayaquil]]. The bank folded in the [[1998-99 Ecuador banking crisis|banking crisis of 1998]].Banking in Ecuador has a long history...
- Economy of South AmericaEconomy of South AmericaThe economy of South America comprises around 382 million people living in twelve nations and three territories. It contributes 6% of the world's population.-Economic development:...
- Economic history of EcuadorEconomic history of Ecuador-Colonial Ecuador:Colonial Ecuador was governed first by the Viceroyalty of Peru and then by the Viceroyalty of Nueva Granada. Ecuador differed significantly from the viceroyalty centers , however, in that mining never became a vital part of the economy. Instead, crop cultivation and livestock...
- Ecuador CensusEcuador CensusThe Ecuadorian population census is conducted by the governmental institution called INEC Instituto Nacional de Estadisticas y Censos . The census in Ecuador is conducted every ten years. Its objective is to obtain the number of people residing within its borders...
- GuayusaIlex guayusaIlex guayusa is an Amazonian tree of the holly genus, native to the Ecuadorian Amazon Rainforest. One of three known caffeinated holly trees, the leaves of the guayusa tree are dried and brewed like a tea for their stimulative effects....