Economical overview
Ecuador is one of South America's poorest
countries. For long periods, high unemployment, high
inflation and a weak modern sector have slowed economic
development and created political unrest. In recent
years, attempts have been made to broaden the economy in
order to reduce the traditional dependence on a few raw
materials, primarily oil and bananas. The dependency
makes Ecuador vulnerable to price changes on the world
market.
Following the appointment of economist Rafael Correa
as president in 2007, with a program to better
distribute society's resources, the political situation
stabilized. According to Correa himself, one million
Ecuadorians are being lifted out of poverty. The economy
almost doubled during Correa's decade in power. But
falling world market prices for oil towards the end of
his presidential term focused on the vulnerability of
the economy.
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Countryaah.com:
Major imports by Ecuador, covering a full list of top products imported by the country and trade value for each product category.
Lenín Moreno, who succeeded Correa in 2017, has
changed course and presented in April 2018 a program to
deal with the budget deficit that the year before was
close to 6 percent of GDP. It included cuts in the
extensive state apparatus and initiatives to stimulate
private enterprise. A decision was made to privatize a
number of companies and open up others for private
participation. In March 2019, the government signed an
agreement with the International Monetary Fund (IMF) on
austerity measures intended to strengthen the economy,
ease the debt burden and generate jobs. In return,
Ecuador was given the go-ahead to borrow $ 4.2 billion.
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Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including ECU which represents the country of Ecuador.
As part of the cuts, the government in October 2019
removed fuel subsidies that have existed since the
1970s, which has more than doubled the gasoline price.
It triggered protests that became so violent that the
president was forced to reintroduce the subsidies (see
Current Policy).
The Corona pandemic in the spring of 2020 hit hard on
the already strained economy. In terms of infection and
death, Ecuador was a few months into the crisis, the
hardest hit country in South America, per capita. At the
end of May, President Lenín Moreno decided to close a
number of state-owned companies and embassies around the
world, as part of a package of measures to try to save
around $ 4 billion. At the same time, the government
stated that the economy has already gone back $ 8
billion due to the pandemic. The airline Tame, which has
lost more than $ 400 million in losses over the last
five years, was liquidated. Public employees were laid
off and worked only 75 percent, with 84 percent of the
previous salary.
Jerky economic policy
During good years with high prices for oil and
bananas, demands have grown in the country on major
social improvements. When prices have fallen,
governments have also previously been forced into
austerity, which has led to political instability.
Frequent shifts in power and a jerky economic policy
have helped to scare away investors and have led to
capital flight.
A number of austerity programs and attempts to
restructure the economy have failed. Attempts to get the
economy organized through cuts in the public sector and
through increases in gas, electricity and gasoline
prices have had no long-term effect.
At the end of the 1990s, foreign debt soared, while
the currency, sucre, had to be devalued several times.
Inflation galloped, the economy shrank and unemployment
rose sharply. In 1998/1999 Ecuador was dangerously close
to a state bankruptcy as a result of the combined effect
of a sharp fall in oil prices, an acute banking crisis
and adverse effects of the El Niño weather phenomenon
(see Geography and Climate).
In January 2000, the sucrose was replaced by the US
dollar. This led to a sharp reduction in inflation and
stabilization of the price level, but at the same time
made the Ecuadorian economy dependent on the dollar
exchange rate. As the dollar increased in value in the
following years, Ecuadorian exports became more
expensive at the same time as imports got a push, which
hit the domestic industry.
Thereafter, the economy again showed growth, mainly
due to high oil prices. Some improvement in living
conditions also occurred, partly because of increased
wages in the public sector, and partly because of the
money Ecuadorians working abroad send home. On the other
hand, investment has remained low, and the modernization
of the domestic industry is slow. Something that
inhibits investment is the lack of a functioning
domestic stock exchange.
"Economic Revolution" 2007
Left-wing President Rafael Correa promised in his
2007 entry an "economic revolution" with increased state
involvement in key industries such as mining, the oil
industry, banking and telecom. His goal was that a
larger portion of the revenue would go to the state and
the Ecuadorians than before.
Correa made several changes in economic policy. Among
other things, he renegotiated the contracts with the oil
companies so that a greater part of the profits from the
oil accrues to the state. He also negotiated a free
trade agreement with the US on ice - he said such
agreements only benefit the large, international
companies. With its main trading partner USA, Ecuador
had instead succeeded in drawing up a tariff-free
agreement for a number of goods on the US market. Faced
with the prospect that the US would terminate the
agreement unless Ecuador promised to refrain from
granting US whistleblower Edward Snowden asylum,
however, Ecuador itself decided to terminate the
agreement in June 2013. Domestic companies that traded
with the United States have received some state
compensation.
With the EU, which mainly imports Ecuadorian
agricultural products, Ecuador from 2017 has a free
trade agreement. The country then signed an agreement
that Colombia and Peru signed a few years earlier.
Before that, Ecuador had some trade benefits.
Large foreign loans
Correa also sought to reduce its dependence on
foreign aid. Ecuador has also previously had large loans
from, for example, the IMF, the World Bank and the
Inter-American Development Bank (IDB). Correa was
dismissed as Finance Minister in 2005 for publicly
condemning the World Bank as saying no to a new big
loan. According to Correa, the refusal was a retaliation
for his oil industry reform program, while the World
Bank stated that the reason was that Ecuador had
breached the loan terms. In April 2007, the World Bank
representative in Ecuador was expelled. In line with its
election promise to prioritize social investments before
loan repayments, at the end of 2008, Correa decided not
to pay off part of its external debt. He justified the
decision that the loans were taken on an illegal basis
by people in the previous right-wing government.Foreign
policy and defense).
The global economic downturn in 2008 also affected
Ecuador. The dollar weakened, leading to rising
inflation. The financial contributions from Ecuadorians
abroad to relatives in the home country decreased, while
export earnings fell.
Tourism is now an important source of income. Ecuador
is one of the most popular tourist destinations in South
America with mountains, beaches, tropical rainforest and
a rich plant and wildlife. The tourists mainly visit the
Galápagos Islands, the mountain region and the Amazon.
Ecotourism is expanding most and many indigenous peoples
carry out their own tourism projects.
FACTS - FINANCE
GDP per person
US $ 6,345 (2018)
Total GDP
US $ 108,398 million (2018)
GDP growth
1.4 percent (2018)
Agriculture's share of GDP
9.2 percent (2018)
Manufacturing industry's share of GDP
14.2 percent (2018)
The service sector's share of GDP
51.6 percent (2018)
Inflation
0.4 percent (2019)
Government debt's share of GDP
45.8 percent (2018)
External debt
US $ 39,536 million (2017)
Currency
US dollar
Merchandise exports
US $ 22,117 million (2018)
Imports
US $ 22 380 million (2018)
Current account
- US $ 1,487 million (2018)
Commodity trade's share of GDP
41 percent (2018)
Main export goods
oil and oil products, seafood and fish, bananas
Largest trading partner
USA, China, Colombia, Vietnam, Chile
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