Ecuador Economy

In an effort to break the cycle of "boom" and "bust" that plagued the nation for more than a century, the last decade of Ecuadorian regimes instituted a number of fiscal reforms.

The current president of Ecuador, Rafael Correa, is an opponent of neo-liberalism, and has sought to un-do many Washington consensus reforms made by his predecessors.

The discovery of large oil deposits in the Amazon region in the 1970's transformed Ecuador's economy from an agrarian one based on the export of a few commodities, such as bananas, cocoa, and coffee, to one reliant on petroleum.

After a brief period of economic prosperity brought on by its new oil wealth, Ecuador experienced its first post "oil boom" economic slowdown.

What began as a slowdown ended in a near economic collapse with the sharp decline in world oil prices in 1986, followed by the destruction of a large stretch of Ecuador's sole oil pipeline by an earthquake in 1987.

The depression of the late 80's accentuated the country's over reliance on oil and, likewise, pushed the government in the direction of liberalization and diversification, the two elements necessary to insulate the economy against future disasters brought on by the decline of a single product.

History of Ecuador Economy

During this period, Ecuador was the first cacao exporter in the world and covered 25% of the world's demand during the first decade of the 20th century.

The chocolate boom allowed the creation of a banking system in Ecuador and encouraged the arrival of European investors.

When the First World War began, however, the exportation of cacao decreased significantly. A major contributing factor to the decline was the competition from the European colonies in Africa that began to produce cacao as well.

Ecuador has substantial petroleum resources, which have accounted for 40% of the country's export earnings and one-fourth of public sector revenues in recent years.

Consequently, fluctuations in world market prices can have a substantial domestic impact. In the late 1990s, Ecuador suffered its worst economic crisis, with natural disasters and sharp declines in world petroleum prices driving Ecuador economy into free fall in 1999.

Real GDP contracted by more than 6%, with poverty worsening significantly. The banking system also collapsed, and Ecuador defaulted on its external debt later that year.

The currency depreciated by some 70% in 1999, and, on the brink of hyperinflation, the Jamil Mahuad government announced it would dollarize the economy.

However, this decision ousted Mahuad from the presidency in January 2000, and after a short-lived junta failed to garner military support, Vice President Gustavo NOBOA took over the presidency.

Dollarization stabilized the economy, and growth returned to its pre-crisis levels in the years that followed.

In late 2006, the people elected leftist Rafael Correa, who openly admires Venezuela's firebrand president Hugo Chavez and who is opposed to increasing economic ties to the United States.

Correa is a reformer, he wants to make fundamental changes to Ecuador's political society.

From 2002-06 Ecuador economy grew 5.5%, the highest five-year average in 25 years. The poverty rate declined during this period but remained high at 38% in 2006.

After moderate growth in 2007, the economy reached a growth rate of 6.5% in 2008, in large part due to high global petroleum prices.

Poverty levels declined to about 35% by the end of 2008. President Rafael Correa, raised the specter of a sovereign debt default and followed through on those threats in December 2008, defaulting on $3.2 billion in international bonds, representing over 80% of Ecuador's private external debt.

Economic policies under the Rafael Correa's administration including an announcement in late 2009 terminating 13 bilateral investment treaties, one with the US, have generated economic uncertainty and discouraged both domestic and foreign private investment.

Ecuador economy contracted in 2009, mainly due to the global financial crisis, and also the sharp decline in world oil prices and remittance flows.

Other Products in Ecuador Economy

Ecuador economy has a vast array of natural riches. It has been calculated that there are huge gas reserves in the Gulf of Guayaquil. Tourism is Ecuador's fourth most important source of income.

There are also non-traditional export products, such as certain fruits and vegetables, which are slowly gaining a foothold in the international market.

Currently, Ecuadorian legislation is being drafted to encourage international investment in Ecuador. Handicrafts are another product that Ecuador produces in bulk.

Although this industry is overshadowed by the larger ones, Ecuadorian handicrafts are exported to international markets all around the world.

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