Ecuador

Politics:

• Analysis

  Ecuador politics: Quick View - Report criticises Ecuador's judiciary

  Event

  An external review, led by former Spanish judge Baltasar Garzon, of reforms to Ecuador's judiciary was critical of a number of areas.

  Analysis

  The report, published in mid-December, noted that the government had not moved to implement over a dozen recommendations. Among them, the report said, judges needed to guarantee greater independence from interference by the other powers of the state, as well as from powerful economic interests. The procedure of interviewing and naming judges to the Corte Nacional de Justicia (CNJ, national court of justice), carried out by a three-member panel, was also criticised for lacking transparency, with opposition legislator Andres Paez claiming that this process had allowed the government to pick six of the 21 CNJ judges.

  The Garzon report also criticised the government's use of the military in crime fighting, and its use of terms such as "sabotage" and "terrorism", which hold strong links to the 1970s military dictatorships when they were used against indigenous leaders. A lack of transparency in the awarding of major construction contracts for new court infrastructure was also highlighted.

  The president, Rafael Correa, pledged to reform the judiciary and pushed through legislation in a referendum held in May 2010 to both demonstrate political support and increase executive control over the judiciary. Although the referendum results were far closer than expected-nine out of the ten questions were approved only thanks to an easing of voting rules-moves to implement reforms to the judiciary have gone ahead, and with much greater success than during previous administrations.

  Unlike former president Lucio Gutierrez (2003-05), whose move to stack the Supreme Court with supporters sparked mass protests that played a key role in the collapse of his administration, Mr Correa has been able to press forward with the 18-month overhaul of the judiciary with virtually no opposition from the public. Criticism from opposition legislators has been strong, accusing the government of promoting judges for their political loyalties.

  December 21, 2012

• Background

  Ecuador: Key figures

  Rafael Correa

  Mr Correa—a former minister of finance under the Alfredo Palacio administration (2005-07)—was elected president for the first time in a run-off election in 2007. Unlike his predecessors he has been able maintain strong popularity during the first three years of his term. His party, the Alianza Pais (AP), is currently the only political movement that can claim national coverage. Mr Correa increased his grip on power through constitutional reforms in 2008, making himself Ecuador's most powerful leader in a generation. While showing some willingness to negotiate with private enterprise, he is prone to sudden, confrontational moves, and has a preference for home-grown industry and co-operation with foreign state-owned firms.

  Jaime Nebot

  A protege of the late Leon Febres Cordero, president from 1984 to 1988 and a major powerbroker until his death in December 2008, Mr Nebot was a prominent member of the Partido Social Cristiano (PSC) before resigning and starting his own political movement, Madera de Guerrero ("Warrior Material") in 2008. He has served as mayor of Ecuador's largest city, Guayaquil, since 2000, where he has enjoyed high popularity ratings. Mr Nebot will continue to be a prominent political player, however largely confined to his Guayaquil base. Despite pressures, he has avoided accepting more than passing political alliances with his former party or new conservative groups.

  Ricardo Patino

  A left-wing economist, Ricardo Patino has been a key figure in Mr Correa's cabinet since 2007. He was appointed minister of foreign relations in January 2010 owing to his loyalty to the president, according to Mr Correa. Mr Patino worked in Nicaragua following the Sandinista Revolution and founded the Ecuadorean chapter of Jubilee 2000, the movement to forgive developing nations' debt. Close to the Venezuelan leader, Hugo Chavez, Guayaquil-born Mr Patino has played a major role in the organisation of the AP and has numerous supporters among the ruling movement's legislators.

  Vinicio Alvarado

  A former advertising executive from Guayaquil, Mr Alvarado has masterminded Mr Correa's political campaigns, helping him and his heterogeneous AP movement achieve consecutive victories from the presidential election in late 2006 to the approval of the constitution in September 2008. While keeping a low profile Mr Alvarado is one of Mr Correa's closest advisors and has survived the president's numerous cabinet changes.

  Lucio Gutierrez

  Mr Gutierrez won the 2003 presidential election in an alliance with the Pachakutik indigenous movement, but quickly broke ranks to pursue moderate neo-liberal policies. Weakened by accusations of corruption and continuous congressional crises, he was dismissed by a rump congress in April 2005. Despite his fall from power, he retains a sufficient degree of support in rural areas, particularly his home province of Napo, and is currently one of Mr Correa's leading opponents.

  Carlos Vera

  After giving Mr Correa a stage for his initial campaign, the popular television presenter quickly became disenchanted with Mr Correa and is now one of his most vocal critics. In 2009 he left his broadcaster, Ecuavisa, which he accused of self-censorship. As a highly visible public figure, Mr Vera has begun to organise an opposition party of his own. He has also held protest marches in both Guayaquil and the capital, Quito, to fight Mr Correa's draft communications law. Mr Vera is one of few leaders who may be able to consolidate a broader opposition movement with other figures both to the right and to left of the political spectrum.

  April 14, 2010

• Structure

  Ecuador: Political structure

  Official name

  Republic of Ecuador

  Form of state

  Presidential

  The executive

  The president, elected to a four-year term that can be renewed once, is head of state and appoints the cabinet

  National legislature

  A 124-member unicameral National Assembly; members are elected in 24 provincial constituencies by proportional representation for a four-year period. Congress was suspended in December 2007 and was replaced by an interim assembly formed from the constitutional assembly that was elected in September 2007. The new National Assembly has law-making and oversight powers and was inaugurated in August 2009

  Legal system

  The Constitutional Court replaced the Supreme Court as the top-level court under the 2008 constitution and is also in charge of overseeing the legal aspects of the constitution transition

  National elections

  The last elections were held in April 2009 (presidential and legislative); the next presidential and legislative elections will be held in February 2013

  National government

  Rafael Correa of Alianza País took office on January 15th 2007 after defeating Alvaro Noboa in the second round of the presidential election in November 2006. Mr Correa was re-elected for a fresh four-year term in elections in April 2009, following the introduction of a new constitution in 2008

  Main political organisations

  Alianza País (AP); Coordinadora Plurinacional por la Unidad de la Izquierdas (Unidad Plurinacional; includes Montecristi Vive (MV)); Democracia Popular (DP); Izquierda Democrática (ID); Movimiento Popular Democrático (MPD); Confederación de Nacionalidades Indígenas del Ecuador (Conaie); Opposition: Partido Renovador Institucional Acción Nacional (PRIAN); Partido Sociedad Patriótica (PSP); Partido Social Cristiano (PSC); Partido Roldósista Ecuatoriano (PRE); Creando Oportunidades (CREO)

  Key ministers

  President: Rafael Correa

  Vice-president: Lenin Moreno

  Agriculture & fishing: Javier Ponce

  Culture: Erika Sylva

  Defence: Miguel Carvajal

  Economy: Jeannette Sánchez

  Education: Gloria Vidal

  Environment: Marcela Aguiñaga

  Finance: Patricio Rivera

  Foreign relations: Ricardo Patiño

  Interior: José Serrano

  Justice: Johan Pesántez

  Labour: José Francisco Vacas

  Non-renewable natural resources: Wilson Pastor

  Public health: Karina Vance

  Social welfare: Doris Soliz

  Tourism: Freddy Elhers

  Trade & industry: Verónica Sión

  Transport & public works: María de los Angeles Duarte

  Central Bank president

  Pedro Delgado

  December 01, 2012

• Outlook

  Ecuador: Key developments

  Outlook for 2013-17

  • Ecuador is currently enjoying a period of relative political stability as the president, Rafael Correa, who remains far more popular than his recent predecessors, seeks a third term in the February 2013 presidential election.
  • As in 2009, the opposition has failed to rally around a single candidate. This will fragment the anti-Correa vote, significantly improving the president's chance of victory (the Economist Intelligence Unit's baseline scenario).
  • Recent policy shifts (broadening import quotas, restricting consumer credit growth and reducing liquidity in the banking system) suggest that the authorities are seeking to cool the economy and restrict import spending.
  • The public finances will remain in deficit in 2013-17 as expenditure outstrips revenue growth and Mr Correa continues to spend heavily on public projects, particularly in the run-up to the 2013 elections.
  • After rising in 2012 (to average 5.2%) we expect consumer price inflation to ease in 2013-17 as external food prices and demand-side pressures moderate.
  • As oil prices ease and Ecuador's main oil refinery closes for maintenance, we expect the current-account deficit to average 1.9% of GDP in 2013-14. The deficit will start to narrow thereafter in line with rising oil prices.

  Review

  • Eight of the nine newly appointed judges for the Constitutional Court have held positions in Mr Correa's administration or affiliated bodies, raising concerns over the neutrality of the appointment process.
  • Mr Correa officially confirmed on November 10th that he would stand for re-election, confirming our forecast that he would do so; he is best placed to win the February 2013 poll.
  • The current account returned to deficit in the second quarter as easing oil prices led to a sharp contraction in the trade surplus and the income and services deficits widened.
  • Remittances sent by Ecuadoreans working abroad continued to fall in the second quarter as the dire employment situation in Spain saw inflows from that country plummet by 29% year on year.
  • Oil production continued to rise in August, supporting our forecast for average daily output to reach 505,000 barrels/day in 2012.
  • Delays to a deal with Canadian-based mining company Kinross, which has now been held up for a year, highlighted ongoing uncertainties over development of Ecuador's mining sector.

  December 01, 2012

Economy:

• Background

  Ecuador: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	14.7	Population growth	1.8
  GDP (US$ bn; market exchange rate)	67.3	Real GDP growth	4.1
  GDP (US$ bn; purchasing power parity)	126.8	Real domestic demand growth	5.7
  GDP per head (US$; market exchange rate)	4,584	Inflation	4.8
  GDP per head (US$; purchasing power parity)	8,635	Current-account balance (% of GDP)	0.9
  Exchange rate (av) LCU:US$	1.0b	FDI inflows (% of GDP)	0.8
  a Economist Intelligence Unit estimates. b Actual.

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  Background: Ecuador restored its presidential democracy in 1979, but its institutions are fragile. External economic shocks have contributed to the ousting of three presidents by popular unrest since 1997. In the most recent presidential election, in April 2009, Rafael Correa-one of the more skilful left-wingers to have emerged in recent years-defeated a crowded field in the first round. First taking office in 2007, this is Mr Correa's first term under the new constitution he championed in 2008. He is likely to win another term in 2013. Mr Correa's political movement, the Alianza País (AP), does not hold an absolute majority in the National Assembly, the legislature, leaving it dependent on ad hoc coalition building.

  Political structure: The country has a fragmented political system with numerous parties: only Mr Correa's party, the AP, has any national reach. The 2008 constitution grants more power to the executive branch, but it is unclear how the charter will tackle the entrenched problems of a politicised judiciary, powerful business lobbies, and mobilised grassroots and indigenous groups.

  Policy issues: Dollarisation has helped to provide macroeconomic stability, but has exposed an underlying lack of competitiveness. Reforms are needed to address the business environment's deficiencies, including inefficient and costly utilities, legal insecurity, a rigid labour market, low skills levels and a dearth of affordable financing. Containing current expenditure, which is unlikely under a new Correa administration, would be crucial to consolidating macroeconomic stability and ensuring that Ecuador continues to meet its external liabilities. Dollarisation will face increasing pressures, given the government's liquidity problems, and its ability to cushion Ecuador's commodity-dependent economy from external shocks will remain limited.

  Taxation: Taxes have been subject to frequent change. The main taxes in Ecuador are an income tax, levied at a rate of up to 35%, and a value-added tax, levied at 12%. Private firms must distribute 15% of their profits among employees.

  Foreign trade: Rapid export growth in 2011, which was mainly the result of high oil prices, led to a trade deficit of just US$160m. The current-account deficit was US$238m in 2011 (0.4% of GDP, down sharply from 2.8% of GDP in 2010).

  Major exports 2011	% of total	Major imports 2011	% of total
  Oil & oil products	58.0	Raw materials	29.8
  Banana & plantain	10.1	Capital goods	24.1
  Shrimp	5.3	Fuel & lubricants	20.9
  Canned fish	4.0	Consumption goods	19.5
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  US	40.9	US	27.4
  Panama	10.7	China	10.1
  Peru	6.7	Colombia	9.0
  Venezuela	5.6	Panama	4.5

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  December 01, 2012

• Structure

  Ecuador: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• Outlook

  Ecuador: Country outlook

  Ecuador: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Ecuador is currently enjoying a period of relative political stability as the president, Rafael Correa, who remains far more popular than his recent predecessors, seeks a third term in the February 2013 presidential election. His populist style, coupled with a commitment to maintain cash transfer programmes and subsidies, as well as lavish spending on infrastructure and other social projects, has sustained his popularity among low-income voters, who have been key to his electoral successes. Nevertheless, he remains vulnerable to sudden shifts in political loyalties, as demonstrated by a police mutiny in September 2010, which resulted in a state of emergency and again exposed the vulnerability of Ecuador's weak democracy. Given Mr Correa's continued high popularity ratings, the Economist Intelligence Unit expects him to win re-election. However, slow progress on socio-economic reforms, a weak security situation, growing concerns among liberal groups over the erosion of constitutional rights (notably on press freedom) and escalating conflict with the indigenous movement over environmental issues related to oil and mining will lead to sustained public dissatisfaction and add to the risk of social unrest. Moreover, the potential for an oil price shock to spark a sharp drop in fiscal resources (not our current baseline scenario) would present a major risk to political stability, as it would constrain Mr Correa's ability to maintain popular subsidies and social programmes.

  ELECTION WATCH: The first round of voting in the presidential and legislative elections is scheduled for February 17th 2013. Our baseline forecast is that Mr Correa, who represents the Alianza País, will secure re-election. An opinion poll in October, carried out by Cedatos, gave Mr Correa a clear lead, with 44% support. The next-closest candidate was former banker Guillermo Lasso of Creando Oportunidades, with 18%. Mr Correa enjoys greater recognition than any other candidate, as well as the advantages of incumbency (frequent media appearances and the ability to increase spending on favoured projects). His chances of victory have been greatly enhanced by the opposition's inability to rally around a single candidate. Significant ideological differences remain between a fragmented array of parties. As a consequence, a large number of candidates have registered to stand against the president, fracturing the opposition vote, and increasing Mr Correa's chances of securing a first-round victory, as in 2009.

  INTERNATIONAL RELATIONS: Mr Correa's populist stance and confrontational style will remain a source of unpredictability in Ecuador's foreign policy. Ecuador will retain working relations with the US--its primary trade partner--but we expect anti-US rhetoric to continue in 2013-17. Negotiations for a free-trade agreement, abandoned in 2006, are unlikely to resume. Mr Correa's continual efforts to shift policy orientation away from traditional allies in favour of closer ties with leftist governments in Latin America and non-traditional allies (such as Iran and China) will put additional strains on Ecuador's relations with the US.

  POLICY TRENDS: Although public spending and investment--which drove rapid GDP growth of 8% in 2011--will remain firm in the run-up to the elections, recent policy shifts (to broaden import quotas, restrict consumer credit growth and reduce liquidity levels) suggest that the authorities are making efforts to cool the economy and limit consumer spending, which should reduce import growth and pressure on the trade deficit in the short term. Assuming that Mr Correa is re-elected in 2013, we expect the government to maintain an expansive macroeconomic policy stance in the medium to long term--to as great an extent as possible--and to continue its ambitious public investment programme. However, oil prices, although remaining supportive, are expected to be below their 2011 high in 2013-14, restricting the government's ability to increase spending in the short term. The government will continue to have only limited access to external lenders (the result of a default on US$3.2bn of global bonds in 2008), although further borrowing from China is likely to make up for any spending shortfalls.

  ECONOMIC GROWTH: We expect real GDP growth to continue to slow in 2013 (to 3.8%, from an estimated 4.6% in 2012) as oil prices ease further and election-related spending tapers off. Maintenance work that will force the main oil refinery (Refinería Esmeraldas) to close is now due to take place in 2013-14, which will lead to rising import spending on derivatives, constraining the extent of the rebound in 2014. The economy will continue to be driven by public spending, financed by revenue from the oil sector and, when needed, further borrowing from China. GDP growth is forecast to pick up again from 2015 as oil prices rise and the global economy stabilises. Fixed investment will remain substantial, but below its 2010-11 high, which was state-led and financed by oil revenue and Chinese loans. Private investment will rise only gradually, constrained by a poor business environment--a legacy of the 2008 debt default, the unpredictable policy environment and the expiry of trade preferences with the US from 2013. This will limit the development of non-oil industries. However, new mining development (which is moving forward slowly) and implementation of large infrastructure projects, including construction of a US$2bn hydroelectric plant and the US$13bn Pacífico oil refinery, will boost private investment in energy and mining from 2013. In other sectors, poor operating conditions may make private firms reluctant to invest in plant or equipment upgrades.

  INFLATION: A dollarised economy will protect Ecuador against the hyperinflation problems of the past, although Mr Correa's heterodox economic policies will create market distortions that will lead to upside price pressures. Politicised monetary policy will make interest rate rises unlikely, sustaining demand-side inflationary pressures. After rising in 2012 (to an average rate of 5.2%), we expect inflation to ease in 2013-17 as external food prices fall and lower public spending and credit growth reduce demand-side pressures. This will be supported by continued public subsidies for petrol and some basic goods (including foodstuffs).

  EXCHANGE RATES: Mr Correa has said that he plans to maintain dollarisation of the economy, which is popular because it provides broad macroeconomic stability. Although fiscal mismanagement has, in the past, raised concerns over the abandonment of dollarisation, the risk of such a move will be contained, in view of continued high oil prices and Ecuador's ability to access bilateral and multilateral lending. The real effective exchange rate will rise gradually over the forecast period and, in spite of moderate inflation, will remain far stronger than its long-term (pre-dollarisation) average. This will aggravate the competitiveness flaws caused by labour-market rigidities and the unfavourable environment for investment.

  EXTERNAL SECTOR: As oil prices ease and Ecuador's main oil refinery closes for maintenance, we expect the current-account deficit to average 1.9% of GDP in 2013-14. Despite government-imposed quotas--which will partly offset falling oil revenue--import growth will remain strong throughout the forecast period (reflecting rising domestic consumption and stagnant domestic productivity). Although we expect the transfers surplus--the majority of which is made up of remittances from Ecuadoreans working abroad--to strengthen, it will remain below pre-2008 levels until 2014, given ongoing weaknesses in the Spanish labour market and (to a lesser extent) that of the US. We expect transfers to pick up more strongly from 2014. The services and income accounts will post average annual deficits of 2.2% of GDP and 2.7% of GDP, respectively, in 2013-17. This reflects Ecuador's structural dependence on foreign services and debt-service payments, along with relatively high levels of profit repatriation. On the capital account, fresh inflows will remain lacklustre-although we expect levels of foreign direct investment (FDI) to improve moderately, as investment in the mining and oil sectors increases-putting pressure on reserves. Under our baseline forecast, reserves levels will remain relatively stable, buoyed by US dollar inflows from the energy sector.

  December 01, 2012

• Forecast

  Ecuador: Country forecast summary

  Country forecast overview: Highlights

  • The populist president, Rafael Correa, has brought about a period of relative stability since he was first elected in 2007. With the presidential election looming in February 2013, Mr Correa remains far more popular than any of his recent predecessors, while the opposition remains fragmented. As a result, the Economist Intelligence Unit expects him to secure re-election.
  • Mr Correa's Alianza País movement lacks a congressional majority but support from small parties, together with strong executive powers, allows it to enact its legislative agenda. If the opposition gains ground at the legislative elections, which are also to be held in February 2013, we expect congressional in-fighting to rise, hampering governability. Sudden shifts in political loyalties are common and an unexpected economic downturn, forcing Mr Correa to rein in public spending on social projects, would erode his support base.
  • Population growth is slowing because of a falling birth rate and continued emigration. However, at an annual average rate of 1.3% in 2013-17, it will be high by developed-country standards. The old-age dependency ratio will remain low by such standards, but-given inefficiencies in public spending-population ageing will put pressure on the indebted social security system.
  • The authorities depend on oil revenue-which makes up about 40% of fiscal revenue-to fund their ambitious public investment programme, which has become the main driver of the economy in recent years. Despite recent falls, we expect oil prices to remain supportive and public investment to remain elevated in the forecast period (assuming that Mr Correa wins the 2013 election). Exports will be dominated by the energy sector, and the government will continue to struggle to attract private investment except in oil and mining.
  • Ecuador is a small market, dominated by the energy sector. Opportunities are limited by low purchasing power (around 30-35% of the level of Brazil and 40% of that in Argentina, in terms of GDP per head). The country's infrastructure is in need of substantial investment, but unpredictable policymaking will deter potential investors. The energy and mining sectors and related services will continue to attract the bulk of foreign investment.
  • Dollarisation has reduced exchange-rate risk and will protect the economy against the hyperinflation problems of the past. According to our baseline scenario, dollarisation will be maintained on the back of stable prices for oil. However, the risk of de-dollarisation persists, owing to imbalances caused by the government's loose fiscal stance and an unpredictable policy environment.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	4.6	3.8	4.4	4.7	5.1	4.9
  Consumer price inflation (av; %)	5.2	4.8	4.1	3.8	3.9	4.2
  Budget balance (% of GDP)	-1.7	-1.4	-1.4	-1.1	-1.2	-1.2
  Current-account balance (% of GDP)	-2.0	-1.9	-1.9	-1.2	-1.0	-0.9
  Deposit rate (av; %)	4.3	4.2	4.3	4.3	4.3	4.3
  Deposit banks' prime lending rate (av; %)	8.7	8.7	8.8	8.8	8.8	8.8
  Exchange rate US$:€ (av)	1.28	1.26	1.25	1.24	1.26	1.26

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  December 01, 2012

View detailed map

Country Briefing

Land area

276,840 sq km

Population

14.3m (preliminary estimate, 2010 census)

Main towns

Population in ‘000 (2010 census)

Guayaquil: 2,350

Quito (capital): 2,239

Cuenca: 506

Santo Domingo: 368

Machala: 246

Manta: 226

Climate

Tropical on the coast and in the eastern region. Temperate in the central mountain zone

Weather in Quito (altitude 2,879 metres)

Annual average temperature, 16°C; hottest months, December and January, 8-22°C (average daily minimum and maximum); coldest months, April and May, 8-21°C; driest month, July, 20 mm average rainfall; wettest month, April, 175 mm average rainfall

Languages

Spanish (official); Indian languages, particularly Quichua, are also used. Quichua and Shuar received semi-official status in the 2008 constitution

Measures

Metric system; also local units, including: 1 vara=84 centimetres

Currency

The US dollar was officially adopted as legal tender in March 2000, replacing the former national currency, the sucre, at a conversion rate of Su25,000:US$1. The sucre ceased to be legal tender in September 2000, apart from sucre coins, equivalent to US dimes, nickels and cents, used as fractional money

Time

5 hours behind GMT

Public holidays

New Year's Day (January 1st); Carnival; Good Friday; Labour Day (May 1st); Battle of Pichincha (May 24th); Founding of Guayaquil (Guayaquil only, July 25th); Independence Day (August 10th); Independence of Guayaquil (October 9th); All Souls' Day (November 2nd); Independence of Cuenca (November 3rd); Foundation of Quito (Quito only; December 6th); Christmas Day (December 25th)

March 02, 2012