Ecuador

Politics:

• Analysis

  Ecuador politics: Quick View - Military confront Colombian guerrillas

  Event

  A patrol of Ecuadorean soldiers were involved in a brief exchange of fire with a Colombian guerrilla group in the northern border region of Sucumbiós, military officials announced on March 26th.

  Analysis

  It is unclear which Colombian group was involved in the incident, which took place on March 23rd, but officials confirmed it is the second such confrontation to have taken place in five days. After the incident, in which nobody was injured, Ecuadorean soldiers found weapons, uniforms, other equipment and two small bases used by the guerrillas.

  Although relatively minor, it demonstrates that significant security risks continue to exist along Ecuador's border region with Colombia. The border is porous and illegal incursions into Ecuador are frequent, particularly since the Colombian authorities stepped up coca eradication and intensified their military campaign in the border area in recent years. Although major incidents have dropped off recently, Colombian guerrilla groups are still thought to use Ecuador as a base for operations inside Colombia, an issue which came to a head when the Colombian military raided a FARC base in Ecuador in 2008, sparking significant diplomatic tensions between the two countries.

  Although these have eased since the Colombian president, Juan Manuel Santos, came into office, border security remains a source of potential tension between the two countries, particularly if incursions into Ecuadorean territory, by guerrilla groups or by the Colombian military, escalate and become larger in scale.

  March 28, 2013

• 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 137-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 February 2013 (presidential and legislative); the next presidential and legislative elections will be held in February 2017

  National government

  Rafael Correa of Alianza País took office on January 15th. Mr Correa was re-elected for a fresh four-year term in elections in February 2013, following the introduction of a new constitution in 2008

  Main political organisations

  Movimiento Alianza País-Patria Altiva i Soberana (AP, known as Alianza País); 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: Jorge Glas

  Agriculture & fishing: Javier Ponce

  Culture: Erika Sylva

  Defence: María Fernanda Espinosa

  Economy: Jeannette Sánchez

  Education: Gloria Vidal

  Environment: Lorena Tapia

  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 Ehlers

  Trade & industry: Verónica Sión

  Transport & public works: María de los Angeles Duarte

  Central Bank president

  Diego Martínez

  March 14, 2013

• Outlook

  Ecuador: Key developments

  Outlook for 2013-17

  • The Economist Intelligence Unit expects the period of relative political stability that Ecuador has enjoyed in recent years to continue, following the resounding victory of Rafael Correa in February's presidential election.
  • Following Mr Correa' re-election, we expect broad policy continuity in 2013-17. Public spending and investment-which have become the main drivers of the economy-will remain firm, but the business environment will be weak.
  • We expect real GDP growth to continue to slow in 2013 to 3.6% owing to a combination of a slight fall in public spending-on which the economy is increasingly dependent-after the election and easing oil prices.
  • The fiscal balance will remain in deficit in 2013-17 as Mr Correa continues to spend heavily on infrastructure and other public projects.
  • Although public subsidies for petrol and some basic goods (including foodstuffs) will help to control upward price pressures, Ecuador will remain vulnerable to spikes in external food prices.
  • As oil prices ease and Ecuador's main oil refinery closes for maintenance, we expect the current-account deficit to average 1.8% of GDP in 2013-14, before easing thereafter on the back of rising oil prices.

  Review

  • Mr Correa won a resounding victory in the first round of voting in the 2013 presidential election, with around 57% of the vote. The president's AP movement was also poised to gain a two-thirds majority in the National Assembly.
  • A sharp fall in international reserves during the fourth quarter of 2012 (they fell by 28% in December alone) stoked fears of a liquidity shortage, as well as raising risks to dollarisation.
  • The government announced that it was to finance its debts to the social security institute, accrued through its pension obligations, through issuing bonds. The move raised fears over government financing difficulties.
  • Inflation ticked up marginally in January on the back of price rises for food and drink. Meanwhile, a rise in the minimum wage brought the gap between living costs and earnings to just US$8.01, according to the statistics office.
  • Uncertainty for Ecuador's export sector was sustained by protracted negotiations over joining Mercosur and the possible expiry of the ATPDEA in 2013.
  • The government raised the minimum wage by 8.9% at the beginning of 2013. Mr Correa started to raise the minimum wage in 2008 and the latest increase brings salaries up to US$318 per month.

  March 14, 2013

Economy:

• Background

  Ecuador: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	14.9	Population growth	1.8
  GDP (US$ bn; market exchange rate)	72.9	Real GDP growth	4.7
  GDP (US$ bn; purchasing power parity)	135.6	Real domestic demand growth	5.9
  GDP per head (US$; market exchange rate)	4,891	Inflation	5.3
  GDP per head (US$; purchasing power parity)	9,099	Current-account balance (% of GDP)	-0.3
  Exchange rate (av) :US$	1.0b	FDI inflows (% of GDP)	0.9
  a The 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. The president, Rafael Correa-one of the more capable left-wingers to have emerged in recent years-originally took office in 2007 and, following his landslide victory in the February 2013 elections, is in his second term under the constitution that he championed in 2008. However, under this constitution he is not eligible for re-election after his current term. If Mr Correa completes this term it will make him the longest-serving president in Ecuador's history, a remarkable turnaround given that three of his recent predecessors were removed from office before their terms expired.

  Political structure: Ecuador 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, but it is unclear how the charter will tackle 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 some pressures from the government's loose fiscal management, 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	Consumption goods	19.5
  Canned fish	4.0	Fuel & lubricants	20.9
  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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  March 14, 2013

• Structure

  Ecuador: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 14, 2013

• Outlook

  Ecuador: Country outlook

  Ecuador: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The Economist Intelligence Unit expects the period of relative political stability that Ecuador has enjoyed in recent years to continue, following the resounding victory of Rafael Correa in February's presidential elections. Mr Correa's re-election (with around 57% of the vote) underlines the fact that he remains extremely popular among large swathes of the population, particularly low-income groups, who have been key to his recent electoral successes. This has been achieved by his populist style, coupled with a commitment to maintaining cash transfer programmes and subsidies, as well as lavish spending on infrastructure and other social projects. As a result, Mr Correa has brought an end, at least temporarily, to the chronic instability that saw three of his immediate predecessors forced from office before the end of their terms.

  ELECTION WATCH: Mr Correa won a landslide victory on February 17th in the first round of voting for the presidential election, gaining around 57% of the vote. His closest rival, Guillermo Lasso of the Creando Oportunidades (CREO) movement, gained just 23%. Mr Correa also won a solid majority (possibly up to 99 seats) in the 137-seat National Assembly. The next presidential and legislative elections are now due in 2017, when Mr Correa will be constitutionally bound to step down. The ideological divisions that fractured the opposition are expected to continue with little chance of a challenger to Mr Correa emerging in the short term. Elections for regional and local posts are due in 2014. Given its dominance of the national polls, we expect Mr Correa's Alianza País movement to make further gains.

  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 (FTA), 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: Following Mr Correa's re-election, we expect broad policy continuity in 2013-17. Public spending and investment--which have become the main drivers of the economy--will remain firm. Despite policy shifts adopted during the second half of 2012 (import quotas and restrictions on consumer credit growth) to cool the economy and limit consumer spending and import growth, we expect the government to maintain an expansionary macroeconomic policy stance in the medium to long term and to continue its ambitious public investment programme. Oil prices, although remaining supportive, are expected to ease marginally from the highs of recent years in 2013-14, restricting the government's ability to increase spending. 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), with the exception of China, which has emerged as an important source of finance.

  ECONOMIC GROWTH: We expect real GDP growth to continue to slow in 2013 to 3.6% (from an estimated 4.8% in 2012) owing to a combination of a slight fall in public spending--on which the economy is increasingly dependent--after the election and easing oil prices. 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 and investment, financed by revenue from the oil sector and, when needed, further borrowing from China. GDP growth is forecast to pick up again from 2014 as oil prices rise and the global economy stabilises. Fixed investment will remain substantial, but below its 2010-11 high. 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 has so far moved forward slowly) is likely to accelerate now that the AP has a large congressional majority and can push through reforms to the mining law. The implementation of large infrastructure projects, including the construction of a US$2bn hydroelectric plant and the US$13bn Pacífico oil refinery (although this has been hit by financing delays, which cast doubt on the viability of the project), will support private investment in energy. 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 exert upward price pressures. A politicised monetary policy will make interest-rate rises unlikely, sustaining demand-side inflationary pressures. After ending 2012 at 4.2%, we expect inflation to average 4.1% per year in 2013-17. Although public subsidies for petrol and some basic goods (including foodstuffs) will help to control upward price pressures, Ecuador will remain vulnerable to spikes in external food prices.

  EXCHANGE RATES: We expect dollarisation to be maintained, as it provides broad macroeconomic stability and is therefore popular. Although previous fiscal mismanagement had raised concerns over the abandonment of dollarisation, the risk of this will remain contained, given ongoing high oil prices and Ecuador's ability to access bilateral and multilateral lending. The real effective exchange rate will rise gradually 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 1.8% of GDP in 2013-14, before easing thereafter on the back of rising oil prices. Despite government-imposed quotas--which will partly offset falling oil revenue--import growth will remain strong during the forecast period (reflecting rising domestic consumption and stagnant domestic productivity). Although we expect the transfers surplus--most 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. 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 foreign direct investment (FDI) levels to improve moderately, with rising investment in the mining and oil sectors), putting pressure on reserves. However, despite periodic fluctuations, we expect reserves levels to remain broadly stable, buoyed by US-dollar inflows from the energy sector.

  March 01, 2013

• Forecast

  Ecuador: Country forecast summary

  Country forecast overview: Highlights

  • The period of relative political stability that Ecuador has enjoyed in recent years under the president, Rafael Correa, is set to continue following his re-election on February 17th. Mr Correa won a landslide victory and remains popular among broad swathes of the public. As such, he faces few obstacles to governability. However, sudden shifts in political loyalties are common and an unexpected economic downturn, forcing Mr Correa to rein in public spending on social projects, would significantly erode his support base.
  • Mr Correa's Alianza País movement also won a two-thirds majority (legislative elections were held on the same day as presidential elections), something that has eluded them since 2009. This will allow the government to enact its legislative agenda without having to resort to ad hoc coalition building or the use of his line-item veto rights.
  • 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 public finances depend on oil revenue (about 40% of total revenue) to fund the government's ambitious public investment programme, which has become the main driver of the economy in recent years. We expect oil prices to remain supportive, and Mr Correa's re-election ensures that fiscal policy will remain expansionary during the forecast period. 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 of 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 (%)	4.8	3.6	4.7	4.8	5.4	5.1
  Consumer price inflation (av; %)	5.1	4.4	4.2	3.8	3.9	4.2
  Budget balance (% of GDP)	-1.0	-0.9	-0.8	-0.7	-0.2	-0.2
  Current-account balance (% of GDP)	-2.0	-1.7	-1.9	-1.4	-1.4	-1.3
  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)	1.29	1.33	1.31	1.27	1.26	1.26

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  March 14, 2013

View detailed map

Country Briefing

Land area

276,840 sq km

Population

14.5m (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)

January 01, 2013