Ecuador's Economic Chronological Analysis

The Republic of Ecuador is a small country located in the Northwest side of America. Ecuador is bounded on the north by Colombia, on the south and east by Peru, and on the west by the Pacific Ocean. Ecuador’s territory is 109,483 sq mi with an estimated population of 13,755,680 habitants as of 2007. The capital is Quito and the largest city and main commercial port is Guayaquil

Most of the population lives in the highlands. About 65% of the people are mestizo, and quarters are indigenous. Spanish is the official language, but many natives speak Quechua or Jarvo. European-descended residents, who account for about 7% of the population, are mostly landholders and historically have played a dominant role in Ecuador's unstable political life. Some 3% of the country's inhabitants are of African descent. Roman-Catholicism is the main religion.

Economic and Political Overview

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 commodities, such as bananas, coffee, cocoa, rice, potatoes, manioc (tapioca), plantains, sugarcane; cattle, sheep, pigs, beef, pork, dairy products; balsa wood; fish, shrimp., to one reliant on

Maldonado 2

petroleum. Ecuador’s major partners: U.S., Peru, Italy, Colombia, Brazil, Chile, Panama (2006).

After a brief period of economic prosperity brought on by its new oil wealth, Ecuador experienced its first post "oil boom" economic slowdown. The beginning as a slowdown ended in a near economic collapse with the 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 emphasized the country's over-dependence on oil and, likewise, pushed the government in the direction of liberalization and diversification.

An increase in oil export prices in the late 80's allowed Ecuador to recover, and from 1988 to 1992, the Ecuadorian Government began taking measures to stabilize the economy. In 1992, shortly after assuming the presidency, President Sixto DurÐ"ÐŽn BallÐ"©n

implemented a Macroeconomic Stabilization Plan to fulfill his campaign promise to expand modernization and stabilization efforts.

Adoption of the International Monetary Fund ("IMF") backed Stabilization Plan jump-started a brief economic recovery. Inflation decreased from 60.2% in 1992 to 31% in 1993 and 25.4% in 1994, international reserves increased from a low of USD 224 million in August 1992 to USD 1.2 billion in December 1993 and USD 1.7 billion in December 1994, the GDP grew by 2% in 1993 and 4.3% in 1994.

In January 1995, several crises, including the military confrontation with Peru, knownas the Cenepa Incident, the resignation of the vice-president due to widespread allegations of bribery, and an energy crisis brought on by the recurrence of seasonal

Maldonado 3

shortages, interfered with Ecuador's stabilization efforts and again caused its economic to fall.

In 1996, AbdalÐ"ÐŽ Bucaram won the presidency based on an unorthodox platform, known as the "Convertibility plan", that he promised would curb inflation and correct macroeconomic imbalances. The unconventional plan that helped Bucaram ascend to the office of the president, in combination with his own peculiar style of governing, ultimately lead to a heated conflict with Congress and a national protest in February1997 that demanded the overthrowing of his regime. Due to the President's unpopularity with organized labor, business, and professional organizations, Congress overthrow Bucaram in February 1997 on statements of mental incompetence.

In May of 1997, following the demonstrations that led to the exiling of Bucaram to Panama and the appointment of Interim President FabiÐ"ÐŽn AlarcÐ"Ñ-n, the people of Ecuador

called for a National Assembly to reform the Constitution and the country's political structure. On the same day Ecuador's new constitution came into effect, Jamil Mahuad assumed the presidency.

Mahuad, the former Quito Mayor, inherited an unsustainable fiscal deficit, a heavily El NiÐ"±o damaged infrastructure, a hostile public, as well as Ecuador's many chronic problems. Mahuad aggressively begin liberalizing the economy and introducing free market policies. His administration received congressional approval to partially privatize some of the major state enterprises, announced the cancellation of subsidies on electricity, cooking gas, and fuel, and attempted to reform the poor social security system. However unpopular, the changes significantly reduced the government's fiscal

Maldonado 4

deficit and made possibly discussions with the IMF concerning a possible temporary agreement.

In 1999 political uncertainty and falling public confidence in the economy brought on by a freeze on banking deposits and Mahuad's plans to privatize many state industries and "dollarize" the economy, caused Ecuador's GDP to fall more than

...