The Ecuadorian economy is based on petroleum production, manufacturing primarily for the domestic market, and agricultural production for domestic consumption and export. Principal exports are petroleum, bananas, shrimp, flowers, and other primary agricultural products. In 2008, crude and refined petroleum products accounted for 63% of total export earnings. Ecuador is the world's largest exporter of bananas and plantains (about $1.6 billion) and a major exporter of shrimp ($674 million). Exports of nontraditional products such as flowers ($566 million), canned fish ($815 million) and automobiles ($408 million) have grown in recent years.
Ecuador adopted the dollar as its national currency in 2000, following a major banking crisis and recession in 1999. Dollarization led to stability, which helped Ecuador achieve solid economic performance through 2006. Growth averaged 4.6% per year, supported by high oil prices, strong domestic consumer demand, increased non-traditional exports, and growing remittances ($3 billion a year) from Ecuadorians living abroad. Per capita income increased from $1,296 in 2000 to an estimated $3,961 in 2008, while the poverty rate fell from 51% in 2000 to 38% in 2006. In 2007, economic growth slowed, constrained by declining petroleum production and reduced private sector investment, but recovered in 2008 due to higher oil prices, increased government spending and strong domestic demand.
President Correa's economic policies include higher social spending, increased government control over strategic sectors, and a greater share of natural resource revenues for the state. After two-plus years in office, the overall direction of economic policy is unclear, creating uncertainty for the business community. One example of uncertain direction is debt policy, where the government initially suggested it might default, then honored the debt for almost two years.
In December 2008 the government defaulted on certain debt issuances (its 2012 and 2030 Global bonds). In June 2009, the government purchased 91% of these bonds (with a total face value of approximately US$ 2.9 billion) at a 65-70% discount in a modified Dutch auction. The government is taking a number of new measures to adjust to falling petroleum revenues, and the full scope and effectiveness of those measures were unknown as of the middle of 2009. Policies for the petroleum and mining sector are also still not fully defined.
By the end of 2008, it was clear that the global financial crisis and economic downturn led to falling remittances and oil prices for Ecuador. In January 2009, the government invoked the World Trade Organization (WTO) balance of payments safeguard provisions to restrict imports of consumer goods. Following consultations with the WTO Balance of Payments Committee, the Ecuadoran government converted import quotas to tariffs that are within WTO bindings. In July 2009, the government applied exchange safeguards to Colombian imports, claiming that devaluation of the Colombian currency had reduced Ecuador's competitiveness. The GOE is reducing these safeguards in compliance with a ruling in August 2009 by the Andean Community Secretariat. The government also announced that it is cutting or restricting public sector spending, although it did not provide many specifics on how it would do so. To meet its financing needs and cover the fiscal deficit, Ecuador has obtained loans from international organizations and negotiated advance payments from China for the sale of future oil production.
Ecuador is rich in natural resources, with significant oil and mineral reserves, although its mineral sector is largely undeveloped. Oil production is carried out by both government and private companies. The state oil company, which is viewed as inefficient, operates mature oil fields that were developed by private companies in the 1970s. It has assumed the operation of an oil field that was seized from a U.S. oil company when that company's contract was cancelled in 2006 for alleged contract violations, an action that is being challenged in international arbitration. Starting in 2006, the government, through laws and decrees, has sought to change the terms for private sector oil production contracts. In August 2009 the government announced its intention to start service contract negotiations in September with those companies still operating under production-sharing arrangements. Ecuador has signed new temporary contracts with Repsol, Petrobras and Andes Petroleum, to improve state participation. In August 2009, the Ministry of Energy announced that in September Ecuador would start the renegotiation of contracts to establish service contracts. The contractual uncertainty has contributed to a drop in private sector investment in the oil sector. Overall oil production has continued to fall since 2006. Although State oil company production increased by 7% during the first six months of 2009 compared with the same period in 2008, private production declined by 14% resulting in a 3% overall drop in oil production. The World Economic Forum's Global Competitiveness Index rated Ecuador 105th out of 133 countries for 2009.
Information by U.S. Department of State