Economy of Ecuador

The economy of Ecuador is based mainly on exports of bananas, oil, shrimp, other primary agricultural products and money transfers from nearly a million Ecuadorian immigrants employed abroad. In 2002, oil accounted for about one-third of public sector revenue and 40% of export earnings. Ecuador is the world's largest exporter of bananas ($936.5 million in 2002) and a major exporter of shrimp ($251 million in 2002). Exports of nontraditional products such as flowers ($291 million in 2002) and canned fish ($333 million in 2002) have grown in recent years. Industry is largely oriented to servicing the domestic market.

Ecuador has substantial petroleum resources and rich agricultural areas. Because the country exports primary products such as oil, bananas, flowers and shrimp, fluctuations in world market prices can have a substantial domestic impact. Industry is largely oriented to servicing the domestic market, and some exports to the Andean Common market. Deteriorating economic performance in 1997-98 culminated in a severe economic and financial crisis in 1999. The crisis was precipitated by a number of external shocks, including the El Niño weather phenomenon in 1997, a sharp drop in global oil prices in 1997-98, and international emerging market instability in 1997-98. These factors highlighted the Government of Ecuador's unsustainable economic policy mix of large fiscal deficits and expansionary money policy and resulted in a 7.3 percent contraction of GDP, annual year-on-year inflation of 52.2 percent, and a 65 percent devaluation of the national currency, the Sucre, in 1999, which helped precipitate a default on external loans later that year.

On January 9, 2000, the administration of President Jamil Mahuad announced its intention to adopt the U.S. dollar as the official currency of Ecuador to address the ongoing economic crisis. The formal adoption of the dollar as currency on September 10, 2000, as opposed to merely pegging the Ecuadorian sucre to the dollar as Argentina had done, theoretically meant that the benefits of seigniorage would accrue to the U.S. economy. Subsequent protests related to the economic and financial crises led to the removal of Mahuad from office and the elevation of Vice President Gustavo Noboa to the presidency.

However, the Noboa government confirmed its commitment to dollarize as the centerpiece of its economic recovery strategy. The government also entered into negotiations with the International Monetary Fund (IMF), culminating in the negotiation of a 12-month standby arrangement with the Fund. Additional policy initiatives include efforts to reduce the government's fiscal deficit and to implement structural reforms to strengthen the banking system and regain access to private capital markets.

Buoyed by high oil prices, the Ecuadorian economy experienced a modest recovery in 2000, with GDP rising 1.9 percent. However, 70 percent of the population was estimated to live below the poverty line that year, more than double the rate in 1995.  In April 2007, after winning a referendum on constitutional reform, President Correa announced that he no longer intended that the country would make repayments to the IMF nor deal with the World Bank. (Information from Wikipedia)