Ecuador is the world's leading exporter of bananas, and it also exports flowers, cocoa, coffee, tuna and shrimp, and is developing export markets for other tropical fruits and vegetables. Tourism has become the country's third largest earner of foreign exchange, after oil and remittances from expatriats. Since the 1970s Ecuador's economy has been dominated by oil, and vexed by indigenous opposition to the impacts of oil exporation and development. Ecuador's average annual GDP growth rate exceeded 9% in the 1970s, due largely to high oil prices. As oil prices fell in the early 1980s, debt began to increase. Furthermore, a major earthquake in 1987 interrupted oil production and exports. The average annual GDP growth rate between 1988 and 1998 was 2.9%. Growth stemmed mainly from increased petroleum production and expansionary fiscal policy.
The administration of President Ballén, elected in July 1992, raised petroleum derivatives taxes and electricity tariffs, while cutting public expenditures and freezing public sector employment. As a result, the 1992 public sector deficit fell from 7% to 2.8% in 1995. The inflation rate, which stood at 60% at the end of 1992, fell to 25% by 1995. Although the Ballén administration's reforms were relatively successful in stabilizing the economy and encouraging foreign investment, key sectors like petroleum, utilities, and aviation still experienced heavy government involvement.
The late 1990s brought a border dispute with Peru, shortages of electric power, and high interest rates that combined to restrain growth in the GDP. Large parastatals put off the interest of foreign investment. The growth rate was only 1% in 1998, the inflation rate soared to 43%, and government corruption was rampant. In 1999, the economy experienced currency and banking crisis, a default on public debt, and soaring inflation, which reached 60% for the end of the year. Real GDP declined6.3%, falling 8.2% on a per capita basis. In January 2000 the US dollar was adopted as legal tender, and in April the US dollar was adopted as Ecuador's legal currency in an effort to control inflation which soared to over 100%, ending the year at about 80%. Real GDP increased 2.8% in 2000 although only 0.9% on a per capita basis. In 2001 real GDP growth increased to 5.2%(3.2% on a per capita basis) and the inflation rate moderated to 22.4%. However, economic growth slowed again in 2002, a reflection mainly of internal inefficiencies in public administration and in the running of the state oil corporation. Real GDP grew an estimated 3% and only 1.1%. on a per capita basis. End of period inflation, however, fell to 9%, the lowest level in decades. In March 2003 the IMF agreed to a one-year standby arrangement with Ecuador's new government designed to support measures to bring about macroeconomic stability beginning with a freeze on public sector wages. In September 2003 Ecuador's second pipeline, the $1.3-billion, 500-km (312-mi) Oleoducto de Crudos Pesador (OCP) pipeline, is scheduled to open. The OCP pipeline when it reaches full capacity (390,000 barrels a day by January 2004) will about double Ecuador's oil transporting capacity, which is 400,000 barrels per day, the capacity of the country's only other oil pipeline. In June 2003 the old pipeline was ruptered briefly by mud slices caused by heavy rains mixed with ash from the volcanic eruption of El Reventador. The participants in the OCP consortium include EnCana (Canada, 31.4%); Repsol-YPF (Spain, 25.6%); Pecom Energia (Argentina, 4.1%), Occidental Petroleum (US, 12.2%); and AGIP (Italy, 7.5%), with construction by the Ecuador company Techint. The project implies increased exploration and development of Ecuador's oil reserves in order to fill the new pipeline. A substantial portion of increased oil revenues are slated to be applied to paying down the country's $15 billion foreign debt