Ecuador - Overview of economy



Because of its rich natural resaources and mild climate, Ecuador's economy first developed around the harvesting of agricultural products such as coffee and cocoa. As different regions of the country were settled, other resources were exploited and production diversified to include lumber and oil from the Amazon, shrimp and fish from the coast, and fruits, grains, and other food commodities from the sierra (mountain country) and coastal regions. The economy of Ecuador is still rooted strongly in extractive products and primary commodities , particularly in exports. Oil, shrimp, and bananas are the nation's top 3 exports, while the manufacturing sector (including basic manufactured goods, machines, and transport equipment) accounts for less than 7 percent of all exports.

Ecuador faces many economic problems experienced by developing nations. Political instability in the country has affected the national economy, discouraging international and domestic investment in Ecuador's market and sparking higher interest rates. In 1979, Ecuador led the way in Latin America by developing a democratic government. Since then, the country has endured political corruption, inefficiency, and erratic transfers of political power that thwart the pursuit of economic progress. Ecuador's inability to post consistent growth in production has had serious social ramifications, causing half of the population to fall below the poverty line in 2000 and pushing unemployment to 15 percent.

Despite restructuring the nation's debt is more than $15 billion, making the country a high-risk area for investors. Ecuador also faces a deteriorating balance of trade because of its heavy reliance on primary commodities for export. Without support from foreign investors, there is little hope that the country will be able to develop more profitable industries. In addition, tax evasion and the ineffectiveness of the administration to collect taxes cause great problems to the domestic economy.

Because of the lack of well-paid jobs in Ecuador, almost 60 percent of economically active Ecuadorians turn to the informal economy for employment. Informal workers, instead of working for the state or state-recognized private employers, support themselves by working for micro-enterprises or selling items illegally (without permits or income reports to the state) in metropolitan areas or market towns. One of the most visible concentrations of informal employment is in the cities of Quito and Guayaquil, where vendors set up kiosks in the city centers and sell items to passers-by. The scarcity of money has led to child labor. It is common to find young children shining shoes or selling candy on the streets to augment their parents' income. Many international funding organizations (the Inter-American Development Bank, the World Bank, and USAID) sponsor development projects in Ecuador to improve the socio-economic situation, but the scope of these projects has been local and have not made significant contributions to economic stability or growth.

In 1999 unstable export prices and the natural disaster of El Niño combined with internal stresses to induce a severe economic crisis. The crisis spurred the government to adapt a new economic program in 2000, which included the privatization of many state-owned enterprises, more flexible labor laws, and reductions in public expenditure. These measures, commonly referred to as structural adjustments and actively endorsed by organizations like the International Monetary Fund (IMF), are expected to bring a strong sense of discipline to the economy and provide the foundation for future growth.

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