Ecuador - Future trends

There are several issues facing Ecuador that will influence its future economic performance. Dollarization and the economic reforms of 2000 will provide the economy with stability and credibility if they are carried out as designed, free of partisan battles. Yet, these reforms will not succeed without cost to the social wellbeing of the nation, since welfare and other social programs will be cut, government jobs will be eliminated, and further inflation will occur connected to the change of currency. The success or failure of reform will depend heavily on the reactions of the Ecuadorian people to these social strains. An uprising like the coup that occurred in January 2000 could upset the entire program and inhibit further progress; conversely, an expression of faith in Ecuador's government could help to consolidate democracy and attract investment from abroad.

Another immediate concern for Ecuador is the turmoil over Plan Colombia, the United States' US$1.3 billion anti-drug offensive in Colombia. A massive influx of people from southern Colombia into northern Ecuador is anticipated, and an overflow of violence into Ecuadorian territory. Ecuador has given the United States military access to its base in Manta, an agreement that created tension between Colombian guerillas and the Ecuadorian government. The severity of Colombia's internal conflict will have major implications for the Ecuadorian economy because the Ecuadorian government does not have money to set up a major operation on the Colombian-Ecuadorian border.

The long-term outlook for Ecuador's economic and social well-being is as precarious as in the short term. While the land is rich in natural resources, the country has not been successful in using this advantage to develop sources of consistent income and growth. Price instability for major exports on the international market makes for further difficulties. Ecuador's oil production will receive a boost from the completion of a new refinery and pipeline, expected within 2 years, but this will not be enough to sustain the national economy. The best hope for future growth in Ecuador is the diversification of its exports and substantial investment in value-added industries that can produce higher-value goods. Such diversification, combined with the consolidation of democracy and a disciplined approach to government expenditure, offers the best solutions for Ecuador's future economic and social advancement.