FREE ESSAY ON ECUADORIN CRISIS

ECUADORIN CRISIS

Latin American Politics
Un Crisis Ecuatoriano
The Ecuadorian economy has undergone a profound change since it first splashed into the
world market. It has enjoyed eras of unprecedented prosperity based on exports. It's
initial 2 periods of growth being characterized by a rush of cocoa production early this
century and an explosion of bananas in the 1950's. However, the largest and most
influential boom was caused by the skyrocketing price of oil during the 1970's. This
period clearly benefited elites, and even helped the masses in some ways. Between 1960
and 1980 more than 10 years were added to Ecuadorian life expectancy, death and infant
mortality rates dropped by 40 percent, and by 1980 virtually all children attended
primary school (Moser, 1993:177). However, Ecuador has gradually deteriorated and is now
in an epoch of unprecedented economic depression. This is attributed to the everlasting
effects of its oil era as well as the government's inability to control debt.
On Thursday September 30'Th (1999) Ecuador became the first nation to default on its IMF
loans know as the Brady Bonds. This is just the most recent example of how horrible the
economic situation has become in Ecuador. The nation of 12 million people, described as a
banana republic with an economy half the size of Maine (Keaveny, 1999), was not able to
pay off approximately $98 million in debt. Ecuador's future does not look bright as
economic mismanagement has made it nearly impossible to satisfy outstanding interest
payments to U.S. backed creditors.
Consequently, the primary effect of the 1970's is no longer regarded as an era of oil
prosperity, but rather a time of rampant and ill advised economic moves by strong-arm
military leaders. In order to take advantage of oil exportation they took huge loans to
increase capitol and production. Many believe that the effects of these decisions are
just beginning to rear their ugly heads. Through military of modernization Ecuador was
able to pull itself out of the third world for the time being. However, between 1976 and
1980 it also increased its total external debt by a spectacular 67% annually (Clark 1997:
5), and has not proceeded to slow down. This coupled with the decline of oil prices (from
$35 in 1979 to $10 a barrel in 1986) and the rise of real interest rates spelled its
doom. 
In order to maintain national stability Ecuador has tried to induce a trade surplus in
order to increase the flow of money into domestic markets, as well as taking many more
loans from the IMF. However, there have not been nearly enough investments made into
export goods such as shrimp and roses. Although these industries have grown as of late, 
the share of industry (which produces capital and surplus) in Ecuador's overall GDP has
shrunk to a mere 7.3% after a continual decline through the 1980's (Bulmer-Thomas, 1994:
401). Plus there has been an extensive movement of capital flight. In other words: by
1994, wealthy Ecuadorian's had 13 times as much money invested outside of the country as
they had in Ecuador (Clark 1997: 7). All these factors have culminated in a devaluation
of currency (the sucre), a domestic bank crisis, skeptical world lenders, and a shady era
of democracy. 
Ecuadorian politics have been no different than the rest of Latin America's. It too
continues to struggle with national stability through constant changing military and
democratic rule. Ecuador entered its period of 1970's under an authoritarian military
government and prospered greatly because of this. The authoritarian power the military
lead government had allowed it to smoothly carrying out policy after policy. In 1979 the
military ended its rein of power in Ecuador, and has been ruled by a series of
democratically elected governments since then. Many applauded this change for its
positive effects. It has lead to a great increase in civil rights as well as popular
indigenous participation. Education has continued to improve with a simultaneous increase
in cultural pride, and so forth. Yet, this new form of rule has also brought about new
evils. 
Democracy has made it almost impossible for leaders to pass laws or reforms aimed towards
the lowering of debt. In other words, it has undermined the government's power to make a
difference. In addition, globalization has caused those in power to neglect domestic
issues and concentrate on world influences instead. Some feel that this detrimental
movement has occurred because most domestic proposals are killed by the gridlock of
bureaucracy and rendered ineffective by time lags. Thus, fewer and fewer politicians
waste their time with such issues, and when they do it seems to be that their proposals
are denied or are too little and too late to make a difference. For example, President
Jamil Mahuad has just signed a letter of intent with the IMF to pay back some of the
outstanding debt in order to bring in nearly $400 million aimed at rejuvenating the
economy. Nevertheless, Ecuador's Congress is currently blocking this proposal consisting
of an increase in taxes, reforms in the banking system, and no deficit spending.
Opposition parties do not agree with an increase in taxes, as they would like to see that
the government crack down on tax evaders first. Tax evasion is so rampant that the
government estimates 80% of taxes are not paid (Miami Herald 1999). 
This raises other interesting reasons for Ecuador's crisis, the first being corruption.
It is evident that a state can not function smoothly unless all people are held
accountable to their actions. Yet, a recent study listed Ecuador among the 10 most
corrupt nations in the world and the riskiest for foreign investors to operate in (Miami
Herald 1999). It is evident that cheating is going on from the local store all the way to
the presidential office. Clearly no sane person would want to invest in a region
controlled by corruption. 
In conclusion, Ecuador's current crisis has been the effect of multiple years of economic
mismanagement, a society full of deception, and political impotence. Some regard the
government's problems as mere growing pains associated with democratization.
Nevertheless, there seems to be no immediate stop in the bleeding. A change in the
government's superstructure and policies must be made soon in order to save the little
that is left. Unfortunately, there had not been any successful change to a more powerful
policy oriented government. Thus, Ecuador continues to fall further into a depression
that will be particularly difficult to rise out of because of its distinct geographical
and cultural attributes. Ecuador's economic problems (which only make up 2% of emerging
markets) is beginning to affect the rest of the world. Not only is it dragging Latin
American further back, but is also causing international creditors to limit investment in
developing regions. People are worried that that other nations such as Brazil, Thailand,
and Russia may follow suit and do an Ecuador (Keaveny, 1999).
*Note: El Nino driven floods, volcanic disruption, and an immense earthquake have
devastated agricultural areas, all but paralyzing sectors of Ecuador 
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