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