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ECUADOR
>> Regional Overview >> Ecuador Overview 
Introduction
U.S. assistance to Ecuador is playing a critical role in serving several key areas of U.S. national interest. These include the consolidation of the Ecuador-Peru Peace Accords; strengthening of the judicial system to reduce corruption and improve the investment climate; improved management of natural resources to secure a sustainable environment; and reduction of drug trafficking and money laundering resulting from Ecuador's strategic location between Colombia and Peru.
The Development Challenge
USAID's program is addressing many of the economic, political, health and environmental problems that have been confronting Ecuador over the past few decades. These include widespread corruption, stagnant economic growth, extreme poverty, rapid population growth, high unemployment and poor income distribution (which is considered the worst in the Andean region). Ecuador's inability to resolve these problems has put its fragile democracy at risk. The country's poor majority, in particular the indigenous peoples of the highlands, have become increasingly organized and vocal in expressing their demands. Additionally, as the landless poor seek to meet their basic economic needs through unsustainable methods, unique biological diversity is further threatened.
Unfortunately, as a result of the current economic and banking crisis in Ecuador (which has had a greater negative impact on the country than the Great Depression did in 1929 did on the U.S.), these problems have worsened in 1999. As economic activity decreased by 7-8% and the currency depreciated by 195%, per-capita income in dollar terms plummeted by 32% during the year. Unemployment increased from 9% to 17% and underemployment increased from 49% to 55%. Consumer based poverty indicators show an increase from 34% in 1995 to 46% in 1998, or about six million people. Rural poverty increased the most from 56% in 1995 to 69% in 1998, while urban poverty increased from 19% to 30% in the same period. Of the six million poor, roughly two million live in extreme poverty, i.e. they could not meet their basic nutritional requirements even if their entire incomes were spent on food. Additionally, income distribution in Ecuador is among the worst in the Andean region, with roughly 80% of the income share of GDP accruing to approximately 20% of the population. The general populace has watched in awe as 1.6 billion dollars of Government of Ecuador (GOE) funds were used to bail out banks that failed as a result of corrupt practices and mismanagement. Weak democratic institutions, particularly the justice sector, have permitted widespread, endemic corruption and tax evasion to continue unabated. This has fueled random displays of public discontent among the country's poor and led to significant increases in crime rates, particularly on the coast. Combined, these factors have put Ecuador's fragile democracy at risk.
As Ecuador's fiscal deficit reached 6.2% of GDP in 1999 and the GOE delayed paying salaries to public school teachers and health workers, frequent strikes closed down public schools and hospitals. The money supply increased at an annual rate of 170% to pay back depositors of failed banks. In March of 1999, the GOE froze bank deposits to avoid hyperinflation. Despite the crisis, the Ecuadorian Congress only begrudgingly increased the value-added tax from 10% to 12% and barely managed to approve the 2000 budget proposal. All efforts to privatize state-owned major utilities have been basically put on hold by Congress. This situation has seriously impeded efforts by the GOE to achieve a Stand-by Agreement with the International Monetary Fund (IMF). The absence of an IMF agreement has blocked one billion dollars in financing from the International Development Fund (IDB), International Bank for Reconstruction and Development (IBRD) and the Andean Development Corporation (CAF), and effectively stopped renegotiations of Paris Club Debt (including U.S. debt) in the amount of $498 million. The country's debt to domestic and foreign creditors excee ded 124% of GDP and debt servicing reached 54% of the national budget. In October, the GOE defaulted on all of its debt payments unilaterally declaring a debt moratoria on its Brady and Euro Bonds, and restructured by decree domestic debt payments to the Ecuadorian private sector. The country's external debt increased to $17 billion during 1999. After debt servicing, military expenditures and federal salaries, little or nothing was left in the budget for badly needed social sector programs in education and health.
By the end of 1999, President Mahuad's acceptance rating was at 9%. Unresolved economic, financial and political problems led to massive protests that resulted in his departure from office on January 22, 2000. The Congress subsequently ratified the Vice-President, Gustavo Noboa, as President. In this challenging context, USAID is targeting economic assistance to helping Ecuador to overcome the current crisis: judicial and financial sector transparency and anti-corruption, border region development with Peru and consolidation of the 1998 Peace Accords; key environmental policy reforms; poverty alleviation and volcano disaster relief. The support for the Ecuador-Peru Peace Accords is an emerging challenge as the GOE has requested that USAID play a leadership role with other donors in fostering border integration. These increased demands on a drastically downsized Mission, along with the phase out of assistance in microenterprise, health care and urban environmental protection in FY 2000, are major challenges USAID/Ecuador will have to meet during FY 2001.
Other Donors
USAID provides about 12% of donor assistance to Ecuador and ranks fourth among multi- and bilateral donors. The bulk of other donor funding (grant and loan) is provided by the IDB (industry, environment, health, potable water, education, microenterprise and democracy), the CAF (infrastructure and banking), the World Bank (industry, environment, education, health, potable water and democracy), Japan (energy and health) and Spain (transportation and telecommunications). USAID assistance plays a catalytic role by influencing the planning, design and implementation of other donor programs and by leveraging the significant assistance they are able to provide. For example, through a modest ESF-funded institutional strengthening program with the Deposit Guarantee Agency (DGA), USAID has successfully engaged the IDB and the World Bank to start negotiating a $10 million dollar technical assistance loan to restructure the country's banking system. This activity significantly improved U.S. coordination and leverage with the IMF, IDB and the World Bank.
Country Background Information Resources CIA Factbook
Library of CongressNational Geographic Country Maps
State Dept. Country Information
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Last Updated on: December 21, 2000 |
