Development Challenge Other Donors FY 2002 Program Activity Data Sheets Summary Tables Program Summary Strategic Objective Summary USAID Search: Ecuador Previous Years' Activities 2001, 2000, 1999, 1998, 1997 Wednesday, 12-Feb-2003 11:48:05 EST

Introduction

U.S. assistance to Ecuador is playing a critical role in serving several key areas of U.S. national interest. These include the Andean Regional Initiative to strengthen the country's ability to deal effectively with domestic and regional challenges; the consolidation of the Ecuador-Peru Peace Accords; increased citizen support for key democratic processes to reduce corruption and improve the investment climate; improved management of natural resources to secure a sustainable environment; reduction of poverty through a microfinance program; and reduction of drug trafficking and money laundering resulting from Ecuador's strategic location between Colombia and Peru.

Between 1999-2000, Ecuador came dangerously close to becoming a failed state. Rampant corruption almost crippled the country's financial and banking system; economic growth dropped to negative 7%, subsequently pushing up to a mere 1.9% in 2000; and mob violence and an unruly army overthrew the country's fourth president in only five years, and replaced him with the vice-president. This year, that slide has been checked through the stabilizing effects of dollarization; a Stand-by Agreement with the International Monetary Fund (IMF); and new resources from international financial institutions. Higher oil prices, improved tax collection, and remittances from abroad enabled the economy to stage a modest recovery. However, Ecuador is still faced with extreme and growing poverty, with the majority of the people excluded from basic economic and political processes; continued widespread corruption and economic mismanagement; and the growing drug-related violence in Colombia, Ecuador's neighbor to the north.

In 2000, Ecuador's economic growth was once again positive and monthly inflation decelerated from 14.3% in January to 2.5% in December; nevertheless, year-end inflation totaled 91%, more than ten times the average for the Latin America and Caribbean region (LAC). In terms of its external debt, 2000 was a positive year for Ecuador when compared to 1999, the year of the crisis. External debt was $13.1 billion by the end of 2000 and represented 94% of GDP -- still high but an improvement when compared with 124% in 1999. Debt servicing reached 52% of the national budget. The GOE's agreement with the IMF includes a standby credit of $300 million, of which $151 million have been disbursed. Unfortunately, little headway was made in strengthening banking regulations and supervision. The country's remaining viable banks, beset by interest rate ceilings and a tradition of tolerance for non-payment of loans, contracted their total loan portfolio by $640 million from January to November, with 95% of the loans going to just 5% of their clients. The country's investment climate is also one of the region's worst, tarnished by pervasive corruption, a dysfunctional judicial system, and non-enforcement of contractual obligations. The IMF, the Inter-American Development Bank (IDB), the World Bank, and the Andean Development Corporation (CAF) are collaborating to address these important macro-level concerns.

Fortunately, unemployment dropped to 14.4% from 1999's high of 17% (although this in part was due to a high emigration rate) and underemployment declined from 55% to 50%. However, almost eight out of ten rural households are now poor, with four out of ten unable to meet basic nutritional requirements. Only 40% of Ecuadorian households have access to running water; 44% to sewage systems; and almost half of the country's teenagers are not attending school. Per capita income has not increased in the last decade. The country's monthly debt service payments are more than four times the expenditures for basic social services.

Ecuador's extreme poverty is a major threat to internal stability. An unstable Ecuador could threaten regional stability and challenge the viability of the country's already fragile democratic institutions. This situation is exacerbated by the continued exclusion of the rural poor (who are largely indigenous) from basic economic and political processes by the country's elites. Continued widespread corruption further erodes citizen confidence in national institutions and the growing drug-related violence in the northern border provinces is an increasingly serious threat. Of all the countries in the region, Ecuador is probably most likely to be affected by Plan Colombia - and least likely to be able to deal effectively with those impacts.

USAID is largest donor of grant funds in Ecuador. The bulk of other donor funding (grant and loan) is provided by: the IDB for support to agriculture and industrial production, infrastructure, public health, environment, education, and urban development; the CAF for infrastructure and banking; the World Bank for industry, environment, education, health, potable water, and democracy; Japan for telecommunications, health, infrastructure, and energy; and Spain for modernization, integrated rural development, potable water and sanitation, health, and training. USAID assistance plays a catalytic role by influencing the planning, design, and implementation of other donor programs and by leveraging their significant resources.

USAID intends to play an important role in helping Ecuador to regain a stable footing in the region, and increased emphasis on poverty reduction and democracy programs will be essential for employment generation, political stability, and spurring greater foreign direct investment flows. In FY 2002, the USAID program will continue to promote citizen support for key democratic processes to restore people's eroding confidence in public institutions by improving the performance of key judicial processes; expanding effective anticorruption initiatives, including more client-oriented and transparent local governments; developing consensus-based leadership; and strengthening civil society. A major new program attacking poverty and unemployment will emphasize microfinance assistance to many of the 1.3 million entrepreneurs in need of this service, targeting areas of highest growth in the informal sector and unemployment. USAID will support the Ecuador-Peru Peace Accords through improvement of the social and economic conditions of border area inhabitants. The USAID program will continue to promote biodiversity conservation policies and models in one of the world's richest "megadiversity" nations. USAID support will also help to stabilize some of the country's most vulnerable regions, including the Galapagos Islands. As part of the Andean Regional Initiative, assistance will be provided to Ecuador's northern border provinces to improve social infrastructure, strengthen civil society, and provide enhanced economic opportunities. These efforts are expected to reduce the region's vulnerability to Colombia's coca economy and to possible negative "spill over" effects from implementation of Plan Colombia. USAID is also keeping a close eye on the refugee situation to determine if U.S. assistance will be needed.

• 518-001 Biodiversity conserved in selected protected areas and their buffer zones
• 518-002 Increased use of sustainable family planning/maternal child health services
• 518-011 Improved social and economic conditions of inhabitants along the Peru-Ecuador border, thereby promoting border integration (Peru-Ecuador Border Region Development
• 518-012 More Effective and Fair Criminal Justice System
• 518-013 Ecuador Northern Border Development
• 518-XXX Increased Economic Opportunities for the Poor

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