Ecuador’s economy is forecast to grow by 4.5 percent this year, although lower oil prices mean government revenues will be reduced. Business confidence is recovering and the government is predicting single digit inflation this year, down from 22.4 percent in 2001.
The Inter-American Development Bank (IDB) looks upon Ecuador “with certain optimism” this year but, like the International Monetary Fund (IMF), insists on the need for fiscal reform. The IDB is to grant $150 million to Ecuador for the construction of low-income housing and infrastructure projects, as well as public security and environmental programs.
The IMF requires that Ecuador’s 2002 fiscal year ends with a slight surplus. The IMF, which lent Ecuador $304 million in 2000-2001, says the country must get rid of its fiscal deficit to gain a $300 million standby loan.

While the fiscal targets are tight, Ecuador’s economy is in better shape than it was in 1999, when GDP shrank by 7.3 percent. The economy has been dollarized since March 2000.
Ricardo Moss Ferreira, minister of foreign trade, industrialization and fishing, says: “Dollarization was accepted by the people because they saw the business opportunities. It forces us towards an economy which is aimed much more at production.”
Mauricio Yepez Najas, president of the central bank, says: “In our case, it was evident that no one was interested in having sucres (the Ecuadorian currency). We had to take a very strong measure and eliminate our national currency. We decided to take on the dollar and that had a strong stabilizing effect.”

As a result, the economy was the fastest-growing in the region last year. GDP rose 5.4 percent, despite a 9.5 percent decline in export earnings because of the global slowdown. Foreign investment rose in 2001 by 55 percent to $1.3 billion.
Tax revenues went up by at least 40 percent, and bank deposits increased by more than half. This is seen not only as a sign of returning confidence in the banking system, but also as showing that incomes have been rising and people are once more in a position to save.
The central bank expects construction to show the most significant growth this year – at least 15 percent. The petroleum and mining sector is forecast to expand by 4.5 percent; transportation and communications by 4.2 percent; manufacturing, retail and hotel sectors each by 3.8 percent; and electricity water and public works by 3.5 percent.

President Gustavo Noboa says: “The market has opened up to investment. We are looking for new markets and are trying to meet their needs, based on the resources we have.”
The president says that when the legislation was signed to construct Ecuador’s new pipeline project, “people finally had the feeling that we could really do something in this country.
“The IMF tells us that we must abide by certain regulations and pay our debts. In order to pay our debts, the reality is that they must open the markets. We have to sell our products and they need to stop enforcing tariff barriers against us,” adds Mr Noboa.
Foreign minister Heinz Moeller says: “My outlook is very optimistic, despite the global recession and the economic problems that exist in the world.”

Ecuador restructured its Brady and Eurobond debts in 2000 to reduce them by 40.6 percent, after defaulting on part of its foreign debt in 1999. Although foreign debt increased to $11.357 billion last year, the country has maintained debt repayments. “This helps to improve Ecuador’s image. It facilitates loans and gives confidence to investors,” says Mr Moeller.
“All investment in technology, industry and agriculture has its risks. Ecuador is an emerging economy and we are working hard to eliminate risks. We are trying to make ourselves more competitive and we need technology to add value to our prim-ary materials.

We are improving our political stability and the economy is getting stronger at an excellent rate. Now is the right time for foreign investment,” he says.
Ecuador is in need of investment to create jobs and lift living standards. Four in five of its 12 million people live in poverty, says independent think-tank Cedatos.