AS THE 1980S DREW TO A CLOSE, Ecuador remained a lower middle income
nation with a gross domestic product (GDP) of US$9.4 billion, or US$940 per capita. In South America,
only Peru, Bolivia, and Guyana had a lower per capita GDP. Agriculture
(primarily bananas, coffee, and cacao) and fishing were still important
sectors of the economy, together providing 40 percent of export earnings
in 1989. Petroleum, the other major export commodity, produced 50
percent of export earnings in the same year. Nevertheless, services,
especially trade and financial services, constituted the fastest-growing
economic sector and by the end of the 1980s employed almost half of the
work force. Manufacturing also played a small but growing role in the
economy.
Historically, Ecuador's economy has been characterized by the
dichotomy, and sometimes bitter rivalry, between the large-scale,
export-oriented agricultural enterprises of the Costa (coastal region)
and the smaller farms and businesses of the Sierra (Andean highlands).
Unlike many developing countries that have highly centralized
infrastructures, Ecuador had two banking, communications,
transportation, and trade centers--one in Guayaquil to handle the
country's export trade and the other in Quito to serve the populace in
the Sierra. Manufacturing was divided also, with Guayaquil leading Quito
in output.
The discovery of substantial new petroleum deposits in 1967 spurred
economic growth and a shift away from traditional agriculture to
manufacturing and services. The government invested much of its
petroleum revenue in domestic development programs. The rapid growth
years in the 1970s were followed by hardship in the 1980s, however, as
petroleum prices fell and the entire economy slumped.
Two administrations in the 1980s tried different approaches to
restoring the economy. President Le�n Febres Cordero Ribadeneyra
(1984-88) applied free-market principles and deregulation, policies that
initially promoted growth. Wage increases and high inflation, however,
ultimately erased most gains. President Rodrigo Borja Cevallos (1988- )
replaced the free-market approach with state intervention and imposed an
austerity program. His policies resulted in new economic growth, but
inflation and unemployment remained at record high levels.
Ecuador's chronically large foreign debt continued to stifle economic
growth. Having borrowed heavily during the boom years of the 1970s, the
government found itself unable to meet its foreign debt obligations at
the end of the 1980s. An earthquake in 1987, which damaged the country's
crude petroleum pipeline, further curtailed import earnings. Although by
1989 Ecuador had resumed its foreign debt payments and was again
exporting oil, the nation's economic future remained uncertain.
Ecuador - GROWTH AND STRUCTURE OF THE ECONOMY
Colonial Ecuador was governed first by the Viceroyalty of Peru and
then by the Viceroyalty of Nueva Granada. Ecuador differed significantly from the
viceroyalty centers (Lima and Bogot�), however, in that mining never
became a vital part of the economy. Instead, crop cultivation and
livestock raising dominated the economy, especially in the Sierra. The
Sierra's temperate climate was ideal for producing barley, wheat, and
corn. The Costa became one of the world's leading producers of cacao.
Sugarcane, bananas, coconuts, tobacco, and cotton also were grown in the
Costa for export purposes. Foreign commerce expanded gradually during
the eighteenth century, but agricultural exports remained paramount.
Manufacturing never became a significant economic activity in colonial
Ecuador, but busy sweatshops, called obrajes, in Riobamba and
Latacunga made Ecuador an exporter of woolen and cotton fabrics; a
shipyard in Guayaquil was one of the largest and best in Spanish
America; and sugar mills manufactured sugar, molasses, and rum made from
molasses.
When Ecuador gained complete independence in 1830, it had a largely
rural population of about one-half million. The rural economy came to
rely on a system of peonage, in which Sierra and Costa Indians were
allowed to settle on the lands belonging to the hacendado, to whom they
paid rent in the form of labor and a share of their crop. The economy of
the new republic, based on the cultivation of cash crops and inexpensive
raw materials for the world market and dependent on peonage labor,
changed little during the remainder of the nineteenth and first half of
the twentieth century. Vulnerable to changing international market
demands and price fluctuations, Ecuador's economy was often
characterized by instability and malaise.
During the second half of the nineteenth century, cacao production
nearly tripled, and total exports increased tenfold. As a result, the Costa became
the country's center of economic activity. Guayaquil dominated banking,
commercial, and export-import affairs. During the first two decades of
the twentieth century, cacao exports continued to be the mainstay of the
economy and the principal source of foreign exchange, but other
agricultural products like coffee and sugar and fish products were also
important exports. The decline of the cacao industry in the 1930s and
1940s, brought about by chronic pestilence and the loss of foreign
markets to competitors, had debilitating repercussions for the entire
economy. During the 1950s, government-sponsored replanting efforts
contributed to a partial revival of the cacao industry, so that by 1958
Ecuador was the world's sixth leading exporter of cacao. Nonetheless, by
the early 1950s bananas had replaced cocao as the country's primary
export crop.
The Ecuadorian economy made great strides after 1950, when annual
exports, 90 percent of which were agricultural, were valued at less than
US$30 million, and foreign-exchange reserves stood at about US$15
million. Between 1950 and 1970, a slow, steady expansion of
nonagricultural activities took place, especially in the construction,
utilities, and services sectors. Construction, for example, made up only
3 percent of the GDP in 1950, but it contributed 7.6 percent to the GDP
in 1971. Agriculture's annual share of the GDP was 38.8 percent in 1950
compared with a 24.7 percent share in 1971.
The 1960s saw an acceleration and diversification of the
manufacturing sector to meet domestic demand, with an emphasis on
intermediate inputs and consumer durable goods. By 1971 these accounted
for about 50 percent of industrial output. Still, manufactured
products--mainly processed agricultural goods--made up only about 10
percent of Ecuador's exports in 1971. Industry was still at an early
stage of development, and about 50 percent of the labor force worked in
agriculture, forestry, and fishing. Traditional industries, such as food
processing, beverages, and textiles, were largely dependent on
agriculture. The small size of the domestic market, the high production
cost in relation to available external markets, and an undeveloped
human, physical, and financial infrastructure all combined to limit the
expansion of consumer durable goods in the Ecuadorian economy.
The discovery of new petroleum fields in the Oriente (eastern region)
after 1967 transformed the country into a world producer of oil and
brought large increases in government revenue beginning in 1972. That
year saw the completion of the Trans-Ecuadorian Pipeline, a
503-kilometer-long oil pipeline leading from the Oriente to the port
city of Esmeraldas. A refinery also was constructed just south of
Esmeraldas. In addition, in 1970 large quantities of natural gas
deposits were discovered in the Gulf of Guayaquil. Largely because of
petroleum exports, Ecuador's net foreignexchange earnings climbed from
US$43 million in 1971 to over US$350 million in 1974.
The production and export of oil that began in the early 1970s,
coupled with dramatic international price increases for petroleum,
contributed significantly to unprecedented economic growth. Real GDP
increased by an average of more than 9 percent per year during 1970 to
1977 as compared with only 5.9 percent from 1960 to 1970. The
manufacturing sector alone experienced a 12.9 percent average annual GDP
real growth rate during 1975-77. Ecuador became a lower middle-income
country, although it remained one of the poorer countries of South
America. Economic growth had negative side effects, however. Real
imports increased by an annual average of 7 percent between 1974 and
1979; this spawned an inflationary pattern that eroded income. During
the same period, the country's external debt grew from US$324 million to
about US$4.5 billion.
Ecuador - THE ECONOMY - ROLE OF GOVERNMENT
The Ecuadorian public sector, comprising the central government,
state enterprises, and autonomous agencies operating on a national
scale, expanded rapidly during 1972-77. Public-sector expenditures,
adjusted for an average annual inflation rate of 14 percent, swelled
about 65 percent during this period. Such increases were made possible
because of the boost in revenue derived from a rise in international oil
prices and the expansion of oil exports, especially during the 1972-74
period, when petroleum revenues rose as a proportion of GDP from 2
percent to 8.4 percent. Meanwhile, revenues from nonpetroleum commodity
exports declined from 18.7 percent of GDP in 1972 to 13.8 percent in
1975. In effect, the government substituted the taxation of oil for the
taxation of other traditional products.
This policy caused no harm until 1975, when the volume of petroleum
exports began to moderate and oil revenues declined relative to GDP. As
the gap between public revenues and expenditures widened, budget
deficits became the norm, and the government resorted increasingly to
foreign borrowing as a substitute for declining tax revenues from nonoil
products. Between 1976 and 1979, the foreign debt more than quadrupled;
after 1979 the rate of borrowing decelerated, but still the foreign debt
had doubled by the end of 1986. In 1983, as foreign banks reduced the amount of credit
available to the government, unpopular austerity measures were adopted
to help reduce the public-sector deficit.
The oil bonanza encouraged the government to undertake two
deficit-producing policies. First, the government used about 50 percent
of total public revenues from oil exports to subsidize domestic
consumption of such items as food products, electricity, and gasoline
and other oil derivatives. Government subsidies to consumers reached a
peak of 10 percent of GDP in 1981. Second, the government increased
substantially its public-sector employment and public capital
expenditures. Although the labor force increased at an average annual
rate of only 2.8 percent between 1970 and 1984, public-service
employment rose at an average annual rate of 7 percent during the same
period. A moderate expansion in public capital expenditures during the
1974-82 period contributed to improvements in the transportation and
utility infrastructure and also in water and sewerage systems. During
this period, public capital spending increased from 7.3 percent of GDP
to 10.1 percent of GDP. Overall government revenue, however, had
declined by 1 percent of GDP between 1973 and 1982. The public-sector
deficit in 1982 represented 7.5 percent of GDP, most of which was
financed by foreign borrowing.
The sharp drop in the international price of petroleum in 1986,
followed a year later by a US$700-million loss of oil revenue in the
aftermath of the March 1987 earthquake, generated increased foreign
borrowing by the government, reduced debt-service payments, and induced
the government to print money to make up for revenue shortfalls. To help
keep inflation down to 32.5 percent in 1987 (about a 5-percent increase
over 1986), liquidity was restricted in the private sector by raising
bank reserve requirements. This policy made it difficult to acquire a
commercial loan during the second half of 1987.
Although oil production reached near-record levels of 310,000 barrels
per day following the repair of the Trans-Ecuadorian Pipeline in August
1987, international crude oil prices remained low, averaging about
US$17.70 for that year. The government's failure to raise domestic
energy prices or reduce spending in other areas contributed to a fiscal
deficit approaching 12 percent of GDP.
Real GDP improved 8 percent in 1988, mainly as the result of
increases in crude petroleum exports. The government's deficit reached
about 12 percent of GDP. The government controlled the fiscal deficit by
doubling domestic fuel prices, eliminating wheat import subsidies, and
increasing electricity rates by 40 percent for household users and 60
percent for industrial users.
In 1989 the fiscal budget totalled US$1.4 billion, of which 49
percent was financed by oil export revenues and most of the remainder
through taxes. About 38 percent of expenditures went to meet foreign
debt payments after April, 10 percent for internal investment, and the
balance to meet internal debt payments and current government
expenditures. During 1989 the Borja administration accelerated efforts
to curtail public spending, but the deficit, 10 percent of GDP, was
still too high to be fiscally sound. The government continued its tight
money policies, sustaining high interest rates and strict credit
requirements, especially for noncorporate consumers.
Ecuador - THE ECONOMY - Government Budget Process
Ecuador had a complex and splintered budget process. Only about 65
percent of tax revenues were dedicated to financing the national budget.
The remainder were earmarked for direct and automatic allocation to
autonomous agencies, state enterprises, and local governments on a
predetermined basis. Despite tax reform efforts in the 1980s, several
funds continued outside the regular budget process. About 5 percent of
income, for example, was designated for revenue sharing with 100
municipalities and 20 provincial governments. This system, which did not
require recipients to justify their need for the automatically
appropriated sums, reduced the amount of economic planning and fiscal
control that could be exercised by policy makers. Not only did recipient
agencies and local governments lack the incentive to be frugal, but the
central government was left with inadequate funds to begin new programs
or establish new agencies as needed.
With the national budget, preparations for current and for capital
expenditures were each handled differently. The Ministry of Finance and
Credit established current expenditures based on actual budgets from the
previous year, allowing for increases needed to offset inflation. The
National Development Council (Consejo Nacional de Desarrollo--Conade)
formulated a budget proposal for all capital expenditures relying on
project requests from public agencies, which was sent to the Ministry of
Finance and Credit; a national budget plan was then drafted at the
ministry and forwarded to the National Congress (Congreso
Nacional--hereafter, Congress).
Authorization for both current and capital expenditures was complete
when Congress passed the budget plan, but disbursements against
authorizations were at the discretion of the Treasury. The Constitution
requires each budget to be balanced, but throughout the 1980s deficits
were the norm.
In 1987, of total government revenues, 65 percent was derived from
taxes on income and capital gains, 13.7 percent from domestic taxes on
goods and services, 17.3 percent from taxes on international trade and
transactions, 2 percent from other taxes, and 2 percent from nontax
revenues. Total revenues for that year represented about 18.5 percent of
Ecuador's gross national product (GNP).
During the same year, of total government expenditures, 11.8 percent
was earmarked for the military, 24.5 percent for education, 7.3 percent
for health, 0.9 percent for housing and social security, 19.8 percent
for economic services, and 35.7 percent for other purposes. Total
expenditures represented 16.3 percent of GNP; the overall budget deficit
represented 2.1 percent of GNP.
Ecuador - HUMAN RESOURCES AND INCOME
Agriculture and fishing were the country's largest employers in the
late 1980s, providing nearly half of all export earnings. Including
livestock raising, forestry, and fishing, agriculture generated almost
16 percent of the GDP in 1986 and nearly 18 percent in 1987. The three
principal export crops--bananas, coffee, and cocoa--alone accounted for
2.4 percent of the total GDP in 1986, while livestock raising
contributed 5.3 percent of the GDP, and forestry and fishing contributed
1.1 and 1.9 percent, respectively.
Land Use and Tenure
Data on land use varied widely and were often considered by analysts
as unreliable or at best an approximation of actual numbers. In the
mid-1980s, for example, estimates of cropland ranged from 1.6 to 2.5
million hectares out of the total land area of 27.1 million hectares.
Different sources put the amount of pastureland at 4.4 or 4.8 million
hectares. Estimates for the total land area suitable for agriculture
showed an even wider variation, from less than 50 percent to as high as
90 percent. Over half of the cultivated land was in the Costa (coastal
region), about a third in the Sierra, and the remainder dispersed
throughout the Oriente region. The Costa, with the exception of the area
near the Santa Elena Peninsula, had generally fertile land with a
climate conducive to agriculture. Altitude, rainfall, and soil
composition determined land use in the Sierra. The intermontane basins
near Quito and farther south near Cuenca and Loja offered the most
productive Sierra lands, whereas the basins surrounding Latacunga and
Riobamba had dry and porous soil and the least fertile lands. Higher
areas of the Sierra contained grasslands suitable only for grazing or
cold-tolerant crops, such as potatoes.
Modern land tenure patterns developed from Spanish colonial land
systems. The Spanish encountered large native populations in the Sierra
and established the encomienda system whereby the crown granted
individual colonists rights to land and the Indians who lived there.
This system gradually produced haciendas worked by a "captive"
labor force composed of huasipungueros. These huasipungueros
worked without salary in return for the farming rights to minifundios
(small plots) on the haciendas. In many cases, the huasipungueros
were bought or sold with the hacienda. Large-scale agriculture developed
later in the Costa, where farming for export used sharecroppers or paid
labor to harvest crops. The monetary labor system that developed in the
Costa began to compete with the feudal system of the Sierra for cheap
labor.
Pressure to reform feudal agricultural practices came from abroad,
from humanitarian and liberal elements within the country, and from
large landowners in the Costa, who needed additional cheap labor. A land
reform law enacted in 1964, the Land Reform, Idle Lands, and Settlement
Act, outlawed the huasipungo system and also set up the
Ecuadorian Institute of Agrarian Reform and Settlement (Instituto
Ecuatoriano de Reforma Agraria y Colonizaci�n--IERAC) to administer the
law and to expropriate idle arable land for redistribution to farmers.
The law outlawed absentee ownership and limited the size of holdings to
800 hectares of arable land in the Sierra, 2,500 hectares of arable land
in the Costa, and 1,000 hectares of pastureland in either region. The
law also set the minimum amount of land to be granted in the
redistribution at 4.8 hectares. Revisions of the law in the early 1970s
required that all land with absentee landlords be sold to the tenants
and that squatters be permitted to acquire title to land they had worked
for three years.
Although IERAC made some progress initially, political opposition
slowed implementation of the land reform act. IERAC received little
government funding and was not permitted to actively encourage
expropriation. Later amendments to the land reform act exempted all
farms that were efficiently run. In addition, redistributed land was
frequently poor or on mountainsides because the large landowners kept
fertile valley lands for themselves. Except for a few showcase examples,
farmers on minifundios received no government assistance or
services to make the plots productive. In spite of these difficulties,
however, by 1984 over 700,000 hectares had been distributed to 79,000
peasants.
Distribution of the land remained highly unequal. In 1982, 80 percent
of the farms consisted of less than ten hectares; yet these small farms
accounted for only 15 percent of the farmland. Five percent of the farms
had more than fifty hectares, but these large farms represented over 55
percent of the land under cultivation. In addition, minifundios
were more likely to be found in the Sierra in areas of poor soil or with
poorer growing conditions than in other areas.
Agricultural censuses revealed that over three-quarters of the farms
were worked by their owners. About 12 percent of the farms were occupied
by families that did not hold title to the land but rented it, sometimes
hiring additional laborers. Sharecroppers or communal farmers cultivated
the remaining 7 percent.
Although intensely cultivated, minifundios in the Sierra
could not sustain the region's occupants. Because of the higher wages
for nonagricultural jobs, many farmers held unskilled jobs in the cities
while family members stayed on the land to grow crops for home use or
for sale. A study in the late 1970s indicated that over half of small
farm earnings came from off the farm.
Patterns of cultivation ranged from primitive to modern, with the
more modern methods generally used in the Costa, where much of the
production was geared for export. In 1982 Ecuador had fewer than 7,000
tractors in use. Ox-drawn plows were used on some farms, and digging
sticks were used for cultivation on slopes. High prices limited the use
of chemicals; manure was the common form of fertilizer in the Sierra,
but farmers had increased the use of pesticides and fungicides.
Sizeable areas of land, estimated at over 320,000 hectares, were
under irrigation using ditches dug by individual farmers, and about
40,000 hectares were irrigated under government-supported irrigation
projects. State support for irrigation schemes began in 1944 with the
creation of the Ecuadorian Institute of Hydraulic Resources (Instituto
Ecuatoriano de Recursos Hidr�ulicos--Inerhi). Inerhi's largest project,
inaugurated in 1970, brought water to 10,000 hectares of land in
Pichincha Province.
<>Crops
A variety of temperature and rainfall patterns resulted in a
diversity of tropical and temperate crops. Moderate or cool temperatures in highland areas
allowed the cultivation of products usually associated with more
northern latitudes. In the Costa, a warm climate, fertile soils, and
proximity to ports led to large-scale production of such export crops as
coffee, bananas, sugar, cacao, palm oil, and rice. Smaller plots in the
Sierra produced potatoes, corn, beans, wheat, barley, and tea. Larger
farms practiced dairy farming as well as increasing production of
nontraditional crops such as cut flowers, asparagus, and snow peas.
Farmers planted some coffee and tea in transition areas between the
Sierra and the Oriente, but in general the Oriente's poor soil made it
badly suited to agriculture.
Ecuador began marketing bananas abroad after World War II. By 1947
bananas had become the country's leading export crop. Capitalizing on
problems with hurricanes, disease, and labor unrest in the traditional
banana-growing regions of Central America, Ecuador emerged as the
world's largest exporter of bananas by the mid-1980s. The main
banana-producing areas were the eastern parts of Los R�os, Guayas, and
especially El Oro provinces. Banana production involved few very large
or very small plantations; most ranged from 80 to 120 hectares.
In 1969 the Ecuadorian National Board of Planning and Economic
Coordination recommended that land devoted to banana cultivation be more
than halved and that the higher yielding, disease-resistant
Cavendish-type bananas replace the traditional Gros Michel variety. This
latter change prompted modifications in production patterns. Cavendish
bananas bruised easily and required more careful handling. In addition,
they could not tolerate transport in open trucks, so boxing had to take
place at the plantation. Centralized, specialized packing meant the end
of small-farm production. Since the new variety had triple the yield of
the Gros Michel banana, the government realized that the hectares
planted in bananas needed to be reduced to avoid a sharp drop in world
prices. Statistics showed the change: land devoted to bananas dropped
from 200,000 hectares in 1972 to about 110,000 in 1980, yet production
remained fairly constant. In 1987, 2.4 million tons of bananas were
produced on 120,000 hectares of land; 1.4 million tons were exported.
Coffee, introduced into the country early in the nineteenth century,
was the second most valuable crop throughout the 1980s. Ecuador produced
both arabica and robusta varieties, with over half of the plantings in
the hilly areas of Manab� Province; most of the remaining plantings
were found in the western foothills of the Andes south of Guayaquil. In
1987 over 380,000 hectares were devoted to coffee, and 373,000 tons were
produced. Most of this coffee was exported. Coffee was generally grown
on small landholdings with about half the land planted in coffee trees
alone and the rest planted with coffee trees mixed with cacao, citrus
fruits, bananas, or mangoes.
The small size of typical coffee farms usually resulted in poor
production techniques, yields, and quality. Much of the coffee produced
retained the pulp after processing and therefore brought a lower price
on world markets. Other than establishing minimum prices for coffee, the
government provided little technical assistance to coffee farmers.
Cacao was the mainstay of the economy in colonial times. The Spanish
found the Indians cultivating cacao when they arrived in the sixteenth
century, and it first became an export crop in 1740. Produced on large
Costa plantations, the crop was nearly wiped out by a fungal disease in
the 1920s. Low world prices during the Great Depression further
discouraged production, and the plantations were broken up and
diversified into rice, sugar, corn, and bananas. After World War II,
increased prices and new disease-resistant strains revitalized the
industry.
Most cacao production took place on small farms, frequently only to
provide supplemental income to the farmer. Most small producers
preferred traditional cultivation techniques and did not harvest the
beans in years when the price was low. In contrast, the few large
plantation owners systematically replaced older trees with newer
disease-resistant varieties and used fertilizer to increase yields. Most
cacao farmers grew an aromatic variety used for flavoring. In 1987,
311,000 hectares were planted in cacao, producing 57,000 tons of cocoa
beans. Sugarcane was grown widely, both in the Sierra and in the Costa.
Over 44,000 hectares were planted in 1987, producing 3 million tons of
sugarcane. The sugar extraction rate from the cane was about 10
kilograms of sugar from 100 kilograms of cane. Sugar was an important
export crop in the 1960s and 1970s, but production levels dropped in the
1980s, and the supply could not satisfy the domestic market, so that
Ecuador had to import refined sugar. Almost all of the sugarcane grown
in the Costa was used to make centrifugal sugar, so called because of
the means of extracting the sugar. Centrifugal sugar was the type most
used in foreign trade. Sugarcane in the Costa was grown on large
plantations and processed in one of the five mills located east of
Guayaquil. Sierra peasants grew sugarcane on small landholdings and used
much of the cane for noncentrifugal sugar, mainly in a form known as panela
(a raw brown-sugar cake). Growers also marketed molasses, a sugarcane
by-product, exporting some of it and using the rest for the domestic
manufacture of alcohol or for livestock feed.
Farmers cultivated rice, a staple of the Ecuadorian diet, mainly on
the flood plains of the Guayas River Basin in Guayas and Los R�os
provinces. Rice production fluctuated depending upon the weather, but
during the 1980s the harvest increased by an annual average of 7
percent. In 1987, 780,000 tons were produced on 276,000 hectares of
land. In years of good harvest, growers produced enough rice to meet
domestic demand and to export a surplus. Because of low international
market prices for rice, however, the government policy stabilized rice
production at the level required to meet domestic needs.
Corn, another basic foodstuff, had been grown since precolonial
times. Corn was widely grown throughout the country and could be planted
from sea level to an altitude of 2,200 meters. Farmers used about half
the crop for animal feed, particularly for poultry. In 1987 over 422,000
tons were produced on 460,000 hectares.
Barley, a crop introduced by the Spaniards, proved highly adaptable
to the rigorous climate of the Sierra. Its tolerance for cold and severe
weather allowed it to be grown at higher altitudes than corn. Widely
planted on small landholdings in the central highlands areas, it was
grown both for food and for malt for the beer industry. Figures for 1987
showed 43,000 tons produced on 61,000 hectares.
Wheat, almost all of which was used to make bread, was formerly
widely grown in the Sierra. Ironically, however, as bread increased in
popularity and replaced potatoes and corn as a dietary staple, domestic
wheat production decreased. Perhaps the most significant reason was that
the government introduced subsidies on wheat imports in order to ease
the effects of the inflation that began in the oil-boom years of the
1970s. As a result, consumption of the more expensive domestic wheat
declined from 46 percent in 1946 to 7 percent in 1980. The breakup of
the large wheat-producing haciendas in the Sierra also contributed to
lower levels of wheat production.
Cotton and hemp were the principal fiber crops. The government
carried out a program in the 1980s to increase both the quality and
quantity of cotton produced. Output increased, and by 1986 Ecuador was
nearly self-sufficient in cotton. Hemp was turned into Manila hemp fiber
used to produce tea bags. Lesser fiber crops included aloe, which was
used to make cloth for sacks, and ramie, which was woven into a cloth
resembling linen.
Tea was produced near Puyo on the eastern slopes of the Andes at
elevations of about 1,000 meters. An even distribution of rainfall
allowed for year-round harvests, a condition not usually found in
tea-producing nations.
African palms were widely planted and were the main source of
vegetable oil. The government promoted and financed large plantings to
cut imports of expensive cooking oils. Although not as high in oil
content as the nuts of the royal palm, previously the principal domestic
source of vegetable oil, African palms bore more nuts and matured more
quickly.
Cottonseed, sesame seed, peanuts, coconuts, and soybeans were other
sources of vegetable oils. Cottonseed production fluctuated, depending
upon weather conditions. Sesame could be planted from two to three times
a year on the warm coastal plains where it took only three months to
mature. About 9,000 hectares of peanuts were planted, but most of the
production was used for direct consumption as peanuts rather than for
crushing into oil. Production of coconut oil varied because most
coconuts were consumed directly and not processed. Soybean plantings had
increased, and soybeans could be grown both in the Costa and lower
reaches of the Sierra.
Ecuador was one of the world's major castor bean producers. Although
the bean was inedible, its oil was used for medicinal purposes and as a
lubricant in precision tools. The plant could be grown on dry lands
where it was uneconomical to raise other crops, or planted along with
corn, peanuts, or cotton.
Black tobacco, Ecuador's traditional type, made up the bulk of the
3,600 tons grown in 1987. Blond tobacco for cigarettes was introduced in
the late 1960s and was produced mainly in Loja Province. The growth of a
domestic cigarette industry was slowed, however, by the high volume of
cigarettes smuggled into the country.
Farmers also grew numerous minor crops for domestic food consumption
or for export in small quantities. Growers raised pears, peaches,
apples, berries, grapes, and plums in the Sierra and citrus fruit,
avocados, mangoes, and a wide variety of tropical fruits in the Costa.
Important vegetable crops included garlic, onions, cabbage, lettuce,
cucumbers, tomatoes, and various types of melons and peppers. Spices
included annatto seed, anise, and cardamon. Rubber and mocora
and toquilla grass, used to make Panama hats, were minor
nonfood crops.
Ecuador - Livestock and Poultry
Livestock raising represented an important part of agricultural
output and grew significantly throughout the 1980s. Livestock was
produced primarily for domestic consumption and was one of the few
agricultural products found throughout the country. Although animal
husbandry was widespread, it was generally practiced on small plots of
land.
The Costa and Oriente produced mainly beef cattle with dairy cattle
found mostly in the Sierra. Cattle were grazed on Costa land otherwise
unsuited for agriculture, such as the hilly terrain in Manab� Province,
seasonally flooded river plains, or semiarid parts of the far south.
Dairy production in the Sierra typically was carried on in fertile
valleys, particularly between Riobamba and the Colombian border. Beef
cattle were fairly new to the Oriente, although large parcels of land
were suitable for grazing. The beef industry in the Oriente suffered a
serious setback in 1987, however, when the earthquake damaged roads used
to transport the beef to markets. Ecuador had about 3.7 million head of
beef cattle in 1986.
The 1980s saw an improvement in stock with the introduction of
European and Asian breeds. The native criollo breed represented about
half of all cattle, with the rest a cross between criollo and Holstein,
Brown Swiss, or Jersey for dairy, and criollo and Santa Gertrudis or
Charolais for beef. The absence of veterinarians and medicines remained
a problem, however, and diseases and parasites plagued many herds.
Besides cattle, livestock included pigs, sheep, and a small number of
goats. The number of pigs increased dramatically in the 1980s to about 5
million in 1986; they were raised nationwide but the greatest
concentration was in coastal areas. Sheep numbered 2 million in 1986 and
were generally found in pastureland higher than 3,000 meters in
altitude. Analysts estimated that Ecuador had fewer than 300,000 goats
in 1986.
Poultry raising was another rapid-growth area in the 1980s, although
floods in 1983 from El Ni�o caused a sharp drop in production. Chickens
were raised both for eggs and for meat, and in 1986 there were more than
45 million birds. Historically, peasant families raised chickens, but
the 1980s saw the establishment of large-scale poultry enterprises near
larger cities.
Ecuador - Fishing
The natural resource sector of the Ecuadorian economy contributed
almost 15 percent to the GDP in 1986, with the petroleum industry
providing virtually all of that total. Although analysts believed that
Ecuador had numerous mineral deposits, few metals had been exploited.
Hydroelectric power from several large dams provided the primary source
of energy.
Petroleum and Natural Gas
Petroleum was the single most important element in the Ecuadorian
economy, accounting for over 14 percent of the GDP in 1986, two-thirds
of all export revenues in that year, and much of the foreign investment.
In 1987 petroleum and mining together accounted for only about 8 percent
of GDP because of a significant drop in petroleum production, but
estimates for 1988 indicated that petroleum production had risen,
exceeding its 1986 level. Although Ecuador's level of production in the
late 1980s ranked near the bottom of the thirteen members of OPEC, it
exceeded all countries in Latin America except Mexico and Venezuela.
Petroleum was first discovered in the early 1900s both on and
offshore from Salinas on the Santa Elena Peninsula west of Guayaquil.
More than 100 million barrels of crude petroleum were removed in six
decades of exploitation; by the mid-1980s, however, Costa production had
fallen to less than 1,000 barrels per day (bd). Old,
expensive-to-maintain equipment produced high operating costs, making
continued exploitation uncertain.
The Oriente, however, had long since eclipsed the Costa as the center
of Ecuador's petroleum activity. In the late 1980s, the vast majority of
Ecuador's 1.6 million barrels of proven reserves lay in the northern
part of the Oriente, between the Napo River and the Colombian border.
This area formed part of a rich oil-bearing region extending from
southern Colombia through Ecuador and northeastern Peru. Indeed,
analysts believed that this region represented one of the richest
oil-bearing areas of the Western Hemisphere.
Although exploration in the Oriente began in the 1920s, petroleum was
not actually found until a consortium formed by the Texaco Petroleum and
Gulf Oil companies discovered several rich fields near Lago Agrio (now
Nueva Loja) in 1967. The success of the Texaco-Gulf exploration
attracted other companies, and over the next two decades more than fifty
new wells began producing commercial quantities of crude petroleum.
Production in 1989 had risen to over 1.1 billion barrels, over 99
percent from the Oriente fields.
Ecuador built the 503-kilometer Trans-Ecuadorian Pipeline to carry
crude petroleum from the Oriente fields across the Andes to a new
refinery just south of Esmeraldas. Although the pipeline was designed to
carry as much as 400,000 bd, volume averaged just over 300,000 bd in the
late 1980s. A landslide caused by a severe earthquake in March 1987
destroyed forty kilometers of an aboveground section east of Quito. To
keep exports from stopping completely, Ecuador quickly constructed a
thirty-eight-kilometer spur from the Oriente fields to Colombia's
pipeline. Oil was then either exported directly as crude from Colombian
ports or taken by tanker from Colombia to Ecuador's largest refinery at
Esmeraldas. Although this stopgap measure allowed for some petroleum to
be exported, production at the Oriente fields had to be trimmed by more
than half for the five months it took to repair the TransEcuadorian
Pipeline.
Unlike many of the larger OPEC countries, Ecuador refined less than
half of the petroleum it produced. Most of the country's 123,000 bd
refining capacity was located at two refinery complexes, one at
Esmeraldas and a complex of three refineries at the Santa Elena oil
fields. The Esmeraldas refinery had a 90,000 bd capacity, whereas the
three older Santa Elena refineries had a combined output of 32,000 bd.
Ecuador's newest refinery, completed in 1987 near Nueva Loja in the
Oriente fields, had a capacity of 1,000 bd.
Control and ownership of petroleum production and refining was held
by foreign oil companies, the government-owned PETROECUADOR which
replaced the former Ecuadorian State Petroleum Corporation (Corporaci�n
Estatal Petrolera Ecuatoriana--CEPE), or consortia composed of both.
PETROECUADOR assumed complete control of the Trans-Ecuadorian Pipeline
in 1989 and announced it would take over most other foreign interest in
the petroleum industry in the early 1990s.
In addition to abundant supplies of petroleum, observers estimated
that the country had natural gas reserves in the Oriente and offshore in
the Gulf of Guayaquil totalling 400 billion cubic meters. Reserves in
the Oriente were collocated with petroleum deposits. Producers flared
most of the gas associated with petroleum drilling, using only small
amounts as fuel. Distance from markets made exploitation of the gas
uneconomical, although a small plant to harness the gas as a fuel was
completed near Nueva Loja in the mid-1980s. Reserves in the Gulf of
Guayaquil, thought to be among the largest in Latin America, remained
unexploited because of an uncertain domestic market for natural gas and
a legal dispute between the government and foreign companies over
ownership.
<>Mining and Minerals
Industrialization occurred later in Ecuador than in most other Latin
American countries. As late as 1960, the small industrial sector
consisted almost entirely of textile production, food processing, and
artisan activity. Manufacturing began to develop in the mid-1960s, and
during the 1970s, spurred by petroleum revenues and exports to other
nations in the Andean Common Market (Ancom, also known as the Andean
Pact), manufacturing became the most dynamic sector of the economy.
Manufacturing stagnated in the 1980s, however, with an average annual
growth of only 0.8 percent for the period 1981-87. In 1987 it accounted
for over 17 percent of the GDP.
Food processing and textile manufacturing accounted for almost 60
percent of the total value of manufacturing in 1986. Nonmetallic
minerals and metals comprised 12 percent of the total value; all other
industries accounted for the balance.
Most industrial establishments were small and barely more than
handicraft operations. A government industrial census in the early 1980s
listed more than 35,000 firms, but only 28 of these had more than 500
employees; more than 31,000 had from 1 to 4 workers. Individual
proprietors owned and managed most firms. Shoemaking shops, woodworkers,
or furniture makers represented nearly half of the establishments listed
in the census.
Guayaquil was the most important industrial center, followed by
Quito. Together the two cities accounted for about two-thirds of total
factory employment. Agricultural and beverage processing plants,
sawmills, shipyards, iron foundries, and cement and chemical plants were
Guayaquil's main industries. Textile production and food processing
topped the list of industrial activities in Quito. The government had
made an attempt in the early 1970s to disperse industrial activity by
promoting industrial parks in other cities, with some success.
Sugar refining, rice milling, and flour milling were among the
largest sectors in the food-processing industry. Two sugar mills
dominated the industry and processed most of the sugar used
domestically. Rice milling was concentrated in the Costa and consisted
of numerous publicly owned mills, as well as many smaller private ones.
Most flour mills were located near larger cities in the Sierra and used
locally grown wheat; the three large flour mills near Guayaquil used
mainly imported wheat. Ecuador also had a large baking industry, and
nearly all cities had commercial bakeries producing bread and cakes.
The textile industry, which ranked next to food processing in value
of production, was concentrated in the Sierra, where it originated as an
outgrowth of home weaving. Most textile plants remained small, although
one Quito firm was among the largest employers in the country.
The construction industry showed a steady decline during the 1980s
and accounted for only about 4 percent of the GDP in 1987. Because over
95 percent of the construction in Ecuador resulted from
government-financed projects, the industry remained highly vulnerable to
periods of austerity in government spending. Indeed, the sector's only
growth year in the decade of the 1980s occurred in 1987, reflecting
large-scale highway rebuilding after the earthquake. High interest rates
and a shortage of cement also hampered construction projects.
Artisan activity constituted a large part of the manufacturing labor
force. Although many of the artisans had considerable skills in such
occupations as weaving, their wages were among the lowest in the labor
force, and as machine-weaving became more widespread their skills were
increasingly obsolete. In the 1980s, the government offered special
credits and loans to encourage a transition from artisan workshops to
small factories.
The largest number of artisans produced clothing and furniture. This
group included dressmakers, tailors, shoemakers, cabinetmakers, and
carpenters. Several thousand additional artisans were goldsmiths or
silversmiths.
Ecuador - SERVICES
The service sector constituted the largest component of the
Ecuadorian economy, accounting for almost 50 percent of the GDP in 1987.
The largest parts of the service sector were wholesale and retail trade
at 29 percent, financial services at 23 percent, and transportation and
communications at 15 percent of services. Although contributing half the
nation's wealth, financial services were inadequate, and the
communication and transportation networks remained underdeveloped.
Financial System
The country's modern finance and banking system began in 1948 with
the establishment of the Central Bank. The Law of the Monetary System of
1961 defined the functions of the Central Bank, which included issuing
and stabilizing the national currency, providing credit to the private
sector, managing foreign-exchange reserves, controlling import-export
permits, carrying out the Monetary Board's policies, supervising private
banks, and regulating international financial transactions. The bank
also maintained a check clearinghouse, rediscounted and made advances to
commercial banks, and published economic data.
In 1989 the structure of the banking system resembled a threetiered
pyramid with the Monetary Board at the apex. The Bank Superintendency
and the Central Bank occupied the next tier and lent funds to four
state-owned financial institutions. At the bottom came the commercial
banks, savings and loan associations, and finance companies, which
operated at the local level.
The Monetary Board regulated the entire banking and credit system,
including the Central Bank. In the 1980s, the board's eleven members
included the chairman, appointed by the president of Ecuador, and the
ministers of finance and credit; agriculture and livestock; energy and
mines; and industry, commerce, integration, and fishing. Also included
were the president of the National Planning Board, two representatives
of national chamber of commerce organizations, a representative of the
commercial banks, the general manager of the Central Bank, and the head
of the Bank Superintendency. The Monetary Board's functions included
formulating the country's economic policy; determining interest rates;
and setting Central Bank credit levels, minimum reserve requirements,
and exchange rates.
The Bank Superintendency supervised and controlled banks, finance
companies, and insurance companies. The Congress appointed the head or
superintendent from three candidates proposed by the president. Funded
by compulsory contributions from the financial institutions under its
control, the Bank Superintendency also collected and published banking
statistics.
The national government and the private banks jointly owned the
Central Bank and tasked it with carrying out the policies of the
Monetary Board and for supervising the activities of private banks. All
private banks in Ecuador were required to invest at least 5 percent of
their capital and reserves in the Central Bank, and together they owned
the majority of shares in the Central Bank. Headquartered in Quito, the
Central Bank had sixteen branches in other cities and towns in the late
1980s.
The four major government-owned financial institutions were the
National Development Bank (Banco Nacional de Fomento--BNF); the
Securities Commission-National Financial Corporation (Comisi�n de
Valores-Corporaci�n Financiera Nacional--CV-CFN), more commonly known
as the National Financial Corporation (Corporaci�n Financiera
Nacional--CFN); the Ecuadorian Housing Bank (Banco Ecuatoriano de la
Vivienda--BEV); and the Development Bank of Ecuador (Banco de Desarrollo
de Ecuador--Bede), formerly known as the Cooperatives Bank of Ecuador.
Each institution had a specialized role: the BNF provided loans for
agriculture and industry, the CFN lent capital to industries utilizing
local raw materials or making handicrafts, the BEV promoted low-income
housing, and the Bede lent funds to local credit cooperatives,
especially those in rural areas.
The thirty-one commercial banks were the most important financial
institutions in the country, attracting the major portion of deposits
and making the largest percentage of total loans in the banking system.
Only four of the commercial banks were foreign: the United Holland Bank
from the Netherlands, Citibank and the Bank of America from the United
States, and Lloyd's Bank from Britain, formerly known as the Bank of
London and South America. In 1986 the Bank of Pichincha, Pacific Bank,
Philanthropic Bank, People's Bank, and Continental were the five largest
locally owned commercial banks.
Several other types of private financial institutions existed in
1988. Eleven savings and loan associations, 26 finance companies, 123
cooperative savings institutions, and 4 credit card companies provided
various forms of financing or credit. The Ecuadorian Development Finance
Company (Compa��a Financiera Ecuatoriana de Desarrollo--Cofiec) was
founded in 1966 by local and foreign commercial banks, local
businessmen, several international finance firms, and the CFN. Cofiec
was an important source of funds to private industry, both in the form
of loans and in equity investment.
Two stock exchanges operated, one each in Quito and Guayaquil.
Although the Quito exchange handled almost twice as many transactions as
the Guayaquil exchange in 1986, neither was large. The great majority of
trading occurred in government issues and mortgage bonds, with only a
small amount of trading in common stocks or other securities. Most
Ecuadorian businesses were owned by small numbers of individuals, and
few resorted to public financing to raise capital.
<>Tourism
