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Ecuador (10/28/09)


October 28, 2009

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For the most current version of this Note, see Background Notes A-Z.

PROFILE

Geography
Area: 276,840 sq. km; about the size of Colorado.
Cities: Capital--Quito (pop. 2 million). Other major cities--Guayaquil (2.28 million).
Terrain: Jungle east of the Andes, a rich agricultural coastal plain west of the Andes, high-elevation valleys through the mountainous center of the country and an archipelago of volcanic islands in the Pacific Ocean.
Climate: Varied, mild year-round in the mountain valleys; hot and humid in coastal and Amazonian jungle lowlands.

People
Nationality: Noun and adjective--Ecuadorian(s).
Population (Jan. 2009): 14,573,101.
Annual population growth rate (2009 est.): 1.497%.
Ethnic groups: Mestizo (mixed Amerindian and Spanish) 65%, Indigenous 25%, Caucasian and others 7%, African 3%.
Religion: Predominantly Roman Catholic (95%), but religious freedom recognized.
Languages: Spanish (official), indigenous languages, especially Quichua, the Ecuadorian dialect of Quechua. Quichua and Shuar are official languages of intercultural communication.
Education: Years compulsory--ages 5-18. Attendance (through 6th grade)--77% urban, 78% rural. Literacy—97.3%.
Health: Infant mortality rate--22.1/1,000. Life expectancy--76.62 yrs.

Government
Type: Republic.
Independence: May 24, 1822 (from Spain).
Constitution: October 20, 2008.
Branches: Executive--President and 39 cabinet ministers (7 coordinating ministries, 21 ministries, and 11 secretariats). Legislative--unicameral Congress. Judicial--Supreme Court, Constitutional Court, Supreme Electoral Tribunal, Provincial Courts, and ordinary civil and criminal judges.
Administrative subdivisions: 24 provinces.
Major political parties: Over a dozen political parties; President Correa's Proud and Sovereign Fatherland (PAIS) movement is predominant.
Suffrage: Obligatory for literate citizens 18-65 yrs. of age; optional for other eligible voters.

Economy
GDP: (2008 preliminary) $54.6 billion; (2007 provisional) $45.8 billion; (2006) $41.8 billion.
Real annual growth rate: (2008 preliminary) 6.5%; (2007) 2.5%; (2006) 3.9%.
Per capita GDP: (2008) $3,961; (2007) $3,366; (2006) $3,115.
Natural resources: Petroleum, fish, shrimp, timber, gold, copper.
GDP by activity (2008): Oil and mining 26.8%: Includes oil and natural gas extraction, and mining; Commercial trade (wholesale and retail) 11.7%; Construction 9.8%; and Industry 9.2%: Types-- food processing, wood products, textiles, chemicals, and pharmaceuticals.
Other Major contributors to GDP (2008): Agriculture, including seafood 6.3%: Products--bananas, seafood, flowers, coffee, cacao, sugar, tropical fruits, palm oil, palm hearts, rice, corn, and livestock; and Transportation/warehousing 6.0%.
Trade: Exports--$18.5 billion (2008); $14.3 billion (2007). Types--petroleum, bananas, shrimp, cacao, coffee, cut flowers, wood, canned fish. Major markets (2008)--U.S. 45%, Latin America excluding Andean Community 32%, Andean Community 17%, European Union (EU) 11%, and Asia 3%. Imports--$17.6 billion (2008); $12.9 billion (2007). Types--industrial materials, fuels and lubricants, nondurable consumer goods, industrial capital goods. Major suppliers (2008)--Latin America excluding Andean Community 47%, Andean Community 27%, U.S. 19%, Asia 20%, and EU 8%.
Currency: U.S. dollar.

PEOPLE
Ecuador's population is ethnically mixed. A large majority of the population is mestizo (mixed Indian-Caucasian), followed by smaller percentages of indigenous, Afro-Ecuadorian, and European descendent criollos. Although Ecuadorians were heavily concentrated in the mountainous central highland region a few decades ago, today's population is divided about equally between that area and the coastal lowlands. Migration toward cities--particularly larger cities--in all regions has increased the urban population to over 60%. The tropical forest region (or Amazon region) to the east of the mountains remains sparsely populated and contains only about 3% of the population. Due to an economic crisis in the late 1990s, more than 600,000 Ecuadorians emigrated to the U.S. and Europe from 2000 to 2001. According to the 2000 U.S. census there were 323,000 persons who claimed Ecuadorian ancestry. Including undocumented migrants, it is unofficially estimated that there are approximately one to two million Ecuadorians currently residing in the U.S.

HISTORY, GOVERNMENT, AND POLITICAL CONDITIONS

The Inca Empire and Spanish Conquest
Advanced indigenous cultures flourished in Ecuador long before the area was conquered by the Inca Empire in the 15th century. In 1534, the Spanish arrived and defeated the Inca armies, and Spanish colonists became the new elite. The indigenous population was decimated by disease in the first decades of Spanish rule--a time when the natives also were forced into the "encomienda" labor system for Spanish landlords. In 1563, Quito became the seat of a royal "audiencia" (administrative district) of Spain.

Independence and Historical Developments
After independence forces defeated the royalist army in 1822, Ecuador joined Simon Bolivar's Republic of Gran Colombia, only to become a separate republic in 1830. The 19th century was marked by instability, with a rapid succession of rulers. The conservative Gabriel Garcia Moreno unified the country in the 1860s with the support of the Catholic Church. In the late 1800s, world demand for cocoa tied the economy to commodity exports and led to migrations from the highlands to the agricultural frontier on the coast.

A coastal-based liberal revolution in 1895 under Eloy Alfaro reduced the power of the clergy and opened the way for capitalist development. The end of the cocoa boom produced renewed political instability and a military coup in 1925. The 1930s and 1940s were marked by populist politicians, such as five-time President Jose Velasco Ibarra. In January 1942, Ecuador signed the Rio Protocol to end a brief war with Peru the year before. Ecuador agreed to a border that conceded to Peru much territory Ecuador had previously claimed in the Amazon region. After World War II, a recovery in the market for agricultural commodities and the growth of the banana industry helped restore prosperity and political peace. From 1948-60, three presidents--beginning with Galo Plaza--were freely elected and completed their terms. Political turbulence returned in the 1960s, followed by a period of military dictatorship between 1972 and 1979. The 1980s and beginning of the 1990s saw a return to democracy, but instability returned by the middle of the decade.

Political Instability (1997-2006)
Abdala Bucaram, from the Guayaquil-based Ecuadorian Roldosista Party (PRE), won the presidency in 1996 on a platform that promised populist economic and social policies, and challenged what Bucaram termed as the power of the nation's oligarchy. During his short term of office, Bucaram's administration was severely criticized for corruption. Bucaram was deposed by the Congress in February 1997 on grounds of alleged mental incompetence. In his place, Congress named Fabian Alarcon interim president. Alarcon's presidency was endorsed by a May 1997 popular referendum.

Quito Mayor Jamil Mahuad of the Popular Democracy party was elected president by a narrow margin in July 1998. Mahuad concluded an historic peace agreement with Peru on October 26, 1998, but increasing economic, fiscal, and financial difficulties drove his popularity steadily lower. On January 21, 2000, during demonstrations in Quito by indigenous groups, the military and police refused to enforce public order. Demonstrators entered the National Assembly building and declared a three-person "junta" in charge of the country. Field-grade military officers declared their support for the concept. During a night of confusion and negotiations, President Mahuad fled the presidential palace. Vice President Gustavo Noboa took charge and Mahuad went on national television to endorse Noboa as his successor. Congress met in emergency session in Guayaquil the same day, January 22, and ratified Noboa as President of the Republic.

Completing Mahuad's term, Noboa restored some stability to Ecuador. He implemented the dollarization of the economy that Mahuad had announced and obtained congressional authorization for the construction of Ecuador's second major oil pipeline, this one financed by a private consortium. Noboa turned over the government on January 15, 2003, to his successor, Lucio Gutierrez, a former army colonel who first came to public attention as a member of the short-lived "junta" of January 21, 2000. Gutierrez' campaign featured an anti-corruption and leftist, populist platform. After taking office, however, Gutierrez adopted relatively conservative fiscal policies and defensive tactics, including replacing the Supreme Court and declaring a state of emergency in the capital to combat mounting opposition. The situation came to a head on April 20, 2005, when political opponents and popular uprisings in Quito prompted Congress to strip Gutierrez of the presidency for allegedly "abandoning his post." When the military withdrew its support, Gutierrez went into temporary exile. Congress declared Vice President Alfredo Palacio the new president. A semblance of stability returned, but the Palacio administration failed to achieve congressional support for major reforms.

The Correa Administration (2007-present)
In presidential elections in October 2006, third-time candidate Alvaro Noboa won the first round. However, Rafael Correa, Palacio's former finance minister, running on an anti-establishment reform platform and by successfully presenting himself as the "change" candidate, bested Noboa in the second round presidential runoff in November 2006. Election observers characterized the elections as generally free, fair, and transparent. Noboa's National Institutional Renovation and Action Party won the largest bloc in Congress in 2006 elections, followed by Gutierrez's Patriotic Society Party; Correa's Proud and Sovereign Fatherland (PAIS) Alliance movement did not field any congressional candidates. Traditional parties saw their congressional representation cut in half.

The new Congress took office January 5, 2007 and Correa was sworn in as President on January 15, 2007. In March 2007, 57 members of Congress were dismissed on the grounds that they violated campaign laws. Following that, the Congress was largely deadlocked and later effectively replaced by a constituent assembly that was voted into power on September 30, 2007. The assembly, which was inaugurated on November 29, 2007, drafted a new constitution that voters approved in a referendum and that went into effect in October, 2008. This new constitution is Ecuador's 20th since independence.

As required under the new constitution, elections for the president, vice president, members of the National Assembly, and provincial and local offices were held in April 2009, two years into Correa's term. President Correa was re-elected in the first round, taking 52 per cent of the vote, compared to 28 percent for former president Lucio Gutierrez, his nearest rival. Correa's Proud and Sovereign Fatherland (PAIS) movement also won the largest legislative block in the new National Assembly, although not a majority.

While the Correa administration has occasionally used the term “21st Century Socialism” to describe its ideas on Latin American regionalization, the economy and politics, it has been careful to note that its version is distinct from the new socialist policies of Mexican-based German academic Heinz Dietrich, and is specific to Ecuador. Correa has asserted that his political project intends to search for social justice and reassert the supremacy of human labor over capital.

GOVERNMENT
The 2008 constitution provides for four-year terms of office for the president, vice president, and members of the National Assembly. Presidents may be consecutively re-elected for an additional term. The executive branch currently includes 39 cabinet members, (including coordinating ministries with inter-governmental responsibility). Provincial leaders (called prefects) and councilors, like mayors, city councilors, and rural parish boards, are directly elected. The National Assembly elected in April 2009 replaced the interim Legislative Commission on July 31, 2009. The National Assembly is unicameral with 124 total legislators. Justices of the National Court of Justice will be selected by a Judicial Council through a merit-based process for a nine-year term with no immediate reappointment. A special committee, composed of members selected by all branches of government, will appoint the members of the Constitutional Court to serve a nine-year term, with no reappointment.

Principal Government Officials
President--Rafael CORREA
Vice President--Lenin MORENO
Minister of Foreign Affairs--Fander FALCONI
Minister of Defense--Javier PONCE
Ambassador to the United States--Luis GALLEGOS Chiriboga
Ambassador to the Organization of American States—Francisco PROAÑO Arandi
Ambassador-Designate to the United Nations—Francisco CARRION Mena

Ecuador maintains an embassy in the United States at 2535 15th Street NW, Washington, DC 20009 (tel. 202-234-7200). Consulates are located in Los Angeles, Chicago, Houston, Miami, Newark, New York, San Francisco, and San Juan, Puerto Rico. Honorary Consuls are located in Atlanta, Boston, Dallas, Las Vegas, Minneapolis, and West Palm Beach.

Political Conditions
Ecuador has been caught in cycles of political instability, reflecting popular disillusionment with traditional power structures and weak institutions. Ecuador's political parties have historically been small, loose organizations that depend more on populist, often charismatic, leaders to retain support than on programs or ideology. Frequent internal splits have produced great factionalism. Beginning with the 1996 election, the indigenous population abandoned its traditional policy of shunning the official political system and participated actively. The indigenous population established itself as a force in Ecuadorian politics, and participated in the Gutierrez administration before joining the opposition.

Rafael Correa is the first president since the 1979 return to democracy to enjoy sustained popularity in all regions of the country and among a broad array of class and demographic groups. President Correa has criticized the traditional political parties. As a result of this criticism and their weak showings in recent elections, opposition parties are weakened and seeking ways to revive themselves. As of October 2009, President Correa's Proud and Sovereign Fatherland (PAIS) Alliance movement was the predominant political force in Ecuador, though PAIS did not hold an outright majority of seats in the new National Assembly.

ECONOMY
The Ecuadorian economy is based on petroleum production, manufacturing primarily for the domestic market, and agricultural production for domestic consumption and export. Principal exports are petroleum, bananas, shrimp, flowers, and other primary agricultural products. In 2008, crude and refined petroleum products accounted for 63% of total export earnings. Ecuador is the world's largest exporter of bananas and plantains (about $1.6 billion) and a major exporter of shrimp ($674 million). Exports of nontraditional products such as flowers ($566 million), canned fish ($815 million) and automobiles ($408 million) have grown in recent years.

Ecuador adopted the dollar as its national currency in 2000, following a major banking crisis and recession in 1999. Dollarization led to stability, which helped Ecuador achieve solid economic performance through 2006. Growth averaged 4.6% per year, supported by high oil prices, strong domestic consumer demand, increased non-traditional exports, and growing remittances ($3 billion a year) from Ecuadorians living abroad. Per capita income increased from $1,296 in 2000 to an estimated $3,961 in 2008, while the poverty rate fell from 51% in 2000 to 38% in 2006. In 2007, economic growth slowed, constrained by declining petroleum production and reduced private sector investment, but recovered in 2008 due to higher oil prices, increased government spending and strong domestic demand.

President Correa's economic policies include higher social spending, increased government control over strategic sectors, and a greater share of natural resource revenues for the state. After two-plus years in office, the overall direction of economic policy is unclear, creating uncertainty for the business community. One example of uncertain direction is debt policy, where the government initially suggested it might default, then honored the debt for almost two years.

In December 2008 the government defaulted on certain debt issuances (its 2012 and 2030 Global bonds). In June 2009, the government purchased 91% of these bonds (with a total face value of approximately US$ 2.9 billion) at a 65-70% discount in a modified Dutch auction. The government is taking a number of new measures to adjust to falling petroleum revenues, and the full scope and effectiveness of those measures were unknown as of the middle of 2009. Policies for the petroleum and mining sector are also still not fully defined.

By the end of 2008, it was clear that the global financial crisis and economic downturn led to falling remittances and oil prices for Ecuador. In January 2009, the government invoked the World Trade Organization (WTO) balance of payments safeguard provisions to restrict imports of consumer goods. Following consultations with the WTO Balance of Payments Committee, the Ecuadoran government converted import quotas to tariffs that are within WTO bindings. In July 2009, the government applied exchange safeguards to Colombian imports, claiming that devaluation of the Colombian currency had reduced Ecuador's competitiveness. The GOE is reducing these safeguards in compliance with a ruling in August 2009 by the Andean Community Secretariat. The government also announced that it is cutting or restricting public sector spending, although it did not provide many specifics on how it would do so. To meet its financing needs and cover the fiscal deficit, Ecuador has obtained loans from international organizations and negotiated advance payments from China for the sale of future oil production.

Ecuador is rich in natural resources, with significant oil and mineral reserves, although its mineral sector is largely undeveloped. Oil production is carried out by both government and private companies. The state oil company, which is viewed as inefficient, operates mature oil fields that were developed by private companies in the 1970s. It has assumed the operation of an oil field that was seized from a U.S. oil company when that company's contract was cancelled in 2006 for alleged contract violations, an action that is being challenged in international arbitration. Starting in 2006, the government, through laws and decrees, has sought to change the terms for private sector oil production contracts. In August 2009 the government announced its intention to start service contract negotiations in September with those companies still operating under production-sharing arrangements. Ecuador has signed new temporary contracts with Repsol, Petrobras and Andes Petroleum, to improve state participation. In August 2009, the Ministry of Energy announced that in September Ecuador would start the renegotiation of contracts to establish service contracts. The contractual uncertainty has contributed to a drop in private sector investment in the oil sector. Overall oil production has continued to fall since 2006. Although State oil company production increased by 7% during the first six months of 2009 compared with the same period in 2008, private production declined by 14% resulting in a 3% overall drop in oil production. The World Economic Forum's Global Competitiveness Index rated Ecuador 105th out of 133 countries for 2009.

FOREIGN RELATIONS
Ecuador always has placed great emphasis on multilateral approaches to international problems. Ecuador is a member of the United Nations (and most of its specialized agencies), the Organization of American States (OAS), and many regional groups, including the Rio Group, the Latin American Energy Organization, the Union of South American Nations (UNASUR), and the Community of Andean Nations (CAN). In August 2009, Ecuador assumed the one-year rotational presidency of UNASUR.

Under the Correa administration, Ecuador has increased its efforts to strengthen and diversify its political and economic ties with countries within Latin American, Europe, and Asia. In Latin America, President Correa has traveled to Peru, Chile, Brazil, Argentina, Venezuela, and Cuba, for example, where his government has signed agreements to promote economic cooperation. Similarly, outside the region, Correa has visited Spain, Italy, and France, as well as China, Iran, and Russia, among other countries.

In October 1998, Ecuador and Peru reached a peace agreement to settle their border differences, which had festered since the signing of the 1942 Rio Protocol. This long-running border dispute occasionally erupted into armed hostility along the undemarcated sections, with the last conflict occurring in 1995. The U.S. Government, as one of the four guarantor nations (the others were Argentina, Brazil and Chile), played an important role in bringing the conflict to an end. The peace agreement brokered by the four guarantors in February 1995 led to the cessation of hostilities and a Military Observers Mission to Ecuador-Peru (MOMEP) which monitored the zone. In addition to helping broker the peace accord, the U.S. has been active in demining the former area of conflict and supporting welfare and economic projects in the border area.

The ongoing conflict in Colombia and security along the 450-mile-long northern border are important issues in Ecuador's foreign relations with Colombia. The instability of border areas and frequent encroachments of Colombian guerillas into Ecuadorian territory has led the Ecuadorian army to deploy more troops to the region. Although Ecuadorian officials have stated that Colombian guerrilla activity will not be tolerated on the Ecuadorian side of the border, guerrilla bands have been known to intimidate the local population, demanding extortion payments and practicing vigilante justice. The Correa administration is pursuing a policy known as Plan Ecuador to develop the northern border region and protect citizens from the drug threat. A Colombian military incursion into Ecuador in March 2008 caused the Government of Ecuador to break diplomatic relations. In October 2009, Ecuador and Colombia agreed to re-establish diplomatic relations at the chargé d'affaires level.

U.S.-ECUADORIAN RELATIONS
The United States and Ecuador have mutual interests in combating narcotrafficking and cooperating in fostering Ecuador's economic development and reducing poverty. Ties have been strengthened by the presence of an estimated one million to two million Ecuadorians living in the United States, by 150,000 U.S. citizens visiting Ecuador annually, and by approximately 20,000 U.S. citizens residing in Ecuador. More than 100 U.S. companies are doing business in Ecuador. In February 2009, the Government of Ecuador expelled two U.S. Embassy officials who administered U.S. assistance to specialized police units. A Department of State spokesperson rejected any suggestion of wrongdoing by Embassy staff.

The U.S. launched a Bilateral Dialogue with Ecuador in November 2008, during which cooperation in human development and poverty reduction, economic development, commerce and investment, and migratory issues was discussed. The second plenary meeting is planned for late 2009, and will include a discussion of security-related issues, in addition to continuing initiatives begun in the first plenary meeting.

The United States assists Ecuador's economic development directly through the Agency for International Development (USAID), through multilateral organizations such as the Inter-American Development Bank, and through trade and technology transfers facilitated by the Foreign Commercial Service (FCS). In addition, the U.S. Peace Corps and the State Department's Narcotic Affairs Section operate sizable programs in Ecuador. Total U.S. assistance to Ecuador amounted to over $40 million in 2008.

The United States is Ecuador's principal trading partner. In 2008, Ecuador exported about $8.4 billion in products to the U.S. For over 10 years Ecuador has benefited from duty-free entry for many of its exports under the Andean Trade Preferences Act (ATPA) and received additional trade benefits under the Andean Trade Promotion and Drug Eradication Act (ATPDEA) in 2002. The U.S. Congress approved a number of extensions of those benefits, now set to expire on December 31, 2009. In May 2004 Ecuador entered into negotiations for an Andean free trade agreement with the U.S., Colombia, and Peru, but negotiations between the U.S. and Ecuador have not resumed since the Government of Ecuador announced controversial reforms to hydrocarbons legislation in April 2006. The Correa administration has stated it has no interest in negotiating a free trade agreement with the United States.

The United States exported $3.32 billion in goods to Ecuador in 2008, a slight increase over 2007, which accounts for just over 19% of Ecuador's imports. Ecuador is the 46th-largest market for U.S. exports. Major U.S. exports to Ecuador include machinery, chemicals and fertilizers, computers and electronic equipment, petroleum products, transportation equipment, and paper. The best prospects for U.S. firms are in the plastics, decontamination equipment, franchising, and medical equipment and devices sectors. U.S. firms remain competitive and successful in many sectors of the market.

Although there are problems with money laundering, border controls, and illegal immigration, Ecuador shares U.S. concern over narcotrafficking and the activities of illegal armed groups. The government has maintained Ecuador virtually free of coca production since the mid-1980s, and is working to combat money laundering and the transshipment of drugs and chemicals essential to the processing of cocaine (with U.S. support). Ecuador also gives priority to combating child labor and trafficking in persons.

Ecuador and the U.S. agreed in 1999 to a 10-year arrangement whereby U.S. military surveillance aircraft could use the airbase at Manta, Ecuador, as a Forward Operating Location (FOL) to detect drug trafficking flights through the region. The Ecuadorian Government informed the United States in July 2008 that it will not renew the lease for the Forward Operating Location when it expires in November 2009. The U.S. ceased these counternarcotics flights in July and fully departed the FOL in September 2009.

Ecuador claims a 320-kilometer-wide (200-mi.) territorial sea. The United States, in contrast, claims a 12-mile boundary and jurisdiction for the management of coastal fisheries up to 320 kilometers (200 mi.) from its coast, but excludes highly migratory species. Although successive Ecuadorian governments have declared a willingness to explore possible solutions to this issue, the U.S. and Ecuador have yet to resolve fundamental differences concerning the recognition of territorial waters.

Principal U.S. Embassy Officials
Ambassador--Heather Hodges
Deputy Chief of Mission--Andrew Chritton
Political Counselor--Nan Fife
Economic Counselor--Christopher Landberg
Consul General-- Jennifer Savage
Commercial Attaché--Eric Olson
Management Counselor--Melissa Garza
Public Affairs Counselor--Wes Carrington
Regional Security Officer--Fernando Matus
USAID Director, Acting—Daniel Sanchez-Bustamante
Narcotics Affairs Section Director--Drew Schufletowski

Guayaquil Consulate
Consul General--Francisco Fernandez
Chief, Consular Section--Phillip Linderman

U.S. Embassy
Avigiras E12-170 y Eloy Alfaro
Quito, Ecuador
(tel. (593)(2) 398-5000)
The mailing address is DPO AA 34039

U.S. Consulate
9 de Octubre and Garcia Moreno
Guayaquil, Ecuador
(tel. (593)(4) 232-3570)

Consular Agent for the Galapagos
Puerto Ayora
(tel. (593) (5) 526-330 or (593) (5) 526-296)

Other Contact Information
U.S. Department of State
2201 C Street, NW
Washington, DC 20520
Main Switchboard: (202)-647-4000 (http://www.state.gov)

U.S. Department of Commerce, Trade Information Center, International Trade Administration
1401 Constitution Avenue
Washington, DC 20230
(tel: 800-USA-TRADE, Internet: http://trade.gov)

Ecuadorian-American Chamber of Commerce--Quito
Edificio Multicentro, 4 Piso
La Nina y Avenida 6 de Diciembre
Quito, Ecuador
Tel: (593) (2) 250-7450
Fax: (593) (2) 250-4571
E-mail: info@ecamcham.com
Website: www.ecamcham.com/default_en.htm
(Branches: Ambato, Cuenca and Manta)

Ecuadorian-American Chamber of Commerce--Guayaquil
Av. Francisco de Orellanda y Alberto Borges
Edificio Centrum, Piso 6, Oficina 5
Tel: 593-(4)-269-3470 or 593-4-269-3471
Fax: 593-(4)-269-3465
Email: infocenter@amchamecuador.org
Website: www.amchamecuador.org



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