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Essay Samples > Economics > Ecuador
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Ecuador

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Introduction

Ecuador has an area of 276,840 sq. km which is about the size of Colorado State. Its capital city is Quito which has a population of over two million people. It terrain is jungle like and has a rich agricultural coast plain which is at the west of Andes. It also has elevated valleys, mountainous areas and a volcano island archipelago in the pacific. The country has varied climate, where it is hot and humid in the coastal parts and mild in the mountainous regions.

The annual growth rate of the Ecuador economy is approximately 4.75 %. The main stay of its economy is agricultural products and petroleum and other natural resources like minerals. Mining and oil products contributed 26.8% to the country's GDP while commercial activities and others contributed 11.7 % and 19% respectively. Agriculture contributed around 6.3 % to the country's GDP in 2008.

Exports were around $13.8 billion in 2009 where bananas, shrimp, coffee, wood, petroleum, canned fish and cocoa were exported to the European union, Andean community, Latin America and Asia. On the other hand, imports were estimated at $14.1 billion which mostly were industrial products, fuels, lubricants and non durable goods. These were mostly from the European Union, Asia and the Latin American countries.

Why it fits in the international market

The Ecuador's nation fits into the international trade since it has established trade partners, for example, the US, Columbia, Japan, European Union and Chile. This is evidenced by the total 30% imports from United States and 40% exports to United States. This makes US to be their prime import and export partner. Countries like Japan, Mexico, Spain, and others supplied more than 40% of their goods to Ecuador and likewise; they were the export market of more than 40% of the country's' exports. This gives Ecuador the strength of participating in the international trade due to the fact that its major partners are controlling the global economy.

Another reason is that Ecuador is an active member in global trade organization and regional trade zones. Its activeness gives a highlight that the country works towards trade liberalization and open trade. Ecuador is a member of Latin America Integration Association, the World Trade organization and the Andean Community. This country has negotiated with various countries on trade agreement, and it has accomplished bilateral trade agreement with a number of countries for instance, Chile, Bolivia, Venezuela and Colombia. This country also supports the commencement of free trade areas to pave the way for trade and business activities. These ventures enable them to participate in the international market since they can access import and export information. (Houghton 1968)

The application of free market principals, participation in several international trade organizations, lowering of barriers and its strong commitment in economic diversity and financial institutions reforms, are aiding to restore a balanced trade terms and the betterment of its economy. These explain why the country fits to engage itself in the international trade since it works harder to improve its economy despite the challenges it faces. This is seconded by the fact that the country was rated 105th out of the 133 countries by the World Economic forum because of its competitiveness. The global competitiveness enables Ecuador to participate in the international market since its economic policies are continually being revised to suit trade.

The economy of the country is solely based on petroleum products, commerce, agricultural produce and manufacturing. The major exports of Ecuador are shrimp, cut flowers, petroleum and other agricultural products. Refined and crude petroleum products in 2009 accounted for over 51% of the total earnings on exports. This proofs that Ecuador fits to compete with other countries in the international market due to the petroleum products it produce for export.

On the other hand, Ecuador is the largest banana and a major exporter of shrimp in the world. This enables to earn a lot of forex since it exports these products to many countries. Also, Ecuador economy has been characterized by the importation of capital goods and an export of primary products. The import and exportation of products has made the country's economy thrive and remain stable. This shows that the country poses competition in the global market which is dominated by the developed countries.

The Ecuador natural resources also aid it to participate in the global market despite its slowness in harnessing the resources. It has many mineral reserves and oil fields, although both are being developed slowly due to lack of technological capital. The exportation of oil products accounts for over 25% of the country's GDP.

The adoption of dollar as the national currency has put Ecuador at a strategic point in the globe economy. This is due to the fact that the dollar is stronger as compared to other forms of currencies. This was done so as a result of banking crisis and recession that rocked the economy in 1999. This in turn, led to economic stability since oil prices went high, increased non traditional exports, high consumer demand and high remittance made by those living a way from the country. Dollarization of the currency has, therefore, made Ecuador fit in the global market.

Dollarization changed the trends of trade between Ecuador and Colombia as well as border dynamics between the two. This also was cost by economic shock and political instability. Economic shocks were characterized by the el-Niño rains which caused a lot floods which also resulted to huge agricultural losses and damages to the infrastructure.

In addition, there were decreased oil prices in the world meaning the Ecuador oil revenues also went down. This also caused high inflation rates which were rising by thirty percent each month while its national currency suffered a lot in terms of value. Dollarization was, therefore, seen as a remedy for the short term problems and long term solution for the unstable country's economy. This was also meant to shift the population's focus on politics to economic matters.

Dollarization led to poverty in most parts of the country since it made the country less competitive as compared to Colombia. It also experienced massive unemployment due to high costs of manufacturing and production also the change it posed on the tourism. Dollarization brought in less as compared to the sucres currency inspite of high inflation. This, therefore, led to Ecuadorians to migrate to Colombia and Spain. This coincided with the plan Colombia and thus the effects of the dollar had a vital impact on the border zone, this caused the country's border residents to be more vulnerable to cocoa production, which was across, the border. (Walcott 2008)

Moreover, Ecuador is fit to engage in international trade since it places emphasis on multilateral methods of solving international problems. This reason gives it a greater advantage as compared to other countries, which do not, employ the same. It is through the presidential efforts that the country strengthened its ties with the international bodies both economically and politically. These have facilitated trade and other economic activities and this, in turn, has enabled to participate in the global trade.

The strong relations that exist between the US and the Ecuador republic have fostered trade since American companies operate in the country while many Ecuadorians live in the US. This enhances trade as well as economic development and poverty reduction. In November 2008, a Bilateral Dialogue was launched by the US during which poverty reduction and human development, commerce, investment and economic development issues were discussed. This gave Ecuadorian room for business activities.

Why it should participate in world trade

The Ecuador country has had financial crisis as well as an economic downturn. These have led decreased remittance and reduced oil revenue. This ,therefore, places Ecuador at a point which it no longer participate in the international market since it has a lot of debts that need to be repaid. For instance, in 2008 December the Ecuadorian government failed to pay a debt of about $3.2 billion and later on purchased 91 percent of the bonds at 70 percent discount in an auction modified by the Dutch. The widening deficit in trade made the government restrict an importation of consumer products. This deficit, therefore, makes the country not fit for international markets since the international trade needs consistency.

This invoked the world trade organization balance of payment to safeguard the provisions made in trade. Rather than this, government came up with a schedule that would enable them gradually do away with the measures that were imposed. In addition, the Ecuadorian government applied safeguards on goods imported from Colombia as they claimed that the Colombian currency devalued reduced its competitiveness in the global market. These small issues depict that the developing country to some extent do not fit to engage in the international market even though it trys to curb the deficits. This is evidenced by the elimination of safeguards in 2010 in complying with the Andean community secretariat of August 2009. Although prices of oil products rebounded, the economic growth reduced as a result of decreased internal demand that emerged from the global financial crisis and decreased domestic investments made during the period.

The country is also not fit to participate in the international trade because of the budget deficits it faces. The country is also limited to international finance due to its failure to pay debts, and as such the Ecuador government is trying to curb the gap by seeking loans from global organizations, reserves from the central bank and from the Ecuador's Social security institute. All these were aimed at injecting capital into the public banks to increase the availability of credit to the population so as to stimulate economic growth. However, the decline in investment and the governments' constrains in obtaining funds are still expected to hinder economic growth in Ecuador.

Ecuador do not fit to participate in the international trade since it's a hub for money laundering and a transit economy for coca which is an illicit drug. These incidents should be taken into consideration before this country is allowed to join the world trade because of these threats. The continuous cases of insecurity may deter it from engaging itself in trade since it spends its resources in providing security and stopping political violence that erupt any how.

It was in 1999, was Jamil Mahuad signed a deal with the US to rent their Military Airbase that was found in the Manta port so as to conduct its missions. These missions involved war against drug trafficking under plan Colombia. This occurred due to worsened economic and political conditions. This therefore, shows that Ecuador is not fit to engage in international trade unless its conditions are made stable or reversed.

Joining of regional bodies

The Ecuador republic is a member of the united nation which has played a key role in ensuring that there is stability in the country. In Ecuador, the untied nations have established connections with members of the civil society and the political actors. This was proofed by interviews with politicians, academia and those of the civil society who made it clear that the stability of the human resources in the UNCT gave confidence in UN as a prime source of support in Ecuador.

However, UN's most vital preventives have been centered in the northern border where there are fights. UN also provides technical support on matters pertaining to governance and strengthening on procedures of democracy. This is evidenced by the support it offered when there were confrontations between diverse branches of the government.

UNHCR and other humanitarian agencies are based in the northern part of the country where most of the Colombian immigrants enter the country. Being a member of the United Nations, the refugees in the country are helped since there are health and environmental consequences associated with fumigation in the adjacent Colombian border. This is heightened by the fact that there is large scale manufacturing of cocaine which is a prohibited drug. This was also enhanced by loss of cross border employment and traffic.

Regional bodies have helped Ecuador in solving problems pertaining to pressure from Colombia. Ecuador suffers a lot when it comes to matters of drug trafficking, violence, kidnapping and forced migration due to environmental impacts resulting from coca sprays in Colombia. The US government has intervened by investigating and curbing drug trafficking in the Ecuadorian borders. This has also been facilitated by the acts of the Colombian army who in surges the Ecuadorian airspace and its territory. The refugees from Colombia have exerted pressure on Ecuadorian infrastructure and the economy as it strains to provide accommodation for them. This has, therefore, led the international bodies' intervention in aiding the refugees.

Thus, it was important for Ecuador to join these international bodies for it to receive support in times of crisis. UNDP and DPA in 2003 implemented a joint programme that was on building national capacities and prevention conflicts so as to support initiatives for early detections and other ways of preventing conflicts along the country's border. This was after the UN secretary General visited the place and the Ecuador government made a request for inter- agency mission from the UN so that situations on the ground could be assessed. A report also could be prepared to show the challenges and the priority areas that needed immediate action.

The UN offices coordinate its undertakings in the border zones by the Peace & Development Program in the northern area. This program is an inspiring effort of the UN that focus on strengthening interagency coordination on matters pertaining to conflict, strategic public policy and key national capacities. This is exemplified by the thirty different projects it undertakes and the work of coordinating fourteen agencies involved. The coordination of these agencies resulted in noticeable changes in the country's programmatic mechanisms which in turn changed the lives of its residents. This therefore, shows the importance of Ecuador joining a regional body because without the regional bodies, aid could not be easily available as may be though.

The Ecuadorian government followed the recommendation made by UN when they were designing their own plan since the body advised them in their negotiation on bi national development with the Colombian government. This was through the development of projects that could promote and keep bilateral integration along their common boundaries.

On the other hand the UN contributed a lot in governance issues and political stability which has had an effect to Ecuador country. The United Nations centers on the provision of technical aid on matters of the constitution and reforms but, while these have gained resonance in the governance programs designed, there has been a constant change of ministers and other high profile officials which has in turn slowed programmatic development.

Joining the regional bodies has helped in resettling disputes along the border of Ecuador and Peru. This dispute erupted due to undemarcated boundaries and as such US government together with others assisted the two countries in resolving the matter. The peace agreement of 1995 led to military observers' mission to the boundary of the two countries and cessation of hostilities in this place. In addition to this, the US government has been actively involved in demining the conflict zone. The on going war along the border has been of significance in Ecuador foreign relations.

Regional trade blocks are seen as a way of underpinning alliances and cooperation in fields not only trade. This is due to the fact that regional bodies boosts a country's, purchasing power and locks in reforms in policy making. According to O' Brien, the growth of regional bodies and the deepening of trade agreement are  evidences of emerging networks at regions level which can be or can not contribute to a landscape of global governance that international bodies seeks to commence. (O' Brien 2000)

Thus, Ecuador joined these regional bodies so as to enjoy the above benefits that result from co operations and alliances. This has impacted on its economy positively and negatively. In addition, regionalism has affected how the international standards and norms are applied. It also raises vital questions concerning the relationship of Ecuador to the international system as well its role in the regional level.

Ecuador as a member of ATPDEA enjoys the fact that the association gives it a duty free access for a particular commodity that is exported to the United States. The underlying reason is that the goal of the regional body is to provide incentives for the participating economies so that they can diversify their products.

The history

Ecuador is considered a third country since it is characterized by poverty, economic dependence and high birth rates. It is exploited by the developed nations since the term third world or underdeveloped country means an exploited nation. The term third world was coined by Alfred Sauvy who was a French demographer by using the expression 'tiers monde' a French word meaning a third estate. This third estate was inhabited by the French commoners who were exploited and their destiny was revolutionary. This depicts that Ecuador neither belongs to the industrialist capitalist nations nor to the industrialist communist's countries.

The Ecuadorian economy is highly dependent on the developed economies since it relies on primary products and provides market for manufactured goods from the developed nations. The country is also characterized by rampant poverty, rapid population growth and traditional rural structures. The under development of this country was brought about by the westerners domination in the international market.

This came up as a result of west countries setting up sub economies in the third world countries linked to the west, and the establishment of the modern institution and commencement of the industrial capitalism which disrupted the traditional economy of Ecuador. These in turn led to under development and as such it explains the history of Ecuadorians' economy.

The economy of Ecuador comprises a few mining activities since its economy is geared towards the needs of the developed nations. For instance, oil extraction has largely been dominated by the foreigners. On the other hand, the oil prices are determined by the developed countries. This means that the Ecuadorian economy is determined by other nations since its economy relies on the income from these nations.

The historical events of Ecuador still explain why it is a developing country. It joined Simon Bolivar nation after the independence forces defeated the royalist in 18822 and they become an independent state in later in 1830. In 19th century, Ecuador was marked by political instability and rapid succession of rulers. It was only through the efforts of Gabriel Garcia Moreno with the aid of the Catholic Church that the country was unified.

This was in 1860 where the same was facilitated by the increased demand for cocoa in the global market that made the people migrate to the highlands to grow the crop. The Ecuador history explains why the country is still lacking behind because of unrest and civil wars along its borders. These are detrimental to development and any other progressive activities that can be undertaken.

President Eloy Alfaro coastal based liberal revolution decreased the clergy powers which show the commencement of capitalism. This also led to the end of cocoa boom and a renewed instability on the political landscape. It also led to military coups in the year 1925. In the year 1930- 1940s the country was dominated by popular politicians such as Jose a five time president while in 1942, it signed an agreement with Peru due war on the common border so as to end the same. This history decreased the country's capacity in economic development due to frequent changes witnessed.

It was only after the Second World War the cocoa production was restored as well as the banana growing. This helped in bringing prosperity and peace to the nation. The Ecuadorian also claimed the Amazon region as theirs while in 1948-1960, Ecuadorians elected three presidents freely beginning with Galo Plaza but, turbulence erupted again in 1960s which was later preceded by the military dictatorship that lasted from 1972 to 1979. Democracy began in late 1980s and the beginning of 1990, but political instability ceased in the middle of 1990s. These historical events impacted on the country's economy negatively since instability disrupts progresses that had been made earlier.

Since 1981, women's organizations have emerged to address economic issues, political and cultural issues that have been hindering factors in development. it was also detrimental to their survival. According to Machand, Women's organizations that had a legal status were more than eighty while those without were more than 800. In 1992, women's organizations in the neighbor organized and participated in protests in Quito. This was against the Citibank which was intending to freeze $80 million from the country's central bank. (Machand 2000)

The participation of women in the protest was a great response to financial crisis in Ecuador. This showed that the country was relying on foreign aid from the untied States and thus, it posed challenges to country's development trends. Women were critical of cultural and economic imperialism that was exerted on their country. They also needed the country's wealth to be redistributed fairly and the state led welfare activities to be socialized. The underdevelopment of the country therefore, shows its current history where women have to struggle for their families to thrive due to the difficulties they are experiencing.

On the other hand, neo-liberalization was embedded in the country's economy in 1990s.  The government concentrated its efforts on shifting its economic policies starting from import substation that was protectionist to flirtation, then to neoliberalism then to free market economy. This shows that the country's economy has not been stable and as such it has continued to be categorized as a developing nation. This was affected by political instability and economic recession that made Ecuador unable to pay its foreign debts.

In Ecuador, oil boom was the backbone of the state led discourse on industrialization, modernity and development even though; the outcomes were not equally distributed. Oil production was also seen as an opportunity for modernization, a way to escape poverty and under development and a way of building a dynamic and industrialized economy.

Neoliberal policies are geared towards liberalization of the economy such that production can be increased for export commodities, greater investments can be witnessed in the economy and opportunities for imports for the overseas industries. All these according to the advocates of liberalization are meant to boost the economy by stirring competition, making prices to lower than the previous years, and thus making goods available to   consumers at affordable prices. The bilateral and multilateral free trade agreements that were made in the 1990s forms the major hallmarks of neo-liberalism since there no trade barriers. Thus, this calls for frequent trade agreement between Ecuador and other countries.

However, those engaged in oil exploitation are the ones benefitting and not the indigenous inhabitants of Ecuador. The revenue collected in 1970 were in expanding the infrastructure, subsides and providing social services. According to Renata 2009, it was also during this period that the government imposed high taxes on the imports so as to cushion the local business while some of the revenues collected were channeled to the state owned industries. (Renata 2009)

Gerlach also stated that environmental destruction and socio-cultural disruption were mainly as a result of intense exploitation of oil which was concentrated in the territory of the indigenous people. This is evidenced by more than thirty spills which occurred when Texco Company began its operations in Ecuadorians Amazon. These incidents depict that indigenous communities were separated and as such created social segregation and disruption.

The signing of the deal created a perfect condition for militarization of the Ecuador- Colombia border meaning the US concentrates its economic and political power in the Latin American countries. This shows that the Latin American countries still rely on support from this superpower nation as well as depicting its unfitness in the international trade. Most of the Ecuadorians show the deal also as the start of a downward engagement of their country in a problem that was not part of them.

The president made his own decision without involving the congress rent the port out in favor of economic prosperity. This shows that there was poor management of the state owned resource during Jamil regime.  This led to demands that the president should resign; this exercise was led by the opposition leaders like Cocaine and various organizations. This included the farmers and Indian organizations as well as labor unions, students and constituents from all parts of the country.

When this president was overthrown by Lucio Gutiérrez a nation of unity was their slogan. These military personnel left the army and joined the opposition and were later elected to be the president since he had gained popularity among the indigenous population despite the fact that he overthrew another person. These radical changes in the political arena of Ecuador prove that the country can not implement and keep up to the standards imposed by regional and international bodies. Thus, Ecuador is not fit to participate in the international market and trade. These historic events are also not enough to explain Ecuador's under development since it gained independence.

Conclusion

In conclusion, Ecuador is a developing country which relies mostly on the developed economies for support. It also exports primary products and crude oil to this developed nation but, the prices for their commodities are determined by the developed nations who are dominating the global market. On the other hand, the historical events that have happened in Ecuador show that the country is not stable in terms of politics and economically. This depicts that Ecuador has wasted its time and resources in restructuring and reforms in governance issues as well as granting its residents security.

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