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COUNTRY BRIEFS


INTRODUCTION

Australia and Ecuador share modest and friendly relations. Australia cooperates with Ecuador in a number of multilateral and regional forums, including the Forum for East Asia Latin America Cooperation (FEALAC). Ecuador hosted the fifth International Meeting to discuss the establishment of a South. Pacific Regional Fisheries Management Organisation(RFMO), an initiative led by Australia, New Zealand and Chile. The former Australian Government also contributed to an Organization of American State (OAS) fund which assisted Ecuador, and a number of other countries in the Americas, to destroy its stockpile of anti-personnel landmines in 2001-02.

Australia's Embassy in Santiago de Chile is responsible for Ecuador. Ecuador maintains an Embassy in Canberra.

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POLITICAL OVERVIEW

Background

Ecuador gained independence from Spain in 1822, joining the Federation of Gran Colombia with Venezuela, Colombia and Panama. In 1830 Ecuador left to become an independent country. Political rivalry between the coast and mountains, which emerged soon after independence, has become one of the country's defining political characteristic. Landowners from the mountain region combined with the Catholic Church to create a strong political alliance, opposed by the rapidly growing banking and agricultural (particularly cocoa) interests of the coast.

Ecuador's twentieth century political history is marked by instability. The collapse of the global cocoa market in the 1920s and the Great Depression of the 1930s created a period of political turmoil lasting until 1948, in which no single government completed a term in office. From 1948 to 1960 political order was restored as the economy improved with the benefit of the growing export of bananas. Instability again became a feature of Ecuadorian political life in the early 1960s, with the influence of the Cuban revolution leading to a series of military, anti-communist governments. The military has traditionally enjoyed a high degree of independence in Ecuador and exerted considerable political control behind the scenes. In 1972 a military government reserved petroleum exploration rights for the state. Modernisation of the state was in part paid for by the influx of petro-dollars during the boom period of the 1970s but also by heavy foreign debt commitments. A constitutional referendum in 1978 provided the basis for a return to civilian rule the following year.

Ecuador has had ten Presidents in the past 12 years, three of whom were dismissed due to social unrest and public pressure. In April 2005, Alfredo Palacio was sworn in as interim-President, following a vote by Congress to dismiss his predecessor, Luis Guitierrez. New Presidential Elections were held in October 15, 2006 with a run-off on November 26.

Recent political developments

Rafael Correa won the run-off presidential elections on November 26, 2006, defeating his conservative rival and one of Ecuador's richest businessmen, Alvaro Noboa. Correa campaigned on a platform of promoting economic growth and attracting foreign investment to aid poverty reduction, whilst opposing a US-style of neoliberal economic management. Correa promised to restructure the country's external debt and has indicated that he does not support an FTA with the United States, Ecuador's largest source of exports.

Correa's victory highlighted the deep-seated polarisation between the coast and mountains, with Noboa winning support from the coastal business community and Correa canvassing the votes of the country's interior.

Since winning office, Correa's reformist agenda has maintained high levels of popular support amongst Ecuadorians. A key element of this platform was to hold a Constituent Assembly to review Ecuador's Constitution. On 30 September 2007, Correa's leftist Alianza Pais party won a decisive victory in the elections for the Assembly, claiming 74 of its 130 seats.

The Assembly convened on 29 November 2007 and was tasked with drafting a new Constitution. One of its first tasks, however, was to dismiss the unicameral National Congress and transfer its legislative functions to the Assembly, thus removing the legislative block on Correa that had characterised Ecuadorian politics for much of 2007.

Ecuador went to the polls on 28 September 2008 in a national referendum to approve a new constitution. Voters handed Correa an overwhelming victory, with almost 70 per cent agreeing to a new magna carta that increases the powers of the president by allowing for consecutive re election, as well as the power to dissolve the legislature. The new Constitution also gives the state more control over strategic sectors of the economy such as health and education.

Elections for the presidency and the new national assembly took place on 26 April 2009. Correa won the presidency in a single round of voting and has emerged with his power base consolidated and a firm mandate to continue his reform process. In a preliminary official vote count (70 per cent of polling places tallied), Correa had secured 52 per cent of the vote while his nearest rival received 28 per cent.

The result confirms that Correa remains a popular figure in Ecuadorean politics and that the opposition is weak and fragmented. Correa will hold power until 2013 and the new Constitution permits him to be re-elected for a further term should he maintain his popularity over the election cycle.

Relations with neighbours

Ecuador has had strained relations, particularly with Colombia, in recent times. The most serious incident occurred in 2008 when Colombian government forces launched a military attack against FARC guerillas inside Ecuadorian territory and killed Raul Reyes, one of the FARC's leaders. The violation of Ecuadorian sovereignty drew formal protests against Colombia, with the diplomatic freeze attracting the attention of the Permanent Council of the Organisation of American States.

An apology by the Colombian President on 1 March 2008 helped to prevent an escalation of the crisis. Soon after, a public show of goodwill between the presidents of Ecuador and Colombia at a Rio Group summit held in Santo Domingo (4-7 March) suggested a return to more cordial relations. Diplomatic relations at the Chargé d'Affaires level were restored in June 2008 under a deal brokered by former US president, Jimmy Carter.

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ECONOMIC OVERVIEW

At a Glance

The Ecuadorian economy is based on petroleum production, and agricultural production for domestic consumption and export. Principal exports are petroleum, bananas, shrimp, flowers, and other primary agricultural products.. Ecuador's reliance on these products has made it vulnerable to external price variations. Overriding economic difficulties stem from the country's weak financial sector, dependence on short-term capital inflows to finance the current-account deficit, overdependence on oil export receipts for fiscal revenue, tax evasion and wage indexation which obstructs progress in fighting inflation. Trade liberalisation has stimulated the growth of non-traditional exports, but Ecuador remains over dependent on oil and bananas, exposing the economy to external shocks and renewed calls for greater state intervention.

Whilst dollarisation of the Ecuadorian economy in 2000 helped lower inflation, it also exposed underlying uncompetitiveness and highlighted the need for microeconomic and institutional reforms and deficiencies in the business environment. Deepening the process of fiscal reform will also be central to consolidating macroeconomic stability and ensuring that the country can continue to meet its external liabilities.

Policy Directions & Economic Outlook

In terms of trade policy, Ecuador embraced trade liberalisation in 1990 with reforms that eliminated import quotas, permits and subsidies. Ecuador is a founding member of the Andean Community and, since 1996, a member of the WTO. The windfall in oil export revenues placed pressure on the government to spend more on social projects, healthcare and education. Ecuador rejoined the G-20 trade grouping in 2006, in an effort to remain engaged on WTO issues in the wake of the suspension of the Doha round. Ecuador currently enjoys preferential trade access to the United States under the Andean Trade Promotion and Drug Eradication Act, but may face increased competition from Peruvian exports, with the entry into force of the US-Peru Free Trade Agreement.

Trade and Investment

Two-way merchandise trade between Australia and Ecuador is small, yet increasing gradually, and totaled approximately A$25 million in 2007-08 (up from A$15.4 million in 2005-06). Australia's exports to Ecuador were A$12.2 million in 2007-08, and primarily consisted of pharmaceutical products, copper and electrical machinery and parts. Australian imports from Ecuador totalled A$12.7 million in 2007-08, mainly comprised of cocoa, medical instruments, and animal feed.

Export opportunities

Opportunities to strengthen bilateral trade and investment ties exist in the energy and mining sectors. There may also be potential for Australian companies to invest in telecommunications services and equipment, port infrastructure and information technology (though many of these opportunities will depend on the ongoing privatisation process). Cooperation in agribusiness and tourism could also lead to further business opportunities. The educational services sector holds good potential, and is growing, albeit from a low base.

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Last Updated: May 2009

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