Ecuador's economy is showing signs of distress. Enough distress
to cause two of Ecuador's top financial officials to resign. In
late March, Ecuador's central bank allow the sucre, the national
currency of Ecuador, to be devalued by 6%. The devaluation added
to the decline in the sucre which has lost 21% of its value since
the end of 1996. Foreign reserves have been shrinking, which may
put added pressure on the sucre.
Ecuador's devaluation was brought on by a multitude of problems.
The country's budget deficit is estimated to be about 2% of its
1997 gross domestic product (GDP) and is projected to almost double
in 1998. The projected increase in the budget deficit follows the
Congress of Ecuador's recent veto of an increase in the value-added
tax, its delay in privatizing the state's assets, and its reluctance
to curtail spending.
Total foreign debt is a significant problem. Foreign debt is 73%
of GDP and Ecuador has a substantial dollar-denominated debt load.
Servicing foreign debt will be more costly now that the sucre has
been devalued. Added economic problems result from decreased oil
prices, a drop in banana and shrimp production, and reduced demand
for Ecuador's exports.
Ecuador's economic problems have caused analysts to decrease their
estimate of economic growth. Ecuador's economy grew 3.3% last year.
Growth had been projected to be 3.4%, but that estimate has been
lowered to 2.5%. (Updated May 19, 1998)