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Last Updated: Wednesday, 21 January 2004, 17:19 GMT
Ecuador's economic hopes

By Elliot Gotkine
BBC News South America correspondent in Ecuador

Ecuador's capital Quito lies high in the Andes

Four years ago a popular revolt ejected Ecuador's president, Jamil Mahuad. He had presided over his country's worst recession in 100 years, defaulting on the country's debts and adopting the US dollar as the national currency. But have things improved since then?

About two hours drive south of Quito, nestled in the heart of the Ecuadorean Andes, lies the bustling market town of Latacunga.

In the main square, hundreds of people - mostly traditionally-dressed women, complete with bright-coloured ponchos and felt bowler hats -- are selling every kind of fruit, vegetable and root imaginable, from prickly pears to papayas to potatoes.

Men, hunched forward under the weight of scores of bunches of ripening bananas, charge through the open-air aisles to deliver their load, while teenagers wander around the market wearing long necklaces of yellow-green lemons, which they offer for sale.

But the people who work in this chaotic, though colourful, centre of commerce are deeply disappointed.

Just over a year ago, they voted for the army colonel and former coup-plotter, Lucio Gutierrez, to be Ecuador's next President.

Economic woes

In his election campaign, Mr Gutierrez promised to increase social spending, create jobs and reduce poverty. But when he moved into the Government Palace, reality dawned.

Protests are growing against IMF policies
"When I came to power, I found a deep economic crisis, arrears of more than $700m," said Mr Gutierrez, in an interview with the BBC.

"And I had to pay them straight away, because most were salaries, to teachers, doctors, universities, municipalities, prefectures, to the armed forces and the police, and I couldn't wait for more time. So I had to change strategy, temporarily."

IMF deal

Foreign investors were still shunning Ecuador, following its debt default in 1999.

Nina Pacari: Better IMF deal needed
Nina Pacari: Better IMF deal needed
And because US dollars are the national currency, printing money was out of the question.

"There was no other better option than to reach an agreement with the IMF," explained President Gutierrez in his state of the nation address, on January 15.

Mr Gutierrez's former foreign minister, Nina Pacari, from the Pachakutik party, the political arm of Ecuador's main indigenous movement, doesn't disagree.

But, she says, he could have done more to pressure the IMF to agree to a deal which would have been more beneficial for Ecuador.


As part of the IMF agreement, petrol prices were increased and private firms were invited to help manage the state-owned electricity and telecoms companies.

The economy has now stabilised and is estimated to have grown some 3% in 2003. If you believe the President, it should grow by about 6% in 2004.

Yet such healthy macroeconomic figures mask serious problems in the micro-economy, where jobs are hard to find, the cost of living is high and obtaining credit is often prohibitively expensive.

The President's inability so far to tackle these problems - along with his deal with the IMF, and his closeness to US President George Bush - means the indigenous and left-wing groups which initially backed him now view Mr Gutierrez's as a traitor.


"We're not happy because the president hasn't delivered on what he promised," complains one Latacunga lady as she fills a customer's plastic bag with a dozen red onions. "Here people are dying of hunger."

"He helped get the last president out," says another. "Now it's his turn," a reference to Mr Gutierrez's role in leading the uprising which toppled former president Jamil Mahuad, four years ago.

Few analysts believe a repeat of the coup of 21 January 2000 is on the cards. Even so, President Gutierrez knows there is much to be done.

Spending squeeze

With interest rates of around 20% and credit tight, persuading potential foreign investors - and, indeed, local ones - to invest in Ecuador is a tall order.

And the less investment there is, the harder it is for local businesses to become more competitive and create jobs.

It also means less money for the government, which spends around 40% of its budget on debt repayments, and even more on public sector wages, leaving the President with few extra funds to help the poor.

Oil exports down

Oil, a vital sector which accounts for almost one third of Ecuador's exports, also presents a mixed picture.

A lack of investment in the state oil sector has meant that state oil production actually fell in 2003, from 221,000 barrels per day to 204,000, despite buoyant oil prices.

But overall production rose by more than 7%, and, partly thanks to the opening of a new oil pipeline, production is expected to rise by as much as one-fifth in 2004.

Free trade deal

President Gutierrez's other great hope, it seems, is a free trade deal with the United States, which Ecuador hopes to conclude later this year.

Cesar Frixone, president of the Pichincha Chamber of Small Industry reckons an agreement could do much to boost Ecuadorean exports, especially products like tuna and flowers.

He hopes US companies, in turn, will invest in Ecuador, particularly in the country's banks. This, he says, would increase competition in the sector and help bring interest rates down.

As for Mr Gutierrez himself, he's convinced a free trade deal has the potential to transform his tiny country.

"What we produce in Ecuador in one year, in the US they can consume in one week," he beams.

All he has to do now is to convince Americans that "made in Ecuador" means quality, and to convince his people that any deal will be helpful and not harmful.

With opposition marches against the deal already taking place, Mr Gutierrez knows it won't be easy.

The BBC's Elliott Gotkine
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