Country Report Ecuador December 2008

Outlook for 2009-10

• After the overwhelming popular ratification of the new constitution, MrCorrea will continue to enact policies to bolster his popularity in the run-up to fresh general elections set to take place in April 2009.
• Given that the opposition remains divided and unpopular and a viable presidential challenger has yet to emerge, we expect that MrCorrea and his AP party will win the elections in 2009.
• Ecuador's preferential trade access to the US under the ATPDEA was renewed for another year, but will face a review in June 2009. The lack of a long-term trade agreement with the US will continue to hinder capital investments.
• State intervention in the economy is a key aspect of the new constitution and will increase during the outlook period, particularly in strategic? areas, such as energy, banking and telecommunications.
• Given that lower oil prices will increase fiscal constraints and the government has claimed that much of its foreign debt is illegitimate, there remains a significant risk (we estimate 40%) of a default in the outlook period.
• The pace of GDP growth will be restrained in the outlook period (1.6% in 2009 and 1.8% in 2010) as the US recession takes its toll on exports.
• On the benign assumption that supply-side pressures ease in 2009, inflation is forecast to fall to an average of 5.1% in 2009-10.
• A decline in remittances and lower oil export revenue mean that the current account (which we estimate will post a surplus of 3.3% of GDP in 2008) will fall into deficit (3% and 1.8% of GDP in 2009 and 2010 respectively).

Monthly review

• The suspension of interest payments on 2012 global bonds in November combined with a report from the debt audit commission that labelled US$3.9bn of Ecuador's foreign debt "illegitimate" has raised fears of a default.
• Tensions continue with Brazil as Ecuador has threatened not to pay a US$242bn loan to the Brazilian development bank, BNDES. Brazil's foreign minister is reviewing trade co-operation with Ecuador.
• Fresh general elections have been set for April 26th 2009.
• The government has responded to the global financial crisis, announcing measures designed to safeguard the economy, including raising import tariffs (on 940 consumption goods) and capital outflow tax (from 0.5% to 1%).
• Third-quarter trade results show that export earnings, although up 52% year on year, are beginning to fall (they were down 17.6% in September compared to August), whereas the import bill is still on the rise.

Source: Country Report

This report covers the following industry codes:
SIC Code: 1;10;60
NAICS Code: 11;212;52