Country Report Ecuador June 2008

Outlook for 2008-09

• Provided that Mr Correa’s approval ratings remain high, it will be difficult for the now-suspended Congress to harness sufficient public support to unseat the president, as it has done several times in the past decade.
• Mr Correa’s anti-American rhetoric and close friendship with Venezuela’s president, Hugo Chavez, will sustain tensions in the relationship with the US, Ecuador’s main trading partner.
• State intervention in the economy will increase further during the outlook period, particularly in “strategic” areas, such as energy, banking and telecommunications.
• If, as we assume, oil prices remain high, the government will have the resources to increase social spending without jeopardising scheduled repayments, but a sharp decline in prices could prompt a debt default.
• Averaging little more than 2% per year, the pace of GDP growth will remain unspectacular compared with that of other net oil exporters in the region.
• We expect inflation to remain above the official (and revised) rate of 5% in 2008, mainly on the back of stronger supply-side pressures.
• Even given stagnant oil production and strong import demand, high oil prices are likely to keep the current account in surplus.

Monthly review

• The constitutional assembly has extended its deadline to complete the new constitution from the end of May until July.
• A recent poll has found that only 41% of Ecuadorians would approve the new constitution. This raises the possibility of a government defeat in a referendum later this year.
• The constituent assembly has approved a decree that will end around 80% of Ecuadorian mining concessions without economic compensation. Some mining companies have already dismissed many of their employees.
• The assembly voted to eliminate outsourcing, labour intermediation and hourly hiring. Current outsourcing labour contracts will be terminated and hiring companies will be required to put these employees onto their payroll.
• Annual inflation reached 8.2% in April, mainly on the back of rising food prices.
• Average oil production rose marginally in the first quarter of 2008, reflecting improved management at bloc 15, which saw output rise by 11% year on year.

Source: Country Report