Country Report Ecuador March 2009

Outlook for 2009-10

• MrCorrea will continue to enact policies designed to bolster his popularity in the run-up to general elections in April 2009, which we expect him to win, but severe economic deterioration could threaten his hold on power.
• The opposition remains divided and unpopular and will not be able to gain many seats outside its bastion of support in Guayaquil.
• Ecuador's preferential trade access to the US under the ATPDEA faces another review in June 2009. The lack of a long-term trade agreement with the US, along with other policy uncertainties, will continue to hinder investment.
• 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.
• The debt default will make it difficult to attract the funds needed to finance government spending in the outlook period. This, combined with lower dollar inflows from oil, increases the risk of the collapse of dollarisation.
• The economy, which has become increasingly reliant on oil-backed government spending, will weaken sharply, contracting by 3.5% in 2009, before growing by just 1.9% in 2010, driven by a partial recovery in oil exports.
• Inflation will ease in 2009 owing to base effects and declining demand. However, unorthodox economic policies present risks to our forecast.
• A sharp decline in oil export revenue and workers' remittances means that the current-account deficit will widen to 5.9% (we previously forecast 4%) of GDP in 2009 before easing to 4.5% of GDP in 2010.

Monthly review

• A former interior ministry official and regional leader of Mr Correa's AlianzaPais party has admitted to having contact with Colombia's FARC rebels and has been charged as a suspect in a drug-smuggling operation.
• Relations with the US cooled markedly during February as Mr Correa expelled two US diplomats involved in a counter-narcotics programme for allegedly meddling in internal affairs.
• Hutchinson Port Holdings (Hong Kong) has threatened to withdraw from the Manta port project, accusing the government of altering their original contract.
• Although total export earnings grew by 29.1% to reach US$18.5bn in 2008, earnings fell sharply in the final quarter, by 25% over the year-earlier period.
• Rising unemployment in the US and EU is having a direct effect on the Ecuadorean economy through falling remittances, which showed a marked decline in the fourth quarter, falling by 22% year-on-year.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;47
NAICS Code: 52;48