Country Report Ecuador October 2009

Summary

Governing will become more difficult for Mr Correa in the outlook period as public dissatisfaction and social unrest increases owing to weak economic growth and persistent allegations of corruption and nepotism.
Mr Correa's AP will have to seek alliances with small far-left parties after it lost its majority in the national assembly. This will lead to a further radicalisation of policy, raising tensions with opposition groups.
Even in the face of opposition, state intervention in the economy, as enshrined in the new constitution, will increase, particularly in "strategic areas", such as energy, mining, banking, healthcare and telecommunications.
An unfriendly policy environment, weak property rights, poor relations with the US and complex bureaucracy will continue to hinder private investment
The government will continue to face fiscal deficits in the outlook period, increasing the risks of a full-blown payments crisis and the collapse of dollarisation.
Improving global conditions will cause GDP to grow by 2.3% in 2010 before slowing to 1.8% in 2011 as momentum in the US weakens, affecting exports and reducing remittances flows.
The current-account deficit will decrease slightly in 2010, largely owing to an increase in oil export earnings on the back of higher oil prices.

The level of Mr Correa's popularity dropped below 50% in September for the first time in his tenure, following protests from indigenous and teacher groups and a political scandal involving members of his party.
Ecuador and Colombia have taken steps to restore diplomatic ties between the two countries, following a dispute in the wake of a Colombian raid on a FARC camp in Ecuador.
The National Assembly finally approved the monetary regime law which formally places the Central Bank under the control of the executive. The BCE had de facto lost its independence after Mr Correa took office in 2007.
The government has put forward new regulations for private oil companies in an effort to increase state control. Private firms will need to form mixed-capital ventures with the state and can now operate only as service providers.
Oil production fell by 2.7% year on year in July, in spite of higher production from the state owned company, Petroecuador.