WORLD TRADE  
ORGANIZATION  WT/BOP/W/34 
18 June 2010 
 
 (10-3360) 
Committee on Balance-of-Payments Restrictions Original:   English/ 
 Spanish 
 
 
 
CONSULTATIONS WITH ECUADOR 
 
Communication from Ecuador  
 
Questions from the European Union to Ecuador (12 May 2010) 
 
  The following communication, dated 8 June 2010, is being circulated at the request of the 
delegation of Ecuador. 
 
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 WT/BOP/W/34 
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   The EU welcomes the continued transparency that Ecuador's delegation is demonstrating 
vis-à-vis  the BoP Committee.  With a view to contributi ng to a fruitful exchange of views in the next 
meeting of the Committee on 26 May 2010, the EU w ould like to take up on Ecuador's offer for 
sharing information with the Committee, and put forward the questions listed below on which we 
would welcome clarifications by Ecuador. 
 
• Could Ecuador provide inform ation concerning the effects that recent developments 
in terms of oil prices, the economy's liquidity, international reserves, global demand for Ecuador's exports, the trade balance and the exchange rate of the US dollar have 
had on Ecuador's balance-of-payments situation? 
Oil prices and their effects on the trade balance 
 
 Throughout its history, the Ecuadorian economy' s role has been to supply raw materials to 
meet global demand and its dynamism has been marked by a series of cyclical booms in exports of commodities such as cocoa (1866-1925), bananas (1946-1968), and oil (1972 up until now). 
 
 Because of this situation, the performance of  Ecuador's balance-of-payments current account 
has been decisively determined by the trend in th e trade balance, which is highly dependent on oil 
exports.  It is estimated that, for 2010, given the volume of exports of crude oil and its by-products, as 
well as the demand for imported by-products, a decrease of US$1 in the price of Ecuadorian oil would mean a reduction of approximately US$93 million in th e oil trade balance, have a negative impact on 
the current account and place the economy's liquidity at risk. 
 
Effect of a US$1 decrease on the trade balance - 2010 
Exports of crude oil (120.44) 
Exports of by-products (12.50) 
(a) Total exports of cr ude oil and by-products (132.94) 
(b) Imports of by-products (40.01) 
Net effect (a)-(b) (92.92) 
Source : Central Bank of Ecuador. 
 
 Ecuador has recently seen a decline in the invoi ced price of crude oil.  The reduction in the 
crude oil benchmark (WTI) as a result of the market 's apprehension caused by  the European crisis 
(Greece, Spain and Portugal) had an impact on the invoiced price of Oriente and Napo crude.  
Moreover, it appears that larger stocks in the United States and the fears raised by the European crisis 
could put a brake on global growth and the demand for energy. 
  During 2009 and the first months of 2010, the price of Ecuadorian petroleum recovered, but 
since 4 May 2010 the trend has been reversed and there has been a marked decline down to 
US$59.22/barrel for Napo crude and US$62.2/ barrel for Oriente crude on 19 May 2010. 
 
 These figures are a warning signal, particularly as the Central Bank of Ecuador's estimates at 
the beginning of the year indicated that for each dolla r change in oil prices, e xports of crude oil would 
vary by US$120 million.  Last month's decline of US$14.85 and US$13.55 for Napo and Oriente crude, respectively, sounds a warning note.  International reserves and their impa ct on the balance of payments 
 
 In order to implement the dollarization regime  in Ecuador (2000), the monetary authorities 
changed the local currency held by Ecuadorians at th at time (the sucre) into international monetary 
reserves at a nominal rate of 25,000 sucres to th e United States dollar.  Ecuador thus moved from  WT/BOP/W/34 
 Page 3 
 
 
  holding international monetary reserves to holdin g freely disposable international reserves, whose 
counterpart mainly consisted of  the deposits of the non-financial public sector (NFPS), and the 
deposits of the financial sector needed for co mpliance with banking reserves and inter-bank 
clearing-house requirements.  Unlike the interna tional monetary reserves, which reflected the 
exchange rate resulting from the economy's transacti ons between residents and non-residents (in other 
words, balance-of-payments movements), the freely disposable international reserves mainly reflect 
the movement of fiscal accounts through the NFPS deposits with the Centra l Bank and the financial 
system's deposits through bank reserves and the payments system.  
Exchange rate and its effects on the balance of payments 
 
US$/€ 
 
 The increase in Ecuador's exports to the Europ ean Union has been accomp anied by the Euro's 
appreciation vis-à-vis  the United States dollar, which means that  the European Union is better able to 
import goods and services quoted in dollars. 
  The European Central Bank (ECB) stated that the official benchmark exchange rate for the 
Euro on 13 May showed a loss of 0.8 per cent, corr esponding to 0.99 cts., giving a rate of US$1.2587. 
  In the first quarter of 2010, exports rose sharply, although the US$/€ exchange rate has 
behaved differently in recent weeks, a situation that could affect sales abroad in the future. 
  For Ecuador's exports to Europe, prices are much more volatile than volume.  In 2008, 
exports to the European Union rose by 14.8 per cent in value terms but by 2.4 per cent in volume terms.  In 2009, on the other hand, their value remain ed virtually stable (a decrease of -0.8 per cent), 
whereas volume rose by 3.0 per cent. 
 
Ecuador's exports to the European Union 
Metric tonnes thousands and US$ f.o.b. millions 
 Growth 
 2008 2009 
Product MT f.o.b. MT f.o.b. 
Bananas and plantains 5.5% 29.3% 5.4% 21.6% 
Shrimps 3.8% 19.6% -1.9% -12.8% 
Canned fish 6.8% 30.6% -25.8% -38.1% 
Fresh flowers -27.0% -16,2% 139.6% 107.9% 
Cocoa -40.3% -37,1% 57.7% 71.7% 
Fruit juices and preserves 48.3% 8,4% -6.7% 13.7% 
Processed coffee -13.0% 0.5% -9.3% -11.6% 
Other agricultural products 6.9% 10.5% -9.4% -7.3% 
Pineapples -11.0% -0.1% 17.7% 16.9% 
Cocoa preparations 64.0% 46,6% -5.9% -15.3% 
Vegetable extracts and oils 36.5% 88,1% -33.1% -60.2% 
Other timber 9.1% 7,3% -49.7% -42.2% 
Fish 125.5% 83,7% 10.4% 49.7% 
Banana preparations -68.3% -41.8% -1.4% 8.7% 
Other -41.0% -30.8% -40.6% -17.7% 
Total 2.4% 14.8% 3.0% -0.8% 
Source : Central Bank of Ecuador. 
 
Possible US$/€ effects 
 
 The European Market takes some 14 per cent of  the total value of Ecuador's exports, which 
allows the impact of the Euro's depreciation vis-à-vis  the United States dollar to be attenuated. 
 WT/BOP/W/34 
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   The f.o.b. value of Ecuador's expor ts to the Eurozone over the period 
January 2000-March 2010 recorded growth of 326.2 pe r cent, a situation that was accompanied by a 
33.9 per cent appreciation in the Euro.  In the second half of 2008, however, as a result of the deepening international crisis, the United States do llar appreciated by 18.1 per cent against the Euro
1 
between July and November 2008.  This had an im pact on our exports, with a one-month delay, so 
there was a fall of 9.6 per cent between August and December 2008.  At the same time, from 
December 2009 to April 2010, the US$/€ rate dropped from US$1.46/€1 to US$1.34/€1 in April 2010, a loss of 8.3 per cent in value in only four months.   There is a direct correlation (0.78 per cent)  between the US$/€ exchange rate and the 
f.o.b. value of exports to the European Union.  Hist orically, a drop of 10 cents of a dollar in the Euro 
has meant a reduction of approximately US$20.4 milli on in exports to the EU.  Consequently, the 
current depreciation of the Euro will likely have a negative impact on Ecuador's exports to the old 
continent.  
 The potential impact of the Euro's depreciation against the dollar will most likely be in price 
terms rather than in volume, as can be seen from p ast evidence regarding their respective fluctuations. 
 
US$/OTHER CURRENCIES 
 
 The terms of trade index is the ratio between the price indices for exports and imports for the 
same base year.  In Ecuador's cas e, the base year is 2000.  As can be seen in the following chart, the 
trend in the terms of trade index bears an important correlation to the level of exports and imports and, 
hence, to the trade balance.  As already menti oned, in Ecuador's economy, the performance of the 
balance-of-payments current account is decisively dete rmined by the trend in the trade balance.  This 
is why it is estimated that fluctuations in the value of the United States dollar compared to the 
currencies of our leading trade partners have a ma rked impact on the current account and the balance 
of payments.   To give a simple illustration, exports show a di stinct direct correlation (92 per cent) to the 
terms of trade index.  A 10 per cent depreciation in the United States dollar compared to the basket of 
currencies of our leading trade partners means a US$94.7 million drop in the f.o.b. value of our 
exports. 
 
                                                     
 
1 As an initial reaction, ec onomic agents rearranged their assets, gi ving priority to dollar holdings in 
case the global economy collapsed.  WT/BOP/W/34 
 Page 5 
 
 
  Correlation between exports and the terms of trade 
(April 2007 - March 2010) 
 
 
Source : Central Bank of Ecuador. 
 
• How has the balance-of-payments situation evolved in 2010 and in particular since 
the BoP Committee meeting of 22-23 March 2010? 
Trend in the trade balance to March 2010 and preliminary data to April 2010 
 
 The positive results of the total trade balance2 are determined by the favourable performance 
of the oil trade balance (a surplus of US$1,586. 8 million), which offsets the deficit in the non-oil 
balance (US$1,472.4 million).  
 At March 2010, oil exports (crude oil and by-products) rose to US$2,241.6 million, 122 per 
cent higher than in March 2009 (US$1,011.9 million).  Ne vertheless, the higher price of crude oil also 
affects imports of by-products, raising their cost, so imports of fuel and lubricants in f.o.b. terms over 
the period January-March 2010 rose to US$654.8 million, 42 per cent more than over the same period in 2009. 
 
 With regard to the non-oil trade balance , the deficit increased by US$161 million during the 
first quarter of 2010, from US$1,311.2 million in  January-March 2009 to US$1,472.4 million in 
March 2010 (an increase of 12 per cent).  Although  non-oil exports performed positively over this 
period, reaching US$1,892.7 million, a nominal varia tion of 10.8 per cent, this percentage is lower 
than the growth in imports (11.5 per cent), totallin g US$3,302 million, thereby widening the deficit in 
the non-oil balance. 
  As far as non-oil imports
3 are concerned, they increased by 11.5 per cent compared to the 
same period in 2009 and amounted to an f.o.b. value of US$3,302.1 million in March 2010.  Imports of consumer goods  amounted to US$859.9 million, equivalent to 26.0 per cent of the total value of 
                                                     
 
2 Takes into account the informa tion on recorded trade provided  by the Ecuadorian Customs 
Corporation (CAE) at the cut-off date  of 4 May 2010.  These figures may be revised as the CAE receives new 
information. 
3 Including imports by the former National Defence Board, now administered by the Ministry of 
Defence. y = 9.4693x - 98.608  
R² = 0.9142  
0 500 1,000  1,500  2,000  2,500  
90 110 130 150 170 190 210 230 US$ millions  
Index  WT/BOP/W/34 
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  non-oil imports over the period January-March 2010.  Gr owth was particularly marked in the case of 
imports of durable consumer goods  (32.9 per cent) as imports of non-durable consumer goods barely 
changed, from US$466.3 million in the first quarter  of 2009 to US$467.8 million during the same 
period in 2010.  
 Preliminary data indicate that in April the overall trade balance will show a surplus of 
US$19.4 million.  The oil balance should reach US$$510.1 million, while the non-oil balance will probably have a deficit of US$-490.8 million.  
Trend in remittances received 
 
 Remittances are the second most important sour ce of foreign currency for Ecuador's economy 
and are a catalyst for production.  As of 2000, income  from remittances partly offset the deficits in the 
services and income balance, pa rticularly from 2006 to 2009. 
 
 In the first quarter of 2010, the flow of  family remittances to Ecuador amounted to 
US$556.6 million, an increase of 0.4 per cent compared to the first quarter of 2009 (US$554.5 million), but a decrease of 17.6 per cent in comparison with the fourth quarter of 2009 
(US$675.2 million).   Although there is a certain seasonal basis fo r the decrease in rem ittances received in the 
first quarter of 2010, this explan ation alone is not sufficient.  In quarterly terms, the remittances 
received fell by 8 per cent in the first quarter of 2008, whereas in the first quarter of 2009, because of 
the international crisis, they decreased by 14 per cen t and by 17.6 per cent in the first quarter of 2010. 
  Bearing in mind that remittances essentially co me from the United States of America and 
Spain, it is difficult to predict any rapid return to th e level of remittances rece ived prior to the crisis 
(US$826 million in the last quarter of 2007);  this is a matter of concern because the deficit in the 
Ecuadorian economy's income and services balance is part ly offset by the income received in the form 
of remittances from emigrants.  In 2009, for example,  the income and services balance had a deficit of 
US$2,829 million, while the income received in the form of remittances from emigrants was 
US$2,495 million, which meant that, to a large ex tent, the current account balance (US$-311 million) 
was determined by the trade balance (US$-301 million). 
 
• What is the current level of Ecuador's monetary reserves as compared with the levels 
seen before the outbreak of the financial crisis?  Could Ecuador share with the 
members of the BoP Committee the regular reports by the Ministry of Industry and Competitiveness?  (Art. 5 of COMEXI Resolution 466). 
 Ecuador's fiscal income depends to a larg e extent on oil revenue.  This dependence is 
reflected in the performance of the freely disposab le international reserves, which tend to shadow 
crude oil prices closely.  Accordingly, after the out break of the international economic crisis, the price 
of Ecuadorian crude plunged by 77.8 per cent, fro m US$117.4/barrel in June 2008 to US$26.1/barrel 
in December 2008.  With a three-month delay,  this caused a 59.9 per cent decrease in freely 
disposable international reserves, which went  from US$6,476.6 million in September 2008 to 
US$2,594.4 million in May 2009.  After the global economy had shown some signs of a slight 
recovery in the second half of 2009, freely disposab le international reserves started to rise, reaching 
US$4,367.5 million by 13 May 2010.  Although this level is much better than that in May 2009, it is 
still far from the US$6,476.6 million reached in September 2008, before the impact of the 
international economic crisis was felt. 
  WT/BOP/W/34 
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  • Can Ecuador provide more information as to which non-trade policy measures 
announced in last year's consultations have been implemented? 
 Please explain the intent of this question. 
 
• Ecuador has mentioned the threat of an "import surge" as one of the main reasons for 
extending its BoP measures beyond 22 Janua ry 2010.  Does Ecuador have any 
updated or more concrete evidence suggesti ng that such an "import surge" would 
indeed have materialized if the BoP measures would have been removed on 22 January 2010? 
 Ecuador has already mentioned that the dism antling of the balance-of-payments safeguard 
will have to be gradual because there may be a sh arp surge in imports that will once again place the 
economy's liquidity at risk. 
 
 In this connection, it has been found that th e risks announced were real and import data for 
January to April 2010 showed large incr eases compared to the same period in 2009. 
  The table below shows the rates of growth in  imports by product, which exceed two digits, 
and in six instances have increased by three digits, for example, refrigerators, leather articles, special 
vehicles, electronics, inter alia . 
 
IMPORTS WITH PBS PER PRODUCT 
JANUARY-APRIL 2010 vs JANUARY-APRIL 2009 
 
Thousands of tonnes and millions of dollars 
Product Volume 09 Volume 10 Volume 
variation % vari-
ation c.i.f. 09 c.i.f. 10 % 
share US$ vari-
ation % vari-
ation 
Tyres 7,920,506  14,289,813  6,369,306  80  29,454,809  54,188,620  5 24,733,811  84 
Vehicles 13,831,643  16,966,820  3,135,177  23  108,089,687  132,195,318  13 24,105,631  22 
Mobile telephones 245,240  356,089  110,849  45  30,376,039  54,137,799  5 23,761,760  78 
Televisions 2,222,192  3,477,724  1,255,532  56  19,865,318  33,842,317  3 13,976,999  70 
Refrigerators 1,427,543  2,889,454  1,461,911  102  6,893,239  13,976,259  1 7,083,020  103 
Leather 
articles 678,615  1,636,150  957,536  141  4,128,011  10,862,119  1 6,734,109  163 
Plastic crates 3,606,123  8,128,702  4,522,579  125  12,863,766  17,065,662  2 4,201,896  33 
Recording 
equipment 275,142  558,745  283,603  103  4,197,092  7,850,808  1 3,653,716  87 
Radios 674,925  1,028,242  353,317  52  6,671,428  9,680,324  1 3,008,896  45 
Pots and pans 187,062  555,223  368,161  197  1,126,256  4,057,223  0 2,930,966  260 
Detergents 8,705,265  11,019,998  2,314,733  27  11,573,224  14,475,884  1 2,902,660  25 
Special 
vehicles 103,368  292,860  189,491  183  1,277,583  4,094,293  0 2,816,710  220 
Chassis 1,264,961  1,574,031  309,070  24  11,637,200  14,399,282  1 2,762,082  24 
Grapes 4,066,793  5,702,554  1,635,762  40  3,023,612  5,475,346  1 2,451,734  81 
Ipods, etc. 47,104  192,090  144,986  308  1,839,155  4,247,475  0 2,408,320  131 
Hair products 1,311,895  1,808,176  496,281  38  5,750,744  7,998,280  1 2,247,536  39 
Costume 
jewellery 216,534  230,911  14,376  7  4,813,543  6,829,149  1 2,015,606  42 
Glazed 
ceramic flags and paving 24,251,429  30,277,965  6,026,536  25  8,928,520  10,862,784  1 1,934,264  22 
Shampoo 2,239,113  2,725,864  486,751  22  7,385,880  9,053,153  1 1,667,273  23 
Glass 
recipients 1,075,398  2,816,083  1,740,685  162  1,505,072  3,169,157  0 1,664,085  111 
Footwear 1,499,543  768,442  (731,101)  -49  11,950,660  13,586,666  1 1,636,006  14 
Other 142,136,252  130,187,401  (11,948,851)  -8  625,040,670  572,945,870  57 (52,094,801)  -8 
Overall total 217,986,647  237,483,337  19,496,690  9  918,391,508  1,004,993,787  100 86,602,279  9 
Source :  CAE 
Compiled: MCPEC-FS 
 WT/BOP/W/34 
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   Ecuador therefore considers that the proposed  time-frame has limited the increase in imports 
and is necessary to safeguard the economy's liquidity.  
• Could Ecuador comment on the deliberations of  the ad hoc group of COMEXI that is 
periodically assessing the BoP situation (as provided in COMEXI Regulation 533)?  
 The main task of the ad hoc group of CO MEXI is to monitor Ecuador's trade activities 
because it is essential for Ecuador, with its dollarized monetary system, to conduct such monitoring as 
it has no other monetary or exchange tools available to limit or counteract the effects of certain external shocks in the international economy.   In this way, priority is given to the economy's liquidity, as reflected in the trade and current 
account balances, because the economic concepts app licable in an economy that is not dollarized are 
very different to those followed in Ecuador's dollari zed economy.  In addition, trends in imports and 
its components are monitored and these can give early warning of certain threats that may have to be 
confronted if there is no properly based trade policy measure.  
 Ecuador has therefore complied with the first three elements in removing the 
balance-of-payments safeguard, achieving 70  per cent of the planned dismantling. 
 
• Is there any reason to fear that Ecuador  would not be able to remove all the 
BoP measures by 23 July, as it announced in the BoP Committee on 22-23 March 2010? 
 At the technical meetings held in the World Trade Organization (WTO), it was indicated that 
the economic situation, appropriately described  in the IMF evaluations and in Ecuador's 
commitments, would depend on whether there was a fa vourable trend in the external situation, over 
which Ecuador has no control.   In other words, the Government of Ecua dor will act responsibly and will meet its 
commitments if the trade policy objectives are refl ected in real figures and if the international 
situation shows signs of recovery.   The international economic situation is theref ore evaluated regularly (but it is worsening), 
together with trends in markets for Ecuador's exports, which are facing restrictions caused by a 
decline in economic growth, depreciation of th e Euro, lower oil prices, fewer remittances from 
Ecuadorians working abroad, stronger migration legisla tion, all of which indicate that this situation 
could once again have an impact on th e development of Ecuador's economy. 
  It should be emphasized that Ecuador's co mmitments cannot be viewed or evaluated 
independently without taking into account de velopments in the international economy. 
 
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