WORLD TRADE  
ORGANIZATION  WT/BOP/G/15/Rev.1 
25 May 2009 
 (09-2517) 
Committee on Balance-of-Payments Restrictions Original:   Spanish 
  
 
CONSULTATIONS WITH ECUADOR 
 
Basic Document Supplied by Ecuador
 
 
OVERVIEW OF THE SITUATION AND OUTLOOK FOR THE BALANCE-OF-PAYMENTS 
TAKING INTO ACCOUNT INTE RNAL AND EXTERNAL FACTORS 
THAT AFFECT THE SITUATION1 
 
Revision  
 
 
1. INTRODUCTION 
1. This document provides the technical backgr ound for the balance-of-payments safeguard 
measure adopted by Ecuador in January 2009 in or der to protect the liquidity of its economy and 
prevent a sharp decline in economic growth against a scenario of serious external imbalances caused 
by the international financial crisis. 
2. This document is set out as follows:  the first section describes the economic reasons that led 
Ecuador to apply a balance-of-payments safeguard me asure.  It includes an analysis of Ecuador's 
balance-of-payments problems against the backgrou nd of the global crisis, evaluating the latter's 
impact on the performance of the Ecuadorian economy 's external sector.  The next section refers to 
the country's fiscal situation, underlining the declin e in fiscal revenue as a result of lower oil prices.  
The third section reviews the economic policy measures adopted by the Government in order to deal 
with the crisis, the aim being to reme dy the balance-of-payments situation. 
2. ECONOMIC REASONS FOR THE MEASURE 
2.1 Background 
 
3. In economies that issue their own money, th e balance-of-payments position determines the 
volume of external assets (international monetary reser ves) that may be used at the discretion of the 
monetary authorities to regulate imbalances in the exte rnal sector or to intervene in currency markets 
and have an impact on the economy's liquidity.  These assets are fully available to the monetary 
authorities and the Central Banks, which are r esponsible for administering and using them. 
4. Until 1999, the sucre was Ecuador's legal currenc y and external transactions were conducted 
through the Central Bank by applying the exchange ra te for the sucre and the foreign currency.  Until 
then, Ecuador had an internationa l monetary reserve replenished by all net resources in foreign 
currency, thus reflecting movements in the balance-of -payments.  As imports were only possible if the 
Central Bank provided the necessary foreign currency, Ecuador had an exchange policy that acted as a 
buffer against external shocks by limiting the outflow  of foreign currency us ing the exchange rate. 
                                                      
1 This document was prepared on the basis of the statistical information available in January 2009. WT/BOP/G/15/Rev.1 
Page 2  
 
  5. In January 2000, faced with the worst economic cr isis of the past 50 years, Ecuador adopted a 
dollarization regime as a way of slowing down th e accelerated depreciation of its national currency 
and preventing hyperinflation.  There was a high cost to dollarization as far as the tools and 
instruments available to intervene in the economy we re concerned;  basically, Ecuador was no longer 
able to issue its own money and so use monetary an d exchange policy to offset any external shocks. 
6. When Ecuador adopted dollarization, its monetary  authorities used the international monetary 
reserve to "withdraw" the national currency (the sucre) and "exchange" for dollars taken from the 
reserve at a nominal rate of 25,000 sucres/dollar.  The international reserves were therefore "distributed" in March 2000 and became part of th e money supply at the same time as the monetary 
authorities lost control of the economy's liquidity.  That year, the balance in the international 
monetary reserve became part of the economy's liquidity, with the exception of that part 
corresponding to public sector deposits and bank reser ves in foreign currency in Ecuador's Central 
Bank. 
7. For Ecuador's balance-of-payments statistics,  this change meant abandoning the traditional 
concept of international monetary reserves and repl acing it with freely disposable reserves.  Deposits 
in foreign currency, together with  the deposits made in sucres up to  that date by the non-financial 
public sector (NFPS) and the bank reserves at the Cent ral Bank, already converted into dollars, were 
the main component of the new concept of freel y disposable reserves as far as liabilities were 
concerned.  Unlike the international monetary r eserves, which reflected the economy's transactions 
between residents and non-residents, in other wo rds, balance-of-payments movements, the freely 
disposable reserves mainly reflect the movement  of fiscal accounts through the NFPS deposits and 
bank reserves at the Central Bank.  Consequently, trade measures taken to stabilize the 
balance-of-payments situation will not lead to any ma jor changes in the freely disposable reserves, but 
will affect the liquidity of the economy. 
8. In a dollarized economy, the external sector becomes the source that generates the money 
supply through the development of production. 
9. An economy such as Ecuador's without any capac ity to issue money, becomes much more 
dependent on its economic relations with the outsi de as it has no margin of action in terms of 
exchange or monetary policy;  the supply of fore ign currency in the country is at the same time the 
supply of money and the adjustments this implie s have a direct impact on the real economy.  
Consequently, changes in the economy's liquid ity will to a large extent depend on the 
balance-of-payments figures.  External shocks that  cause rapid and significant changes in the inflow 
of foreign currency into the country can mean si gnificant changes in employment and the population's 
well-being.  The development of the external sector  and trade policy thus become essential pillars of 
economic policy.  In a situation where oil prices are falling and external demand is shrinking (which also affects non-oil exports), it becomes unavoidable to  adopt measures to offset the liquidity squeeze 
in the economy caused mainly by the do wnward trend in the trade balance. 
10. For the foregoing reasons, the Government now h as to monitor and influence factors that can 
affect the economy's liquidity, reflected in balan ce-of-payments movements in the following sectors:  
exports and imports, remittances, foreign direct investment, public and private debt, inter alia . 
11. The international financial crisis has had a negative impact on the balance-of-payments 
situation in the form of:  (i) lower earnings from oil because of the decline in the price of crude oil on 
international markets;  (ii) downturn in non-oi l exports caused by lower external demand;  
(iii) reduction in remittances because of growing unemployment in those economies employing 
Ecuadorian migrant labour;  and (iv) fewer lines of credit and resources to finance the balance-of-payments, as shown below.  In addition,  there have been competitive devaluations by  WT/BOP/G/15/Rev.1 
 Page 3 
 
 
  Ecuador's leading trade partners (see Annex 1), whic h has affected Ecuador's foreign trade by making 
its exports more costly while lowering th e cost of imports from those countries. 
12. Dollarization does not protect the economy from a balance-of-payments crisis but imposes an 
equally automatic adjustment mechanism.  As emphasized by Meléndez and Soto (2003) 
"Theoretically, a dollarized economy is not con fronted with a balance-of-payments crisis.  
Nevertheless, the fact that its international reserv es are not solely controlled by the Central Bank but 
also by other agents means that a change in th e balance-of-payments situation can mean a drastic 
decline in the economy's liquidity.  In such cases, the end result is a fall in the level of production, 
which will be accompanied by less capacity to gene rate resources whether fiscal (tax revenue) or 
external (exports, attracting foreign capital)."  (Page 5) 
13. The deficits in the external accounts recorded  in late 2008 and the discouraging forecasts for 
2009, at a time when there is also a marked deteri oration in the international climate, incited the 
Government of Ecuador to implem ent a series of measures to prevent a sharp decline in the economy's 
liquidity. 
14. After the sustainability of the economy's extern al sector for 2009 had been evaluated, it was 
determined that the estimated balance-of-payme nts would see a trade deficit of US$3,973 billion 
(8 per cent of the GDP), which would not be consistent with levels that guarantee Ecuador's 
external sustainability.  In fact, in order to achieve a sustainable trade performance, Ecuador 
should lower this deficit to around US$2,693 billion. 
15. This is why Ecuador has found it necessary to  turn to Article XVIII.B of the GATT 1994, 
applying temporary  restrictive import measures in order to  prevent further deterioration of its 
balance-of-payments, particularly the trade balance,  seriously affected by the current economic crisis, 
which has had an impact on Ecuador's major sources of foreign currency:  oil, remittances and non-oil 
exports.  The measure in question is part of a ser ies of policies intended to  resolve the structural 
deficit in the non-oil trade balance and the ex ternal sector's marked dependence on oil. 
16. Although Article XVIII of the GATT states  that a safeguard measure taken for 
balance-of-payments reasons may be adopted in order to forestall the threat of, or to stop, a serious 
decline in monetary reserves, this Article also pr ovides that the measure may be taken in order to 
safeguard the external financial position and ensure an  adequate level of reserv es (which in Ecuador's 
case means maintaining a sufficient level of liquidity) for the implementation of its programme of economic development. 
17. Moreover, the International Monetary Fund (IMF)  emphasizes that "there are no universally 
applicable measures for assessing the adequacy of re serves and the determination of reserve adequacy 
falls beyond the scope of these guidelines.  Relevant  factors have traditionally included a country's 
monetary and exchange rate arrangements, and the size, nature and variability of its 
balance-of-payments and external position.  More r ecently, financial risks associated with a country's 
external debt position and the volatility of its cap ital flows have received particular attention, 
especially for countries with significant but not fully certain access to international markets."
2  In 
other words, it should be emphasized that a do llarized economy is immune to the traditional 
balance-of-payments analysis, which takes into account a country's monetary and exchange rate 
variables and tools that are part of the traditional concept of international monetary reserves.  More 
recently, particular attention has been paid to th e risks related to a country's position regarding its 
capital flows, particularly when it does not have full access to international markets. 
                                                      
2 "Guidelines for Foreign Exchange Reserve Management", IMF, 20 September 2001;  www.imf.org. WT/BOP/G/15/Rev.1 
Page 4  
 
  2.2 Balance-of-payments problems in the current global crisis 
2.2.1 Performance of Ecuador's dollarized economy 
18. After having adopted dollarization, Ecua dor's economy showed greater dynamism, 
particularly in the areas of consumption and inv estment, which in turn help to increase domestic 
demand.  During the post-dollarization period (2000- 2007), Ecuador had an average growth rate of 
4.5 per cent, 1.8 per cent above the average growth over the period 1990-1999;  the growth rate for 
the GDP in 2008 is forecast to be 5.3 per cent.  Pa rtly as a result of the international economic crisis, 
however, it is estimated that growth in 2009 will bare ly reach 1.4 per cent, a much lower percentage 
than the average over the period 2000-2007 and even lo wer than the average for the period prior to 
dollarization. 
Chart 1 
Trend in Ecuador's economy, 1990-2009 
Rate of variation in the GDP 
1.14.3
1.51.94.7
1.72.44.1
2.1
‐6.32.85.3
4.23.68.0
6.0
3.9
2.55.3
1.4
‐8‐6‐4‐20246810
19901991199219931994 1995
1996
199719981999 2000200120022003
2004
2005 (sd)
2006 (sd)
2007 (p)
2008 (prov)
2009 (prov)
 
Source : Central Bank of Ecuador (BCE). 
19. The higher rate of economic growth during th e period following the 1999 economic crisis 
allowed per capita GDP to show a sustainable rec overy.  In 2002, per capita GDP in constant terms 
(US$1,382) was equivalent to the figure for 1998 (U S$1,384), whereas in nominal terms this indicator 
showed an upward trend from US$1,703 in 2001 to US $3,366 in 2007.  It is hoped that it will be 
US$3,864 for the end of 2008.  With all qualifications , this indicator clearly shows an upward trend in 
the population's living standards. 
20. One of the major achievements of dollarizati on has been the stability that has occurred in 
price trends in the economy.  Stable prices have  helped to stabilize production costs and business 
forecasts as well, and have helped to restore confid ence in the currency and in the financial system 
(strongly compromised by the crisis in 1999), and ta ken together they have led to an expansion in 
credit and more dynamic consump tion, investment and exports.  WT/BOP/G/15/Rev.1 
 Page 5 
 
 
  Chart 2 
Annual inflation, 1990-2008 
Rate of variation in the CPI 
96.1
7.9
2.7 2.2 3.3 2.38.437.7
12 . 5
0.020.040.060.080.010 0 . 012 0 . 0
 
Source :  BCE. 
21. Dollarization, the expansion of credit and the important flow of resources into the domestic 
economy from abroad boosted growth in household c onsumption, which rose steadily in the years 
following the 1999 crisis.  Some of this consumer spending went to buy foreign goods so there was 
annual growth in imports as well from 2000 onwards.  It should be noted that the import component 
of consumption, measured in terms of the ratio  between imports of consumer goods and final 
household consumption, rose from 8 per cent in 2000 to 11.6 per cent in 2008. 
Chart 3 
Economic growth and household consumption, 1998-2007 
Rate of variation 
1.7 4.1 2.1
‐6.32.8 5.3 4.2 3.6 8.0 6.0 3.9 2.52.41.84.24.53.86.8 6.6
5.24.77.3
5.5
3.5
1.4
‐7.0
‐8.0‐6.0‐4.0‐2.00.02.04.06.08.010.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
(sd)2006
(sd)2007
(p)
PIB Household  consumption GDP
 
Source : BCE. WT/BOP/G/15/Rev.1 
Page 6  
 
  Chart 4 
Total imports f.o.b., 1998-2008 
US$ millions and rates of variation 
5198 2786 3469 4981 6006 6254 7575 9568 11279 12907 17409‐46.424.543.6
20.6
4.134.8
14.417.926.3
21.1
02000400060008000100001200014000160001800020000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008‐60.0‐50.0‐40.0‐30.0‐20.0‐10.00.010.020.030.040.050.0
Amount (left‐hand column) Variation  (right‐hand column)
 
Source : BCE. 
22. The stability achieved with dollarization was not, however, jeopardized by the increase in 
purchases abroad as other external sources of revenue  allowed very favourab le balances in the 
external accounts.  For example, the trend in exte rnal demand combined with steadily rising oil prices 
(Ecuador's major export) meant that large am ounts of dollars entered Ecuador, not only from 
increased oil exports but also non-oil exports.  More over, the money sent from abroad in the form of 
remittances, which became the country's second la rgest source of revenue (after export earnings), 
provided the liquidity needed to allow the system to function properly and contributed towards the dynamism of all economic activiti es, mainly through bank loans. 
Chart 5 
Remittances from migrant workers, 2000-2008 
US$ millions and rates of variation 
13171415 14321627183229283088
2933
2454
1.212.619.3
‐5.007.413.633.9
5.5
0500100015002000250030003500
2000 2001 2002 2003 2004 2005 2006 2007 2008‐10.0‐5.00.05.010.015.020.025.030.035.040.0
Amount (left‐hand column) Variation  (right‐hand column)
 
Source : BCE. 
23. The current international economic crisis is affecting Ecuador's main sources of foreign 
currency:  export earnings, because of lower demand as well as the decrease in the price of crude oil 
and other commodities;  and remitta nces from abroad because of redu ced dynamism in the developed 
countries where these remittances originate.  WT/BOP/G/15/Rev.1 
 Page 7 
 
 
  24. Because there will not be any improvement in th e recessionary trend in the global economy in 
the short term, the Government of Ecuador has to  use the few tools available to it to defend the 
monetary regime that has allowed it to achieve the macroeconomic results described above, promote 
the normal development of economic activities in Ecuador  and minimize the cost of the impact of the 
international crisis on the domestic economy. 
25. The international crisis in 2008 did not only affect the economic performance of the major 
developed economies but also global trade flows an d international prices for commodities, including 
oil. 
Chart 6 
Rates of economic growth:  selected countries 
4.55.1 5.0
3.7
2.22.92.8
2.0
1.4
‐0.70.61.8
1.5
‐0.23.63.93.7
1.4
‐0.7‐0.6
‐1.00.01.02.03.04.05.06.0
2005 2006 2007 2008* 2009*
World US Italy Spain
 
* Estimate. 
Source : International Monetary Fund (6 November 2008). 
Chart 7 
International oil prices, 2005-2008  
73.041 04.1 1
41 .1 2
29.0662.8146.8462.2685.801 33.88
47.8662.6678.471 1 8.80
99.97
25.52
0.0020.0040.0060.0080.00100.00120.00140.00160.00
Jan‐2005
Mar‐2005
May‐2005
Jul‐2005
Sep‐2005
Nov‐2005
Jan‐2006
Mar‐2006
May‐2006
Jul‐2006
Sep‐2006
Nov‐2006
Jan‐2007
Mar‐2007
May‐2007
Jul‐2007
Sep‐2007
Nov‐2007
Jan‐2008
Mar‐2008
May‐2008
Jul‐2008
Sep‐2008
Nov‐2008
WTI (EIA) Ecuadorian  crude
 
Source : EIA, BCE . WT/BOP/G/15/Rev.1 
Page 8  
 
  26. In such a situation, the fact that Ecuador is one of the most open economies in the region
3, 
increases its level of exposure to global markets;   moreover, the adoption of the dollarization 
monetary regime means that its external sector is much more sensitive to chan ges in the international 
situation. 
Chart 8 
Trade openness index 
4045505560657075
2000 2001 2002 2003 2004 2005 2006 2007 2008pPercentage
 
Source : BCE. 
27. In addition, one special feature of Ecuador's ec onomy is its focus on primary-mining-exports, 
which means there is little diversifi cation of production for export or domestic use, the latter having to 
be covered by imports.  As exports focus on a few commodities whose main characteristic is 
fluctuating international prices and there are fe w export outlets, the Ecuadorian economy's external 
sector has become increasingly vulnerable. 
2.2.2. Trend in the balance-of-payments current account 
28. In Ecuador's case, the position of the balance-o f-payments current account has basically been 
determined by the trade balance and current transfer s.  The surpluses in the current account were the 
result of higher oil prices and the increased flow of resources from remittances from migrant workers. 
Chart 9 
Trend in the current account and its components 
(US$ millions) 
-1,831 -1,907 -2,021-2,271
-2,856-3,072-3,2551,317 1,415 1,4321,6271,8322,4542,928
-3,419 -3,290 -2,450 2,493 3,088 2,933 
-3,238 921
-624 -1,271-422 -5423481,614
1,662 1,672 
-4000-3000-2000-100001000200030004000
2000 2001 2002 2003 2004 2005 2006 2007 2008 (e) 2009 (e)
Inc omes and servic es Remittances
Current account Trade balanc e (rec orded trade) 
Source : BCE. 
                                                      
3 The trade openness index has been increasing and in 2008 was around 70 per cent.  In 2007, the 
openness index for Colombia's economy was 46 per cent and for Peru's it was 43 per cent.  WT/BOP/G/15/Rev.1 
 Page 9 
 
 
  29. With the global crisis, the structural problem affecting the external sector of the Ecuadorian 
economy, which became even more obvious after th e adoption of the dollarization monetary regime, 
has been exacerbated.  In fact, although Ecuador has traditionally had a non-oil trade deficit, the 
deterioration in the non-oil trade balance only became exponential from 2000 onwards, increasing the 
deficit from US$729 million in 2000 to US$6,914 billion in the period January-November 2008. 
Chart 10 
Trend in the global and non-oil trade balances 
1996-2008 
(US$ millions) 
1374
‐6914‐8000‐7000‐6000‐5000‐4000‐3000‐2000‐10000100020003000
1996
1997 1998
19992000 2001
2002
2003
2004 2005
2006 2007
Jan‐Nov 2008
Total Non‐oil
 
Source : BCE. 
 
30. Between January and November 2008, the gl obal trade balance showed a surplus of 
US$1,374 billion, buoyed up by a positive figure of US$8,287 billion for the oil balance.  Nevertheless, from September 2008 onwards, the tota l trade balance had a deficit of US$219 million, 
reaching US$535 million in October and US$500 in Nove mber, changes that can be explained by the 
continued fall in oil prices, which directly affect ed the economy's liquidity.  In fact, because the trade 
balance is heavily dependent on vari ations in oil prices, it is estimated that a decrease of US$1 in the 
price of Ecuadorian crude would mean a reducti on in total net foreign currency income of 
approximately US$100 million. 
Chart 11 
Monthly trade balance, 2007-2008 
(US$ millions) 
‐500
‐758
‐2000‐1500‐1000‐50005001000
Jan 2007
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan 2008
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Total Non‐oil
 
Source : BCE. WT/BOP/G/15/Rev.1 
Page 10  
 
  31. Lower demand as a result of the international cr isis has meant a decrease in the volume of 
non-oil exports.  This is why the deficit of US$6, 914 billion in the non-oil trade balance for the period 
January-November 2008 was 78 per cent higher than th e figure for the same period the previous year 
(US$3,888 billion). 
32. One of the factors making Ecuador's economy par ticularly vulnerable is depreciation in the 
major supplier countries (Latin American Integrati on Association - LAIA), which has meant cheaper 
imports from those markets.  This in turn has aff ected the competitiveness of Ecuador's exports with 
the consequent impact on the country's trade balanc e (see the charts in Annex 1).  Ecuador does not 
have any monetary and exchange rate policy mechanism allowing it to deal with currency 
depreciation in its trade partners so its external sector is highly exposed. 
33. This external vulnerability of the economy is ex acerbated by the low level of diversification 
in the export sector both in terms of markets and pr oducts.  In fact, Ecuador ian exports mostly go to 
two of the regions most affected by the interna tional crisis, the United States of America and the 
European Union.  Between January and November 2008, 57 per cent of Ecuador's total exports went 
to these destinations.  In the case of non-oil expor ts, 31 per cent went to the European Union and 
23 per cent to the United States. 
Chart 12 
Ecuador's exports by destination 
(Percentage share January-November 2008) 
Structure  of Ecuador's  exports by destination
(January‐November  2008)
CAN*
17%Russia
3%
United States
46%Rest of 
Amercia
10%Rest of the 
World
4%European  
Union
11% LAID (excl. 
CAN*)
9%Structure  of Ecuador's  non‐oil exports by destination
(January‐November  2008)
United States
23%CAN*
23%
Russia
8%European  
Union
30%LAIA (excl. 
CAN*)
6%
Rest of Amercia
3%Rest of the 
world
7% 
* CAN = Andean Community 
Source : BCE. 
34. In view of the destination of Ecuador's major non-oil exports, it can be seen that, in principle, 
products such as flowers, bananas, cocoa and shrimp s will be affected by lower demand in the major 
destination markets. 
35. In a situation where there is an international financial crisis that affects external demand, oil 
prices and the level of remittances, it is estimated  that for 2009 the balance-of-payments current 
account will have a deficit of US$3,238 billion.  Ec uador's total exports w ill probably fall by 40 per 
cent in 2009 and imports by 12.6 per cent, so the overall deficit in the trade bala nce is estimated to be 
US$3,973 billion;  a figure that exceeds the US$2,6 94 billion for a trade deficit consistent with the 
external sustainability of the economy (see Annex 2).4  If remedial measures are not adopted within 
                                                      
4 Among the assumptions used for this calculation is that if Ecuador meets its external debt servicing 
commitments (public and private), it can guarantee extern al sustainability with a maximum trade deficit of 
US$1,208 billion in 2009.  WT/BOP/G/15/Rev.1 
 Page 11 
 
 
  the short term to halt the outflow of foreign curre ncy, this situation may put at risk not only the 
external solvency but ultimately the internal liquidity of the Ecuadorian economy, and even the 
continuation of the dollarization monetary regime. 
Chart 13 
Ecuador's exports by destination 
(Percentage share January-November 2008) 
6.1%1.4% 1.1%13.6%
5.4%21.1%8.8%13.8%
38.0%74.5% 35.2%
19.3%55.1%57.2%10.4%
37.3%40.1%
2.2%1.5%2.7%
4.8%
6.8%8.9%
28.0%
0%10%20%30%40%50%60%70%80%90%100%
Prepared  or
preserved  fishShrimps Flowers Cocoa  and cocoa
preparationsBananas and
plantains
LAIA (excl. CAN*) CAN* United States Rest of America Rest of the world Russia European  Union
 
* CAN = Andean Community 
 
Source : BCE. 
Table 1 
Balance-of-payments, 2007-2009 
2007 2008 2009 
Current account 1,662 1,672 -3,238 
Trade balance 1,835 1,847 -3,465 
Trade balance (recorded trade) 1,415 1,338 -3,973 
 Exports 14,321 18,748 11,249 
 Oil and oil products 8,329 11,911 4,369 
 Non-oil 5,993 6,837 6,880 
 Imports 12,906 17,409 15,522 
 Oil 2,578 3,277 1,945 
 Non-oil 10,328 14,132 13,277 
Trade balance (unrecorded trade) 419 508 508 
Services and income balance -3,419 -3,290 -2450 
 Credit 1,458 1,424 1,283 
 Debt -4,877 -4714 -3,733 
Current transfers 3,246 3,116 2,677 
 Remittances 3,088 2,933 2,493 
Capital account -164 -720 1,938 
Foreign direct investment 193 540 210 
Businesses 315 370 150 
Oil sector -122 170 60 
Public external debt 337 -594 1,489 
Expenditure 1,357 347 2,044 
Net amortization -1,060 -941 -555 
Net recorded private debt 45 62 20 
Other capital1 70 61 0 
Net flow of assets and liabilities abroad2 -810 -790 219 
Freely disposable international reserves -1,498 -952 1,300 
1 Taking into account arrears in  interest on the public debt. 
2 Including errors and omissions. 
Source : BCE.  WT/BOP/G/15/Rev.1 
Page 12  
 
  Assumptions for sustainability of  the balance-of-payments 2008 2009 
Oil production (millions of barrels)) 181.1 165.3 
Average price for exports of crude oil (dollars/barrel) 84.18 35.5 
Volume of oil exports (mi llions of barrels)) 127.4 108.3 
   
Current account in US$ millions  1,672 -3,238 
Trade balance (recorded trade)  in US$ millions  1,338 -3,973 
   
Trade balance for external sustainability  -1,280 
(Gap) difference in comparison with the trade bala nce forecast in the bala nce-of-payments  -2,694 
Source : BCE. 
36. As can be seen, the dynamism of Ecuador's economy during the post-dollarization period was 
accompanied by a significant upsurge in imports.  In recent years (2000-2007), Ecuador's imports grew by an average of 21 per cent. 
 
Chart 14 
Trend in imports 
Consumer goods, raw materials and capital goods 
 
Capital goods
803,059
1,883
05001,0001,5002,0002,5003,0003,500
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*US$ MILLIONS  FOB
CG agriculture CG industry Transport  equipment
Raw Materials
8305,026
60001,0002,0003,0004,0005,0006,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*US$ MILLIONS  FOB
Agriculture Industry ConstructionConsumer  goods
2,723
1,709
05001,0001,5002,0002,5003,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*US$ MILLIONS  FOB
Consumer  goods Durable consumer  goods
 
Source : BCE . 
37. Between January and November 2008, there was a marked increase in imports, both in terms 
of volume and value (38.2 per cent) compared with 2007, for consumer goods (durable and 
non-durable), capital goods and raw materials alike.  In the latter case, the incr ease was related to the 
tariff differential unilaterally applie d by Ecuador to certain headings  in order to boost competitiveness 
and catalyse the Ecuadorian economy's production sector.  WT/BOP/G/15/Rev.1 
 Page 13 
 
 
  Imports by domestic aggregate  demand*:   1996‐2008
33%38%
15%20%25%30%35%40%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*Table 2 
Imports by use or economic purpose 
January-November 2006-2008 
Rate of growth t/t-4  January-November
2006 January-November
2007 January-November
2008 07/06 08/07 
Total imports 10,360 11,718 16,193 13.1 38.2 
Consumer goods 2,392 2,624 3,698 9.7 40.9 
Non-durable consumer goods 1,373 1,627 2,160 18.4 32.8 
Durable consumer goods 1,018 997 1,538 -2.1 54.3 
Fuels and lubricants 2,188 2,384 3,035 9.0 27.3 
Raw materials 3,171 3,767 5,392 18.8 43.1 
Agriculture 337 452 719 34.2 59.1 
Industry 2,528 2,968 4,265 17.4 43.7 
Construction materials 306 347 407 13.4 17.3 
Capital goods 2,608 2,941 4,057 12.8 38.0 
Agriculture 40 47 79 15.8 68.9 
Industry 1,573 1,829 2,572 16.2 40.6 
Transport equipment 994 1,065 1,406 7.1 32.0 
Miscellaneous 1 3 11 111.7 324.5 
Source : BCE . 
38. The ratio between imports of goods and servi ces and domestic aggregate demand has risen 
from 33 per cent at the beginning of dollarization to 38 per cent in 2008;  the ratio between imports of 
consumer goods and the value of household c onsumption increased from 8 per cent in 2000 to 
13.5 per cent in 2008 (in nominal terms).  This s ituation shows that Ecuador's economy is increasingly 
being supplied by imported goods. 
Chart 15 
Import component of aggregate demand and household consumption 
 
 Imports by consumption/household  consumption
13.5%
8.1%
0%2%4%6%8%10%12%14%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008* 
Source : BCE. 
39. As a result of the strong increase in imports , the Ecuadorian economy' s coverage rate has 
worsened considerably since the advent of dollarization. WT/BOP/G/15/Rev.1 
Page 14  
 
  Chart 16 
Coverage rate (exports f.o.b./imports f.o.b.) 
2007-2008  
836.0 
231 .1  70.2 
36.1  41 .8 
0.0 1 00.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 900.0 
0.0 10 . 0  20.0 30.0 40.0 50.0 60.0 70.0 80.0 
Oil (right-hand column) Non-oil (left-hand column) 
Source : BCE. 
40. Remittances from migrant workers are the second most important source of foreign currency 
for Ecuador's economy after exports.  As can be se en from the following chart, the growth in this 
variable has steadily diminished in recent years. 
Chart 17 
Quarterly remittances by migrant workers:  2005:I-2008:II 
Annual rates of growth and amount, first quarter each year 
13171415 14321627183229283088
2933
2454
1.212.619.3
‐5.007.413.633.9
5.5
0500100015002000250030003500
2000 2001 2002 2003 2004 2005 2006 2007 2008‐10.0‐5.00.05.010.015.020.025.030.035.040.0
Amount (left‐hand column) Variation  (right‐hand column)
 
Source : BCE . 
41. The global economic crisis has had an impact  on Ecuadorian migrant workers as jobs have 
become scarcer, directly affecting the amount of remittances sent to Ecuador .  Remittances from the 
United States fell by 10.8 per cent during the first half of 2008, compared wi th the increase recorded 
for the same period in 2007 (17.6 per cent).  This de crease can be explained at least in part by the loss 
of jobs in the building sector, which absorbs a large number of migrant workers (see chart).  WT/BOP/G/15/Rev.1 
 Page 15 
 
 
  Chart 18 
Remittances from migrant workers by country of origin 
(US$ millions)  
319.5335.0
300.0328.7
92.095.9
0.050.0100.0150.0200.0250.0300.0350.0400.0450.0
I Trim. 2001
II Trim. 2001
III Trim. 2001
IV Trim.2001
I Trim.2002
II Trim.2002
III Trim.2002
IV Trim.2002
I Trim.2003
II Trim.2003
III Trim.2003
IV Trim.2003
I Trim.2004
II Trim.2004
III Trim.2004
IV Trim.2004
I Trim.2005
II Trim.2005
III Trim.2005
IV Trim.2005
I Trim.2006
II Trim.2006
III Trim.2006
IV Trim.2006
I Trim.2007
II Trim.2007
III Trim.2007
IV Trim.2007
I Trim.2008
II Trim.2008
US SPAIN OTHER 
Trim. = Quarter 
Source : BCE. 
Chart 19 
Employment in the construction sector in the United States of America:  January 1999-July 2008 
Number of employees and annual rate of growth  
 
 
 
     
 
    
 
    
 
Source : Bureau of Labor Statistics. 
42. It is therefore expected that remittances from migrant workers will fall by 15 per cent in 2009. 
43. The decrease in remittances and the more stringent financial conditions affecting suppliers 
and clients abroad are other factors to be taken into account in the current account deficit.  The 
forecast for the balance of services and income in 2009 shows a decrease of 25.5 per cent in the 
deficit compared with 2008, owing to the lower level of imports (in the form of payment for services:  
transport, insurance and freight), as well as a lower level of indebtedness in 2008. 7726
7168
600065007000750080008500
Jan‐99
May‐99
Sep‐99
Jan‐00
May‐00
Sep‐00
Jan‐01
May‐01
Sep‐01
Jan‐02
May‐02
Sep‐02
Jan‐03
May‐03
Sep‐03
Jan‐04
May‐04
Sep‐04
Jan‐05
May‐05
Sep‐05
Jan‐06
May‐06
Sep‐06
Jan‐07
May‐07
Sep‐07
Jan‐08
May‐08In thousands
‐10.0%‐8.0%‐6.0%‐4.0%‐2.0%0.0%2.0%4.0%6.0%8.0%Variation
Employment  in United States construction Rate of growthWT/BOP/G/15/Rev.1 
Page 16  
 
  2.2.3 Capital and financial account 
 
44. In recent years, the performance of Ecuador's economy has been negative as far as the capital 
and financial account is concerned, thereby reflecting an increase in claims on the rest of the world in 
net terms.  The economy had resources that allowed it to make portfolio investments by buying back 
debt and placing new stocks on the international market, as well as amortizing the public debt not 
linked to debt instruments in net terms. 
45. Foreign direct investment (FDI), on the other ha nd, has gradually fallen, from a net inflow of 
US$493 million in 2005 to US$271 million in 2006 and US$193 million in 2007.
5  Ecuador cannot, 
therefore, rely on this type of capital to  finance the deficit in its current account. 
46. In 2009, the capital account will have a surplus of  US$1,938 billion.  This figure is based on 
(i) net entry of resources in the form of FDI amoun ting to US$210 million;  and (ii) external net debt 
of the public sector amounting to US$1,489 billion, with disbursements amounting to US$2,044 billion
6, of which US$814 million correspond to loans to be used to carry out investment 
projects and US$1,230 billion to loans being negotiated (US$500 million from the Andean 
Development Corporation (ADC), US$250 milli on from the Inter-American Development Bank 
(IDB) and US$480 million from the Latin American Reserve Fund (LARF)). 
3. WEAK FISCAL SITUATION CAUSED BY DEPENDENCE ON OIL REVENUE 
47. The fiscal account position depends heavily on  oil revenue, which accounted for 40 per cent 
of the NFPS total revenue  over the period 2001-2008.7  It is forecast that the fiscal situation will 
worsen in 2009 as a result of the plunge in oil prices.8  Oil revenue will account for 31 per cent of the 
NFPS total revenue, with a decrease of 66 per cen t in nominal terms, falling from US$8,899 billion 
estimated for 2007 to US$3,001 billion for 2009. 
48. Moreover, non-oil income has also been affect ed, with a growth rate falling from 28.7 per 
cent in 2008 to 7.3 per cent in 2009 as a result of the general decline in economic activity. 
                                                      
5 Most of this flow can be explained by profits reinvested (US$412 million), mainly by oil companies, 
and the entry of fresh capital (US$151 million) through shares and other capital participation, resources that 
were offset by negative net indebt edness (amortization exceed ing disbursements) between companies and their 
branches abroad amounting to US$369 million. 
6 This amount includes all disbursements by the financial and non-financial public sector. 
7 In order to make a consistent comparison with 2008, gross oil revenue has been included. 
8 The WTI price of US$55/barrel and an average export price of US$35.5/barrel for Ecuadorian crude 
have been used.  WT/BOP/G/15/Rev.1 
 Page 17 
 
 
  Chart 20 
Gross income:  total and oil-related in the NFPS 
 
34%
29%48%
31%46%45%
41%
39%37%
02,5005,0007,50010,00012,50015,00017,50020,00022,50025,00027,500
2001 2002 2003 2004 2005 2006 2007
(Prov.)2008
(Prov.)2009
(Est.)US$ millions
0%5%10%15%20%25%30%35%40%45%50%55%
% GDPTotal income
Oil-related income
% gross oil/gross total
 
Source : CE and the Ministry of Finance. 
49. As far as spending by the NFPS is concerned, in 2009 it will fall by 19.4 per cent from an 
estimated amount of US$22,346 bi llion in 2008 to US$18,010 billion in 2009.  This substantial 
decrease can be seen in (non-permanent) capita l spending, which will fa ll by US$2,147 billion, 
leading to significant shrinking of economic activity which, over the previous two years, had been boosted by the notable recovery in public investme nt.  The strong increase in capital spending in 2008 
(an annual increase of 113 per cent) was based on the assumption that fiscal sustainability could be 
ensured in the medium term and strong support give n to the revival of the economy by improving the 
infrastructure.  Investment in st rategic projects such as those in the hydroelectric and oil sectors and 
roads will in future lessen the fiscal burden imposed by energy subsidies. 
Chart 21 
Capital spending in the non-financial public sector 
 
5%7%14%
10%
5% 5% 5%6%7%
01,0002,0003,0004,0005,0006,0007,0008,000
2001 2002 2003 2004 2005 2006 2007
(Prov.)2008
(Prov.)2009
(Est.)US$ millions
0%2%4%6%8%10%12%14%16%
% GDPCapital spending
Capital spending % GDP
 
Source : BCE and the Ministry of Finance. WT/BOP/G/15/Rev.1 
Page 18  
 
  Chart 22 
Trend in the non-financial public sector 
0%1%2%2%
1%4%
2%
-2%-1%5%5%
3%6%
4%
0%
-1%4%4%
-3%-2%-1%0%1%2%3%4%5%6%7%
2001 2002 2003 2004 2005 2006 2007 (Prov.) 2008 (Prov.) 2009 (Est.)% of GDPResultado Global % PIB
Resultado Primario % PIBOverall trend % GDP
Primary trend % GDP
 
Source : BCE and the Ministry of Finance. 
50. The marked decrease in the main source of no n-permanent revenue in the NFPS has affected 
not only the overall trend but also the primary trend.  In 2009, for the first time in the 
post-dollarization period, there will be a primary de ficit of around 0.9 per cent of GDP and a global 
deficit of 1.9 per cent of GDP.  The global deficit of US$981 million in the NFPS means that financing of US$2,088 billion will be needed. 
51. Unlike 2008, when there was no need to find additio nal external financing,  it is expected that 
in 2009 financing needs will to a large extent  be met through external loans from multilateral 
organizations totalling US$2,024 bil lion.  In the case of Ecuador, external loans are being negotiated 
with the ADC, the IDB and the LARF.  Lastly, as regards other specific sources of financing, the 
Ministry of Finance estimates that in 2009 these will amount to US$400 million.
9 
4. POLICY MEASURES TO DEAL WITH THE CRISIS 
52. One of the objectives of the Government's economic policy is to revolutionize the economy 
and production, which means directing resourc es to education, health, highways, housing, 
technological research, employment and boosting production.  In order to achieve these goals, a 
number of policies have been adopted in th e trade, taxation and financial spheres. 
53. Tax revenue policy is based on legal reforms w ith the objective of:  (i) increasing revenue for 
the treasury through tax reform and reforms in the hydrocarbons sector.  In the latter case, modifying 
oil contracts will allow the State to have a larger shar e of oil revenue;  (ii) tax equity so as to help to 
redistribute income;  and (iii) control of tax evasion and circumvention. 
54. As far as public spending is concerned, in r ecent years investment and social spending have 
increased as a means of boosting economic growth and raising living sta ndards for Ecuadorians. 
55. Prioritization of capital spending on strategic projects (oil and energy) seeks to improve fiscal 
sustainability by generating more revenue in the future.  This type of investment allows the 
                                                      
9 In this connection, it is planned to sell assets being held by the Agencia de Garantía de Depósitos  – 
AGD (Deposit Guarantee Agency);  these resources are reco vered through the tax tribunals that have been put in 
place since 2008 and are the responsibility  of the Internal Revenue Service (S RI) and the law courts;  as well as 
other accounts for payment by the private oil sector (Law No. 42-2006).  WT/BOP/G/15/Rev.1 
 Page 19 
 
 
  infrastructure and the level of basic services to be  improved, thereby helping to foster private 
investment and sustainable economic growth.  Th e Government decided to increase the country's 
capital stock, which had greatly deteriorated in recent  years because in the past little priority had been 
given to capital spending. 
56. In the area of foreign trade, the main axis of the policy promoted by the Government has been 
support for and revival of domestic production, aimi ng to generate more va lue added and foreign 
currency, and it has focused on two central elements in particular: 
1. Strengthening regional integration in or der to diversify markets and ensure a 
larger flow of foreign currency.  
2. Tariff policy :  encouraging competitiveness and e fficiency in various production 
sectors.  Ecuador unilaterally adopted tariff measures to bring down the cost of raw 
materials, inputs and imported capital goods. 
57. Tariff reform  was adopted in accordance with WTO rul es and in line with the main objective 
of trade policy, unilaterally bringing down app lied tariffs on capital goods, raw materials and inputs 
and construction materials not pro duced in Ecuador so as to boost recovery in the production sector.  
The average applied tariff on capital goods fell from 6.3 per cent in October 2007 to 2.3 per cent in 
December 2008, and on raw materials from 7.6 per cent to 3.8 per cent over the same period, as can 
be seen from the following chart. 
Chart 23 
Tariff reductions:  capital goods and raw materials 
and tariff increases:  consumer goods 
Average tariff (%) 
 
7.45
5.769.39
5.47
5.16
2.162.46
2.15
012345678910
Dec.05 15  Oct.07 Nov.  07 Apr. 08 17 ‐Jun‐08 16  Jul.  7 Aug. 10  Sept. 08  Oct. 11  Nov. 26  Nov. 02 ‐Dec
INITIAL I II III IV V VI VII VIII IX X XIAverage tariff  %
CAPITAL GOODS FOR AGRICULTURE CAPITAL GOODS FOR INDUSTRY
AGRICULTURAL  RAW MATERIALS INDUSTRIAL  RAW MATERIALS
 WT/BOP/G/15/Rev.1 
Page 20  
 
  19.14
17.8320.5125.48
17.3924.93
15171921232527
Dec.05 15  Oct.07 Nov.  07 Apr. 08 17 ‐Jun‐08 16  Jul.  7 Aug. 10  Sept. 08  Oct. 11  Nov. 26  Nov. 02 ‐Dec
INITIAL I II III IV V VI VII VIII IX X XIAverage tariff %
DURABLE  CONSUMER  GOODS
NON‐DURABLE  CONSUMER  GOODS
 
Source : COMEXI. 
58. This reform led to a tariff reduction for a to tal of 3,267 headings (i.e. 45.2 per cent of the 
tariff universe) covering raw materials, inputs, capita l goods and transport equipment, and has a fiscal 
cost of approximately US$93 million. 
59. As a corollary to the unilateral tariff reducti on measures taken to promote recovery in the 
production sector, there has been a significant upward tr end in imports, which has benefited Ecuador's 
major trade partners.  Although the increase in impor ts of raw materials and capital goods is positive10 
for Ecuador's economy, the marked increase in impo rts of consumer goods is a matter for concern 
because of the direct impact which a larger outflow of foreign currency has on the economic growth of a dollarized economy. 
60. The Government has therefore embarked upon a policy to reduce imports of consumer goods, 
consistently with WTO rules and bearing in mind that tariffs are a policy instrument that can 
encourage or slow down imports but has limitations because a high percentage of such imports come from countries that have signed trade agreements w ith Ecuador and are thus not affected by the 
measures adopted. 
61. In the international economic crisis, the fo llowing measures are currently being applied 
(measures affecting two spheres): 
4.1 External sector 
 
Focus 1:  Alternative financing mechanisms fo r the export sector and policies to promote and 
diversify exports: 
 
• As Ecuador does not have a specialized fore ign trade bank to meet the financial needs 
of foreign trade operators and as the Corporación Financiera Nacional  – CFN 
(National Finance Corporation) only cove rs some of these needs through the FOPEX 
line of credit and another line to finance fixed assets, it has become necessary to set 
up a bank to promote foreign trade (EXIMBanco) within the CFN and a Foreign Trade Department will need to be set up w ithin this bank.  This CFN Foreign Trade 
Department will provide financial in centives to promote Ecuadorian exports. 
                                                     
 
10 The increase in imports is a result of the tariff reform and is positive inasmuch as it reflects recovery 
in the production sector.  WT/BOP/G/15/Rev.1 
 Page 21 
 
 
  • Giving exporters greater liquidity th rough more rapid refunding of VAT and 
negotiable tariff credit notes, to be complemented by international factoring and liquidity credits through the FOPEX (first and second tier). 
• The tax policy includes a moratorium on advance payment of income tax until 
December 2009 for those export sectors mo st affected by the crisis, and the 
agricultural sector will be able to deduct fro m income tax new machinery that can be 
considered reinvestment of profits:  silos, greenhouses, cold stores, inter alia . 
• In order to increase the volume exported and diversify the destination markets, the 
Ministry of Foreign Affairs, Trade and Integration has started to reinforce the Ecuadorian External Promotion Scheme with the aim of enhancing Ecuador's 
presence on international markets and increasing sales, as well as attracting investment and boosting tourism.  On the one hand, the geographical coverage of 
embassies and consulates has been reorganized and, on the other, trade missions and 
new embassies have been ope ned in various countries. 
• Ecuador has resumed negotiations on a trade agreement with the European Union. 
 
Focus 2:  Measures to boost production 
 
62. Faced with the need to undertake structural ch anges in the economy to allow Ecuador to move 
out of its primary mining production situation, the Government has worked on the definition of a new 
industrial policy and on support fo r the development of production sectors with potential which 
generate value added, employ ment and foreign currency. 
63. The main objective of the proposed industria l policy is to alter the primary-mining-export 
specialization pattern in Ecuador's economy an d promote activities with dynamic comparative 
advantages which generate more value added and are conducive to  the creation of skilled jobs, 
encourage production chains, develop technology and innovation, raise productivity levels and 
systemic competitiveness, and boost domestic dema nd, while at the same time protecting the 
environment and making rational use of natural resources. 
64. To achieve these objectives, the following po licies and actions have been determined: 
Policy 1
: Promote production sectors, industries a nd activities that generate greater value 
added, employment and foreign currency. 
Policy 2 : Encourage enterprises to become associat ed and develop economies of scale that 
promote local production chains. 
Policy 3 :  Promote micro, small and medium-sized enterprises, artisanal and 
community-oriented enterprises. 
Policy 4 : Promote skilled employment and improve labour skills. 
Policy 5 : Promote the production of high-quality goods and services. 
Policy 6 : Incorporate, break down, adapt and assimilate new technologies and production 
processes. 
Policy 7 : Promote clean production and environmental protection. 
Policy 8 : Lower transaction costs in order to f acilitate production, innovation and marketing 
processes. 
Policy 9 : Boost the supply and diversification of industrial products and export markets in 
production sectors based on economies of scale. WT/BOP/G/15/Rev.1 
Page 22  
 
  65. Efforts have also been made to define th e so-called "production cores" through which 
dynamic support is given to certain economic sectors
11 to attract and promote private productive 
investment (both from Ecuador and abroad) in non-st rategic sectors, in support of Ecuador's export 
offer, generating value added and innovation, and ab le to bolster job creation and production chains. 
66. Strategies have been designed for all the subsect ors to allow them to foster development of 
their production and attract investment.  It is planned that support should focus on research-related 
issues as well as obtaining lines of credit and de veloping science and technology.  Simultaneously, 
efforts will be made to seek new markets for these products and to expand their share both at the 
internal and external levels. 
4.2 Financial and credit sector 
 
(i) Approval of the Law Creating the Financial Security Network 
 67. This Law was approved on 28 December 2008 and w ill serve as a tool to protect the stability 
of the national financial system if the effects of the current international fi nancial situation affect 
certain institutions.  The Liquidity Fund has once again become the last-i nstance lender in the 
financial sector when a financial institution is facing a temporary liquidity problem.  Furthermore, the 
Law gives the supervisor new tools and options fo r prudential management and facilitates decision- 
making in relation to banking.  Lastly, it gives responsibility for paying deposit insurance to a new 
institution and increases the amount covered to US$20,000.  There are also provisions aimed at lowering the cost of financial fees and charges. 
(ii) Tax on assets held abroad 
 68. In order to increase the domestic supply of fo reign currency, which is essential to underpin 
the dollarization monetary regime, the Law on the Domestic Tax Regime was revised, imposing a tax 
on liquid assets held abroad by private entities supe rvised by the Banking and Insurance Supervisory 
Authority and the Stock Market Authority. 
(iii) Closure of "off-shore book centers" 
 69. Following dollarization, off-shore book centers in  tax havens, tools which allowed tax and 
regulatory arbitration to be evaded and circumvented, were closed.
12  Elimination of this tool is of 
particular importance for the stability of Ecuador's financial system. 
(iv) National and internationa l factoring (exporters) 
 70. The CFN will provide short-term financing to  Ecuadorian companies in exchange for the 
invoices payable;  it will finance up to 80 per cent of the amount of the invoice at an interest rate that 
starts at 8.5 per cent and for a minimum amount of  US$10,000 per transaction.  This tool will give 
liquidity to exporting companies. 
                                                     
 
11 The sectors identified include the following:  fish and fish products, fruit and vegetables, biofuels, 
engineering, timber and forestry, tourism, advisory services, computer engineering and software, transport and 
logistics, aquaculture, flowers. 
12 There may be regulatory arbitration if different re gulations apply to those acting in the stock market.  WT/BOP/G/15/Rev.1 
 Page 23 
 
 
  (v) Guarantee Fund for small and medium-sized enterprises 
 71. The Guarantee Fund will facilitate access to fina ncing for viable projects that do not have 
sufficient guarantees, bringing SMEs into the formal  financial sphere, incl uding those engaged in 
export activities.  The initial capitalization of th is Fund will be US$10 million from the CFN. 
(vi) Agricultural insurance 
 72. The objective is to encourage the procurement of agricultural insurance in connection with 
loans granted by the National Development Bank to the pr ivate sector.  It is hoped that this will lessen 
the risk to the farmer and the lender, reduce losses to the agricultural sector and the need for imports. 
(vii) Migrant "bank" services 
 73. The aim is to facilitate the transfer of rem ittances and family integration of migrants by 
linking local and non-local financial and non-financia l services networks;  to promote a link between 
migrants and production activities and opportunities to  invest in projects that benefit local and 
national development;  and, lastly, to help to prom ote the well-being of migrants and their families.  
Some of the measures to be taken by the migran ts' "bank" are the supply of services such as loan 
guarantees for migrants abroad backed up by their assets in Ecuador, and facilitating the transfer of 
remittances through the Central Bank. 
4.3 Fiscal sector 
 74. As many other governments in friendly countries have done in the face of the international 
financial crisis, the Ecuadorian Government ha s considered it appropriate to put forward a 
counter-cyclical fiscal policy to revitalize consum ption and domestic demand.  In order to overcome 
the crisis, fiscal policy emphasizes the need to channel domestic savings towards productive 
investment in Ecuador so as to prevent the Stat e's resources from being under-utilized.  Fiscal policy 
therefore seeks to focus on the responsible prio ritization of investment spending, which has a 
multiplier effect on the economy. 
75. This new focus in fiscal policy gives priority to investment and social spending, promoting 
efficient allocation of government resources.  The policy to increase capital spending has been 
implemented in order to ensure fiscal sustainability  in the medium term and give active support to the 
revitalization of the economy by improving the infrastructure.  The investment in strategic projects 
such as those in the hydroelectric and oil sectors will in the future lower the fiscal burden imposed by 
energy subsidies. 
76. The inherent vulnerability of the primary-mini ng structure of Ecuador's economy has become 
even more acute as the global crisis has evolved.  On the one hand, the fall in the price of Ecuadorian 
oil from an average of US$117.4/barrel in June to  an average of US$24/barrel in December 2008 has 
had a marked impact on the State's overall budget a nd on the resources available.  According to 
international forecasts, it is expected that in 2009 oi l prices will recover slightly but will still remain 
lower than in 2008 and this necessarily means prio ritizing spending and investment plans envisaged 
for the year.  In addition, emerging countries are f acing a credit squeeze on the international financial 
market. 
77. In this connection, four main lines of action are proposed for fiscal policy in order to deal 
with the crisis: 
• 
Making the best use of government resources; 
• lowering costs by seeking to give pr iority to spending on quality; WT/BOP/G/15/Rev.1 
Page 24  
 
  • managing transparency and liquidity of government finance; 
• seeking financing for the budget. 
 
(a) Making the best use of resources 
 
78. A programme has been put in place to make the best use of resources by collecting the large 
amount of debt owed by some economic agents to  the State and also by making better use of 
government resources: 
(i) Plan to reduce the quality differentia l (depreciation) of Ecuadorian crude
13 
 79. The Government is seeking to reform the nego tiating procedures in order to narrow the price 
differential between Ecuadorian  crude and reference crude. 
(ii) Formulation and implementation of a policy to rationalize subsidies 
 80. One of the aims of the fiscal policy is to ensure  efficient allocation of government resources.  
In this connection, a series of research studies and analysis of subsidies in Ecuador have commenced, 
focusing on those subsidies related to the hydrocarbons sector. 
(iii) Termination of pending tax proceedings 
 81. The government authorities are taking steps to resolve the 6,058 tax cases pending since 
1993.  In the 39 cases accounting for the high est amounts alone, the value contested is 
US$269 million (plus charges and interest).  The St ate hopes to speed up these proceedings and offer 
the opportunity to securitize the debt. 
(iv) Plan for the sale of the AGD's assets 
 82. The AGD will sell all the assets confiscated b ecause of debts by the sectors involved and will 
liquidate all the banks that are still its responsibility. 
(b) Lowering costs by giving pr iority to spending on quality 
 
83. Because there are fewer resources available, sp ending needs to be controlled and priority 
given to quality.  A series of measures are proposed  in this respect with the aim of achieving the 
aforementioned objective: 
(i) Prioritization of the Plan annual de inversions – PAI (Annual Investment Plan) 
 
84. Because tax revenue is limited, the Governme nt has had to prioritize capital spending.  
Consequently, the Secretaria Nacional de Planificación y Desarrollo  – SENPLADES (National 
Secretariat for Planning and Development) has drawn up a transparent and technical mechanism to prioritize projects that will form part of the PAI, cr eating indicators that take into account criteria such 
as jobs, regional balance, prioritization of spendi ng on strategic structures and infrastructure in the 
social sector, productivity, inter alia . 
                                                     
 
13 As Ecuadorian crude is of lower quality than the reference crude, West Texas Intermediate (WTI), 
there is a depreciation and it is quoted on the international market (both on the spot market and for forward 
contracts) at a lower price.  WT/BOP/G/15/Rev.1 
 Page 25 
 
 
  85. The ceiling on capital spending is determined in this time of crisis by the availability of tax 
revenue, which depends on the oil price situati on mentioned above and the financing sources 
identified. 
(ii) Investment policies for 2009 
 
• At the beginning of 2009, only pending proj ects are to be implemented;  depending 
on the availability of resources, the amount allocated to these projects will be increased or new projects will be included. 
• The goals for projects in the social sector  will receive maximum attention during the 
crisis, especially as regards infrastructure. 
• Financing for profitable projects will be  sought through external investment. 
• The commitments laid down in the new C onstitution will gradually be complied with 
as a priority. 
• Financing for new road projects will be  sought from multilateral and bilateral 
financing organizations. 
• Bilateral financing and invest ment will be sought to finance investment needs in the 
oil sector, giving priority to those projects which generate income immediately. 
 (iii) Remedying discrepancies in wages and spending in the public sector 
 86. The Secretaría Nacional Técnica de Recursos Humanos y Remuneraciones del Sector 
Público – SENRES (National Technical Secretariat for Human Resources and Remuneration in the 
Public Sector) has identified several lines of action to be taken in 2009 in order to lower spending on 
salaries:  
1. Making the structure of government instituti ons more efficient in  accordance with the 
needs of each entity and preventing duplication of responsibilities, functions or 
products. 
2. The abolition of all types of bonuses, unfair  social benefits, and special termination 
funds in government institutions. 
3. Emphasis on following a strictly administra tive career for government officials and 
giving incentives for retirement. 
4. In order not to give government official s who take early retirement double pay, the 
Ley Orgánica de Servicio Civil y Carrera Administrativa  – LOSCCA (Basic Law on 
the Civil Service and Administrative Careers) will be amended. 
5. As of 2009, the performance of government offi cials will be evaluated.  From July to 
December 2009, the recommendations stemmi ng from the evaluation's findings will 
be put into effect and there will be far-re aching reorganization of personnel in each of 
the institutions, cutting back on inefficient staff. 
6. The use of subsistence allowances by gove rnment officials will be reorganized 
through the enactment of new rules on subsistence allowances. 
 (iv) 
Unification and transparent harmonization of Social Security contributions 
 
87. The Government has embarked upon a process to  promote the transparency, unification and 
harmonization of employers' contributions by the St ate and contributions by government officials to 
the Instituto Ecuatoriano de Seguridad Social  – IESS (Ecuadorian Social Security Institute), the 
Instituto de Seguridad Social de las Fuerzas Armadas  – ISSFA (Social Security Institute of the 
Armed Forces) and the Instituto de Seguridad Social de la Policía  – ISSPOL (Social Security Institute 
of the Police Force). WT/BOP/G/15/Rev.1 
Page 26  
 
  (c) Managing the liquidity of the Government's finances 
 
88. The Government has put into effect a transformation of the fiscal system , trying to streamline 
management of fiscal resources and make it more transparent, eliminate the constraints that existed in budget management and promote a responsible fiscal  policy sustainable in the medium and long 
terms. 
(i) After eliminating the constraints on budget management by doing away with the 
pre-allocation of revenue, a process was in itiated to incorporate all government sector 
resources in a Single Account .  It is hoped to conclude this  process during the year, including 
for autonomous and decentralized institutions. 
 
(ii) In the medium and long terms, after having set up the Single Account as a whole, an 
investment portfolio or sub-accounts scheme  has been formulated for the purpose of 
channelling fiscal savings towards productive inv estment in Ecuador.  This scheme allows 
centralized management of liquidity. 
 
(iii) Based on the new Constitution, the Executive is wo rking on two draft basic laws to regulate 
the management of the State's finances a nd promote social and economic development:  the 
Government Finance Law and the Decentr alization and Land Use Planning Law .  These 
two complementary laws are based on the prin ciples of sustainability, co-responsibility and 
subsidiarity. 
 
(d) Search for financing for the State's overall budget 
 
89. As a result of the sharp fall in oil prices, ca pital spending depends to a large extent on the 
financing options available to the economy.  Two po ssible sources of financing have been identified 
for the NFPS: 
(i) Freely disposable financing by multilateral or ganizations:  ADC, U S$500 million;  LARF, 
US$480 million;  and the IDB, US$250 million.  Loans attached to projects will total 
US$794 million.  
 
(ii) Bilateral financing.   The Government is in contact with  countries such as China, Russia, the 
Islamic Republic of Iran, India, Venezuela and Arab countries, inter alia , in order to seek 
financing for strategic projects in the energy and highway sectors.  A technical and political 
inter-institutional team has been identified to be  responsible for the contacts and negotiations 
to attract investment in the aforementioned pr ojects.  Work is also going ahead on bilateral 
fund projects, starting with the creation of the Ecuador-Venezuela Bilateral Fund.  The latter's 
purpose is to develop projects of interest to the two Governments. 
 
5. FINAL CONSIDERATIONS 
90. For a dollarized Ecuador, it is extremely important to monitor the trend in its external sector 
closely so as to make appropriate use of the few policy tools still available to it and thus offset the 
harmful effects of possible external shocks that ma y alter the levels of liquidity in the economy and 
thus affect the normal devel opment of economic activities. 
91. For a small and open economy such as Ecuador 's, with limited capacity for reaction, 
controlling liquidity is greatly complicated if  the balance-of-payments position is negative. 
92. The external account position for the last months of 2008 and forecasts for 2009, in the midst 
of this marked decline in the international economy,  are of concern to the G overnment of Ecuador and  WT/BOP/G/15/Rev.1 
 Page 27 
 
 
  have obliged it to take measures to deal with a li quidity squeeze in the economy, the result of a deficit 
in the trade balance, so as to en sure that the country does not lose the macroeconomic benefits it has 
gained since dollarization. 
93. Estimates for 2009 show that, in a pessimistic  scenario, in order to ensure external 
sustainability Ecuador could have a maximum tr ade deficit of around 2.6 per cent in 2009, 
corresponding to US$1,279 billion.  According to th e balance-of-payments forecast and with an oil 
price of US$35.5/barrel and a volume of exports of crude of 108 million barrels , the trade deficit for 
2009 will probably amount to US$3,973 billion (8 pe r cent of GDP);  consequently, in order to 
achieve levels that ensure external sustaina bility, this deficit must be lowered to around 
US$2,693 billion. 
94. Given that the measures adopted by the Gove rnment to prevent the outflow of foreign 
currency have not had the expected results, Ecua dor has found it necessary to invoke Article XVIII.B 
of the GATT 1994 and apply temporary restrictiv e import measures in order to prevent further 
deterioration of the balance-of-payments, particul arly the trade balance, which has been seriously 
affected by the international crisis that has had an  impact on the major flows of foreign currency into 
Ecuador:  oil, remittances and non- oil exports.  In fact, Ecuador's trade balance has been recording 
deficits since September 2008. 
95. The aforementioned measure is part of a series of policies intended to resolve the structural 
deficit in the non-oil trade balance and the external sector's strong dependence on oil. 
6. DESCRIPTION OF THE MEASURES ADOPTED 
96. Given the severity of the current balance-of-payments problem, Ecuador has given 
consideration to introducing a combination of WT O-consistent restrictive import measures which do 
not exceed what is necessary to address its bala nce-of-payments disequilibrium and amount to 
US$2,694 billion in 2009.  The measures apply to 630 subheadings out of a total of 7,230, i.e. 8.7 per 
cent. 
97. Consequently, in compliance with the provisions in paragraph 2 of the Understanding on the 
Balance-of-Payments Provisions of the General Agreement on Tariffs and Trade 1994, priority has 
been given to the application of price-based measur es, and particularly to tariff increases, in some 
cases from bound levels and in others from app lied levels, of 30 per cent and 35 per cent in 
ad valorem terms.  The tariff universe covered by the measure comprises 75 subheadings, i.e. 1 per 
cent of the total.  In addition, specific tariffs ha ve been introduced for 284 subheadings, i.e. 3.9 per 
cent of the total tariff universe. 
98. It should be emphasized that these measures have been adopted in respect of imports of 
products according to their relative share of the tota l c.i.f. value recorded for the period January to 
December 2008.  Tariff subheadings corresponding to  80 per cent in each category were taken into 
account.  In addition, those tariff subheadings that increased substantially in  absolute value between 
2007 and 2008 were identified. 
99. In view of the critical situation in the exte rnal sector of the Ecuadorian economy and given 
that the adoption of price-based measures alone w ould have been insufficient and ineffective in 
preventing deterioration in the balance-of-payments, quantitative restrictions of 65 per cent and 70 per 
cent of the c.i.f. value of imports in 2008 have  been introduced for 23 and 248 subheadings, 
respectively.  This measure applies to a total of 27 1 subheadings, i.e. 3.7 per cent of the total tariff 
universe. WT/BOP/G/15/Rev.1 
Page 28  
 
  100. It should be pointed out that, at the end of 2008, there was a sharp decline in the non-oil trade 
balance, and it is expected that this will be even  more pronounced in 2009, which would clearly make 
the balance-of-payments equilibrium unsustainable, t hus putting the current monetary system at risk. 
101. In view of the dollarization monetary regime in effect in Ecuador and because certain trade 
partners have seen a large depreciation in their currencies, Ecuador's imports could continue to 
increase steadily because of the fall in prices at the international level.  Added to the fact that 
Ecuador's exports would decline because of lower in ternational demand, this means disequilibrium in 
the balance-of-payments. 
102. Because of this, Ecuador has b een obliged to impose specific ad valorem tariffs and quotas so 
as to help to restore the trade balance. 
103. The introduction of quantitative restrictions is based on Article XVIII.B of the GATT.  Using 
this instrument, Ecuador allows other Members of the WTO that supply Ecuador to maintain market 
access levels within the quota, in some cases with an applied tariff of zero per cent and in others with 
a higher applied tariff, in accordance with Article XIII of the GATT. 
104. The quantitative restrictions ha ve been determined in such a way as to represent the total 
amount of permitted imports of each product, not allocated among supplying countries, in accordance 
with Article XIII.2(a) and 3(b) of the GATT.  Th e measure has been established on the basis of the 
value of the quota set for each product, whose amount  has been published by Ecuador.  The country 
also undertakes to publish any changes that may occur. 
105. In addition, for internal purposes, it is envisaged  that quantitative restrictions should apply on 
the basis of quota allocation by importer and subheading on an annual basis.  Accordingly, the quotas 
are allocated by the COMEXI once only according to the share corresponding to each importer 
calculated on the basis of average imports over the pr evious three years.  In addition, a percentage 
under the heading "Others" has been reserved for new importers. 
7. LEGAL BASIS AND PROVISIONS TO MITIGATE THE INCIDENTAL 
PROTECTIVE EFFECTS 
106. The substantive legal basis for the restrictiv e import measures which Ecuador has decided to 
adopt in accordance with Article VIII.B of the GATT because of balance-of-payments problems is 
that, for the external and internal reasons expl ained in the paragraphs above, Ecuador has found it 
necessary to regulate the overall level of its imports, restricting the volume or value of goods imported 
in order "to forestall the threat of, or to st op, a serious decline in its monetary reserves". 
107. In addition, as provided in pa ragraph 9 of Article XVIII.B of  the GATT and paragraph 4 of 
the Understanding on Balance-of-Payments Provi sions of the General Agreement on Tariffs and 
Trade 1994, it is Ecuador's intention only to adopt restrictions that do not exceed what is necessary to 
address the balance-of-payments situation. 
108. The internal legal basis for the determina tion of these measures is COMEXI Resolution 
No. 466 of 19 January 2009 and its Supplementary Resolutions Nos. 467, 468 and 469, which were 
submitted jointly with the notifica tion WT/BOP/N/65 and its Rev.1. 
109. It should be emphasized that the import restricti ons referred to below are one of the elements 
of the additional measures which the Ecuadorian G overnment is introducing in order to restore 
equilibrium in its balance-of-payments on a sound a nd lasting basis in order to assure an economic 
employment of its productive resources, pursu ant to paragraph 11 of Article XVIII.B.  WT/BOP/G/15/Rev.1 
 Page 29 
 
 
  110. Consequently, although the import r estrictions will have a role to play in the adjustment 
scheme, they should not be considered as excl usive elements.  The Government is taking 
complementary measures to restore the equilibrium  by promoting and increasi ng production, exports 
and productive investment.  This is the context fo r the tariff reductions on imports of raw materials, 
inputs, intermediate and capital goods, which affect a total of 3,267 tariff subheadings, i.e. 45.2 per 
cent. 
111. Bearing in mind the extent of the efforts made  by the Ecuadorian Government over the past 
year, which include the adoption of WTO-consistent  measures such as the increase in applied tariffs 
up to the bound levels for 939 subheadings for c onsumer goods, the scope of COMEXI Resolution 
No. 466 of 19 January 2009, published in the Official  Register of 22 January 2009, is limited to what 
is strictly necessary to address the ba lance-of-payments crisis with th e least possible impact on other 
production sectors and minimizing any incidental protective effects for a period of one year. 
112. Accordingly, pursuant to paragraph 10 of Ar ticle XVIII.B of the GATT and paragraph 4 of 
the Understanding on the Balance-of-Payments Pr ovisions of the General Agreement on Tariffs and 
Trade 1994, priority will be given to the import of  "essential" goods which contribute to Ecuador's 
efforts to improve its balance-of-payments situa tion, are needed for production or meet basic 
consumer needs in accordance with the national economic development policy. 
113. It should also be pointed out that the measur es are temporary and are applied according to the 
MFN regime, as prescribed in Article XIII of th e GATT and paragraph 1 of  the 1979 Declaration on 
Trade Measures taken for Bala nce-of-Payments Purposes. 
114. The measure will be applied for a period of one year as of 22 January 2009.  Pursuant to 
paragraph 1 of the Understanding on the Balance-of-Payments Provisi ons of the General Agreement 
on Tariffs and Trade 1994, the time-schedule for rem oval of the measure will be gradual and will take 
into account favourable changes in th e balance-of-payments situation. 
115. Likewise, in accordance with paragraph 11 of  Article XVIII.B and the Understanding on the 
Balance-of-Payments Provisions of the Genera l Agreement on Tariffs and Trade 1994, Ecuador 
undertakes progressively to relax the restrictions d escribed in the measure as the situation in the 
external sector improves and to eliminate them when their maintenance is no longer justified. 
116. Lastly, pursuant to paragraph 9 of the Unde rstanding on the Balance-of-Payments Provisions 
of the General Agreement on Tariffs and Trade 1994,  Ecuador notified the adoption of the restrictive 
import measures taken for balance-of-payments purposes to the WTO Secretariat on 18 February 2009.  This notification was circulat ed to WTO Members in document WT/BOP/N/65 of 
23 February 2009 and its subse quent Rev.1 of 2 March 2009. 
117. The criteria used to choose the group of goods concerned was that they should have the least 
effect on economic activities, in other words, t hose capital goods or raw materials essential for the 
development of production were excluded from the me asure and, on the contrary, products deemed to 
be non-essential were chosen.  It must be emphasized that the choice of the group of goods concerned 
by the measure did not take as a criterion the orig in of the goods or whether they were produced 
locally.  Care was thus taken not to cause any unde sirable incidental protective effect on domestic 
production. WT/BOP/G/15/Rev.1 
 Page 31 
 
 
  ANNEX 1 
 
Dollar rates 
 
3.26
3,15
2.652.752.852.953.053.153.253.35SOL PERUANO  
2644.00
2222,85
1521172119212121232125212721PESO COLOMBIANO  
1.60
1,34
1.201.251.301.351.401.451.501.551.601.65USD por EURO 
123.44
89,13
859095100105110115120125130YEN por USD
2,322.51
1.401.601.802.002.202.402.60REAL BRASILEÑO  
13.93
13,82
9.5010.0010.5011.0011.5012.0012.5013.0013.5014.00PESO MEXICANO 
 
 
 
PERUVIAN SOL COLOMBIAN PESO 
YEN/US$ 
MEXICAN PESO BRAZILIAN REAL US$/EURO 3.15 2222.85 
89.13 
13.82 2.32 1.34 
 
WT/BOP/G/15/Rev.1 
Page 32  
 
  ANNEX 2 
 
External sustainability of Ecuador's economy 
 
 External solvency or sustainability, in ot her words, a country's capacity to meet its 
commitments abroad, depends in the last instan ce on the current account balance.  This balance 
determines the variations in a country's obligations to wards the rest of the world.  Put another way, the 
current account balance summarizes the total transactions in goods and services between residents and 
foreigners.  
 External sustainability depends on the generation of resources, currently and in the future, to 
allow servicing of the external debt without jeopard izing the economy's capital situation.  From this 
point of view, a country may run a deficit provided th at it still has the capacity to meet its obligations.  
The deficit becomes a problem when the generation of  (current and future) resources is not sufficient 
to meet the debts contracted;  such a situation enda ngers continuity of government policy.  Solvency 
therefore does not only depend on the level of inde btedness, its terms and profile, but also on the 
government's ability to meet th e commitments it has undertaken. 
  In order to calculate external sustainability, the net entry of foreign currency into the economy 
(inflow versus outflow of foreign currency) is anal ysed and it is determined whether the inflow will 
allow the debt which the country has contracted ab road to be met.  The revenue includes headings 
such as exports, remittances and FDI.  External sustainability may be jeopardized when the economy 
does not receive the amount of foreign currency needed to meet its external commitments.  
Consequently, when exports and remittances are sh rinking, external sustainability is under threat. 
 In order to calculate the level of trade ba lance consistent with the economy's external 
sustainability, the same assumptions  as those used for the balance- of-payments forecasts by the BCE 
for 2009 were used:  oil price of US$35.5/barrel and an export volume of crude oil amounting to 
108 million barrels;  implied interest rate  on the external debt of 4.1 per cent
14 and economic growth 
of 1.35 per cent.  In addition, a debt/gross domestic  product ratio of 35.3 per cent was applied and an 
average term of 15 years for the external debt.15 
Situation 2009 
Total external debt 17,345.7 
Net remittances 2,493 
FDI 210 
GDP 49,152.4 
GDP rate of growth 1.35% 
Debt/GDP 35.29% 
Implied rate 4.10% 
FDI/GDP 0.43% 
Net remittances/GDP 5.07% 
Sustainable trade balance 1,279.48 
% GDP -2.60% 
Source : BCE . 
 By applying the calculation described in Anne x A, if the average term of the debt was 
15 years and assuming a sustained rate of economic growth of 1.35 per cent per year, external 
solvency could be guaranteed with a maximum a nnual trade deficit of up to 2.6 per cent of GDP . 
 
                                                      
14 See footnote 8. 
15 See Pareja, M. (2003).  It should be pointed out th at this average term in fact corresponds to the 
public external debt;  nevertheless, we have used it for the debt as a whole.  WT/BOP/G/15/Rev.1 
 Page 33 
 
 
   The findings derived from this model have to be  compared with the trad e balance recorded in 
2008, corresponding to a surplus of US$880 million (1.7 per cent of the GDP for 2008), and the balance forecast for 2009 which will be a defic it of US$3,973 billion (8 per cent of GDP) if no 
restrictive import measures are taken . 
 These figures underline the urgent need to adopt medium-term trade policies designed to 
strengthen Ecuador's export sector;  as well as the urgent need to adopt measures that will allow the 
outflow of foreign currency for im ports to be checked immediately because it affects the Ecuadorian 
economy's level of liquidity.  
__________