The Ecuadorian Crisis

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The Ecuadorian Crisis The Ecuadorian economy has undergone a profound change since it first splashed into the world market. It has enjoyed eras of unprecedented prosperity based on exports. It's initial 2 periods of growth being characterized by a rush of cocoa production early this century and an explosion of bananas in the 1950's. However, the largest and most influential boom was caused by the skyrocketing price of oil during the 1970's. This period clearly benefited elites, and even helped the masses in some ways. "Between 1960 and 1980 more than 10 years were added to Ecuadorian life expectancy, death and infant mortality rates dropped by 40 percent, and by 1980 virtually all children attended primary school (Moser, 1993:177)." However, Ecuador has gradually deteriorated and is now in an epoch of unprecedented economic depression. This is attributed to the everlasting effects of its oil era as well as the government's inability to control debt. On Thursday September 30'Th (1999) Ecuador became the first nation to default on its IMF loans know as the Brady Bonds. This is just the most recent example of how horrible the economic situation has become in Ecuador. The nation of 12 million people, described as "a banana republic with an economy half the size of Maine (Keaveny, 1999)," was not able to pay off approximately $98 million in debt. Ecuador's future does not look bright as economic mismanagement has made it nearly impossible to satisfy outstanding interest payments to U.S. backed creditors. Consequently, the primary effect of the 1970's is no longer regarded as an era of oil prosperity, but rather a time of rampant and ill advised economic moves by strong-arm military leaders. In order to take advantage of oil exportation they took huge loans to increase capitol and production. Many believe that the effects of these decisions are just beginning to rear their ugly heads. Through military of modernization Ecuador was able to pull itself out of the third world for the time being. However, between 1976 and 1980 it also increased its total "external debt by a spectacular 67% annually (Clark 1997: 5)," and has not proceeded to slow down. This coupled with the decline of oil prices (from $35 in 1979 to $10 a barrel in 1986) and the rise of real interest rates spelled its doom.
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