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Ecuador’s Dependency Upon Oil Is Its History

Article Summary:

Ecuador is a country that is subject to extreme success as well as potential crises, all due to the ebb and flow of the price of a barrel of crude oil. Since 1972 when Ecuador filled its first barrel of oil the speech following this historic event by Ecuadorian General Guillermo Rodriguez Lara focused on the concept that oil should not be the only flow of income for his country, however subsequent administrations have abandoned this concept.

Photo Credit: El Comercio

Original Article Text From El Comercio via Google Translate :

Ecuador’s History Told Through Oil

When Ecuador started the boom of the oil era in June 1972, the speech of General Guillermo Rodriguez Lara, focused on that oil should not be the only resort in Ecuador and that the country could not expect anything from him.

However, in the next four decades, the practice was contrary governments.

If in early 1972, oil weighed between 1% and 3% of GDP, over the age of oil reached 20% (2008), according to the Central Bank. Oil dependence was evident in booms and busts over 40 years, where the volatility of oil prices accounted for even periods of stability or political crisis. That is, while a barrel climbing positions, the country was a bonanza.

But on the other hand, when crude was down the country went into crisis. The analyst on economic, Walter Spurrier, remember that with the start of oil exports in large quantities since 1972, Ecuador’s economic growth soared and reached record levels.

In 1973 the country recorded a GDP growth of 24%, according to Central Bank data, a rate ever recorded in the twentieth century and so far this century.

However, few years later, says Spurrier, the former falls between 1977 and 1978 led to the military regime of the time to return to democracy, but not before leaving Ecuador with a foreign debt close to USD 3 000 million, when in 1972 that amount was 12 times lower.

How can a country that from night to morning volvió’millonario ‘ended debt? For the former president of the Constituent Assembly, Alberto Acosta, this is not a paradox.

he primary export boom in oil attracted international banking large amounts of loans disbursed “as if it were a sustainable process”, which is also well received on the business side of creating a ‘permanent splendor’ and boom. However, in the following decade the price began to fall and the president, Osvaldo Hurtado, must cope with debt, amid a backdrop of new external credit constraint for Latin America.

State resources were further depleted by the conflict with Peru in Paquisha and El Nino weather phenomenon. Thus, between 1982 and 1983, Ecuador fell into default and had to make a series of adjustments such as reducing subsidies, devaluations and rising fuel prices. As a result reached by the national strikes, social unrest and political instability.

A drop was even deeper in 1986, the government of Leon Febres Cordero, when a barrel fell from USD 25.90 to USD 12.70. This was coupled with the Trans-Ecuadorian Pipeline rupture in 1987, which meant a decline in GDP of 6.4% accompanied by a sharp devaluation and new taxes for the population.

The dollar exchange rate rose from 95 to 194 sucre sucre. During the first seven years of the 90′s the oil price remained stable between USD 13 and USD 18. With this, the economy, more austere in those years, had growth between 1% and 4%, but continued ‘paquetazos’ and devaluations to finance the budget.

But between 1998 and 2000 reached a crisis in the country in recent decades: the collapse of the banks that came together with the low price of crude up to $ 6. The loss of savings of the population accompanied by an overall reduction in purchasing power became the downfall of then-President Jamil Mahuad.

During the first decade of the century, the country and gradually recovered and the government of President Rafael Correa, the price exceeded $ 106 in May 2008. The following year, however, fell to USD 26 and with it came the import restrictions and reducing the investment in past years was extensive.

After 40 years, Ecuador is subject to potential crises by variation of a barrel of crude. Milestones of the oil industry ‘s first oil well discovers at Ancon, Santa Elena Peninsula, the British company Anglo. However, the production is marginal.

he first export of oil occurred in 1928. From 1928 to 1959 the production of crude oil is concentrated in the peninsula of Santa Elena. Exports do not exceed 6% of total exports país.Comienza exploring the Amazon. During the 60, t he governments and dictatorships of the time granted concessions 5 million hectares in the northeast to foreign companies.

In 1967, Texaco – Gulf discovers the first successful well in Lago Agrio. In 1971, President Velasco Ibarra issued the Hydrocarbons Law. With it recovers for the country’s oil property by claiming that the oil wealth belongs to the inalienable and permanent property of the Ecuadorian State.

With the arrival of General Rodríguez Lara to power takes place the first state oil export and the contract is renegotiated Texaco-Gulf. The state gets to have 67% of that consortium. During the 70 stands the Esmeraldas refinery with a capacity of 55 000 barrels. In the 80 open new bidding rounds for private oil companies. In 2003, comes into operation on Heavy Crude Pipeline (OCP) with a capacity of 300 000 barrels. In 2006, the State determines for himself the 50% of oil revenues extraordinary. After four years of trying to renegotiate contracts with private companies, the Government changes the model of participation to provide services to firms Repsol, Agip, Andes and Petroriental. However, Petrobras and leave EDC.

Link to Original Article:

From El Comercio

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