Ecuador country brief

Australia-Ecuador relations

Australia and Ecuador share friendly relations. Australia cooperates with Ecuador in the Forum for East Asia Latin America Cooperation (FEALAC) and the South Pacific Regional Fisheries Management Organisation (RFMO). In September 2011, former Foreign Minister Kevin Rudd signed a Memorandum of Understanding with the Foreign Minister of Ecuador, Ricardo Patiño Aroca, on the establishment of political consultations.

Australia's Embassy in Santiago, Chile is responsible for Ecuador. Australia has an Honorary Consulate in Guayaquil, which provides consular services to Australians in Ecuador. Ecuador maintains an Embassy in Canberra.

Australia is expanding its people-to-people links with Ecuador through development cooperation, including scholarships to study in Australia and the Direct Aid Program (DAP). Ecuadoran students are eligible for Australian Development Scholarships and two Ecuadorans received scholarships to study in Australia in 2012. In December 2012, 274 students from Ecuador were enrolled to study  in Australian education students, including some 144 Ecuadoran students on Ecuadoran Government scholarships. The Australian Government will also contribute up to $500,000 in technical assistance to the Yasuní-ITT Initiative.

Political overview

Background

The Spanish conquered Ecuador in 1534 and incorporated Ecuador in the Spanish Vice-royalty of Peru. Ecuador gained independence from Spain in 1822, joining the Federation of Gran Colombia with Venezuela, Colombia and Panama. In 1830 Ecuador left to become an independent country. Political rivalry between the coast and the mountains, which emerged soon after independence, has become one of the country's defining political characteristics. Landowners from the mountain region combined with the Catholic Church to create a strong political alliance, opposed by the rapidly growing banking and agricultural (particularly cocoa) interests of the coast.

Ecuador's twentieth century political history is marked by instability. The collapse of the global cocoa market in the 1920s and the Great Depression of the 1930s created a period of political turmoil lasting until 1948, in which no single government completed a term in office. From 1948 to 1960 political order was restored as the economy improved with the benefit of the growing export of bananas. Instability again became a feature of Ecuadoran political life in the early 1960s, with the influence of the Cuban revolution leading to a series of military, anti-communist governments. The military has traditionally enjoyed a high degree of independence in Ecuador and exerted considerable political control. In 1972 a military government reserved petroleum exploration rights for the state. Modernisation of the state was in part paid for by the influx of petro-dollars during the boom period of the 1970s but also by heavy foreign debt commitments. A constitutional referendum in 1978 provided the basis for a return to civilian rule the following year.

Ecuador had nine presidents between 1984 and 2005, three of whom were dismissed due to social unrest and public pressure. Alfredo Palacio was sworn in as interim-president following a vote by Congress to dismiss his predecessor, Luis Gutierrez in April 2005. New presidential elections were held in October 2006 with a run-off in November of the same year, which was won by current President Rafael Correa.

Correa had campaigned on a platform of promoting economic growth and attracting foreign investment to aid poverty reduction, while opposing neoliberal economic management. Correa also promised to restructure the country's external debt and indicated that he opposed a free trade agreement (FTA) with the United States, the leading destination for Ecuador’s exports.

On 28 September 2008, nearly 70 per cent of Ecuadorans supported a new Constitution that allowed the president to stand for consecutive terms, gave the president power to dissolve the legislature and gave the state more control over strategic sectors of the economy such as health and education. Correa ran again in the 2009 election, winning in a single round of voting.

Recent political developments

Rafael Correa won a third consecutive term in Ecuadoran presidential elections on 17 February 2013.  Following parliamentary elections held on the same day, President Correa's Allianza Pais party is likely to command an absolute majority in the National Assembly.  The constitution currently prevents Correa from running for a further term.

Correa’s popularity remains high, particularly amongst lower socio-economic communities following increased spending on hospitals, roads and schools made possible by high oil prices.

Relations with neighbours

Ecuador is a member of several regional political and economic groupings including the Bolivarian Alliance for the Americas (ALBA), the Organization of American States (OAS), the Rio Group, the Union of South American States (UNASUR), and the Community of Andean Nations (CAN). Ecuador has also made a formal request to join Mercosur (it is currently an associate).

Ecuador's relationship with Colombia has steadily improved following a violation of Ecuadoran territory by Colombian government forces in 2008. Colombian government forces launched a military attack against the Colombian guerilla group, the Revolutionary Armed Forces of Colombia (FARC) inside the Ecuadoran border and Ecuador subsequently broke off diplomatic relations with Colombia. Diplomatic relations were restored in June 2008 and in December 2011, Correa and Colombia's President Santos signed a maritime border treaty and a security cooperation agreement during the first bilateral visit by a Colombian president to Ecuador in four years.

Economic overview

At a Glance

Ecuador’s economy is dominated by petroleum production and agriculture for domestic consumption and export. Oil exports raised US$12.7 billion in 2012. Other exports are bananas, prawns and cut flowers.

Ecuador experienced strong growth through the 2000s, averaging 4.4 per cent real GDP growth per annum until a fall to 0.4 per cent in 2009 as a result of the global financial crisis. While GDP growth bounced back strongly to 7.8 per cent in 2011, it is expected to fall from an estimated 4.8 per cent in 2012 to 3.6 per cent in 2013 due to weaker demand from the United States and the expected closure of Ecuador’s largest oil refinery (for maintenance). After a period of very high inflation early in the decade, consumer prices were brought under control and inflation has averaged around four per cent per annum since 2003. Foreign Direct Investment is expected to remain low (1.5 per cent of GDP) and focused on the energy and mining sectors.

Oil accounted for over 40% of government revenue in 2011 (US$10.7 billion), with high prices enabling the Correa administration to run an extremely expansionary fiscal policy, investing in infrastructure and other social projects. The government has limited access to external financing owing to the legacy of a 2008 debt default on US$3.2bn in global bonds. As such, oil revenue allowed the authorities to raise spending while keeping the fiscal deficit low at one per cent of GDP. Lower oil prices would limit the government’s ability to maintain expansionary fiscal policies. Some further borrowing from China against future oil shipments is possible.

In 2010, Ecuador agreed to protect the Yasuni National Park, an area known for its biological diversity, and forego the extraction of the equivalent of 846 million barrels of oil and more than US$7.2 billion in income if other governments, the private sector, and NGO's contributed to the Yasuni ITT Initiative trust fund, to be used for sustainable development initiatives.

Bilateral economic and trade relationship

Two-way merchandise trade between Australia and Ecuador is small, but is increasing gradually. In 2011-12, merchandise trade totalled approximately A$31.1 million. Australia's exports to Ecuador were $13million in 2011-12, consisting primarily of aluminium, electrical equipment, copper and paper. Australian imports from Ecuador totalled A$18 million in 2011-12, mainly animal feed, cocoa and fruit (prepared, preserved and juices).

Export opportunities

Opportunities to strengthen bilateral trade and investment ties exist in the energy and mining sectors. There may also be potential for Australian companies to invest in telecommunications services and equipment, port infrastructure and information technology (though many of these opportunities will depend on the ongoing privatisation process). Cooperation in agribusiness and tourism could also lead to further business opportunities. The educational services sector holds good potential, and is growing, albeit from a low base.

Updated March 2013