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INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
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RUEHQT/AMEMBASSY QUITO

UNCLAS QUITO 000190 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EPET EC
SUBJECT: Ecuador Economic News February 8 - 12, 2010 
 
REF: QUITO 154; 90 QUITO 816; 09 QUITO 1068 
 
¶1.   (U)   The following is a periodic economic update for Ecuador 
that reports notable developments that are not reported by 
individual cables.  This document is sensitive but unclassified. 
It should not be disseminated outside of USG channels and should 
not be posted on the Internet. 
 
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Highlights 
 
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-- Third Quarter 2009 GDP Growth of 0.26%; $332 Million Trade 
Deficit for 2009 
 
-- GoE Plan to Use Reserves to Stimulate Construction Sector 
Falters 
 
-- Consumer Credit Card Debt Increases during Economic Downturn 
 
-- Fuel Smuggling Across Ecuador's Borders 
 
 
 
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GDP Growth of 0.26% in the Third Quarter of 2009; Trade Deficit for 
2009 
 
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¶2.   (SBU)   Ecuador's Central Bank (CB) reported this week that 
the Ecuadorian economy grew on a quarter-to-quarter basis by 0.26% 
in the third quarter of 2009, but shrank 1.40% on a year-to-year 
basis.  Although minor, this growth rate breaks a recessive 
economic trend after the Ecuadorian economy contracted by 0.25% in 
the final quarter of 2008 and by 1.21% and 0.21% in the first and 
second quarters of 2009, respectively.  The CB did not change its 
methodology in calculating these figures.  According to CB 
officials, it will start applying a new methodology with full year 
2009 figures, due out by the end of March (ref A). 
 
 
 
¶3.   (SBU)   While few private analysts appear to be publicly 
questioning the accuracy of the CB's QIII GDP report, the third 
quarter recovery does seem inconsistent with the rise in the 
unemployment rate from 8.3% in the second quarter to 9.1% in the 
third quarter of 2009.  A number of local analysts point out that 
given the growth rates registered in the first three quarters of 
2009, the Ecuadorian economy would have to grow considerably in the 
last quarter to achieve the CB's estimate of a GDP growth of 1% in 
¶2009.  Most local analysts expect Ecuador's economy contracted for 
full-year 2009, as also expected by the IMF (-1%) and CEPAL 
(-0.4%). 
 
 
 
¶4.   (SBU)   Ten of fourteen economic sectors recorded growth 
between the second and third quarters of 2009: construction 
(2.11%); financial intermediation (1.11%); private households 
(1.02%); commerce (0.75%); fisheries (0.53%); services (0.39%); 
water and electricity (0.37%); transport (0.20%); public 
administration (0.14%); and other GDP elements (0.75%).  Four 
sectors reported quarterly contractions: agriculture (-0.94%); oil 
refining (-0.71%); manufacturing (-0.32%); and mining (-0.29%). 
The third quarter contraction in the oil sector reflects a fall in 
oil production since international oil prices recovered during that 
period.  On a year-over-year basis, eight economic sectors 
contracted, including: commerce (-4.62%); manufacturing (-2.76%); 
agriculture (-2.51%); and mining (-1.35%).  The following sectors 
grew on a year-over-year basis: water and electricity (5.49%); 
 
construction (4.51%); public administration (3.27%); and transport 
(1.95%).  The CB also reported that internal demand in the third 
quarter grew by 1.04% on a quarter-to-quarter basis, after 
registering three consecutive quarters of contraction, with 
investment increasing by 1%, household consumption by 0.48%, and 
government expenditures by 0.14%. 
 
¶5.   (SBU)   On the external side of the economy, the CB also 
reported this week that Ecuador registered a trade deficit of $332 
million for the full year 2009.  2009 exports declined 26% and 
imports fell 20%.  The decline in imports was mainly due to the 
fall in internal demand that accompanied the QIV 2008 to QII 2009 
recession and the balance of payments import restrictions the GoE 
imposed in January 2009.  Exports decreased in value mostly as a 
result of reduced international oil prices (from an average of $83 
in 2008 to an average of $56 in 2009) and a contraction of 6.1% in 
the volume of oil exports. 
 
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GoE Plan to Use Reserves to Stimulate Construction Sector Falters 
 
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¶6.   (SBU)   On October 20, 2009, President Correa announced the 
government's intention to repatriate up to $2.5 billion in 
international reserves to provide financing to productive sectors 
in Ecuador, with the broad goals of stimulating Ecuador's economy 
and reducing unemployment levels (refs B, C).  The GoE announced at 
the time that it would begin by allocating roughly $600 million of 
the repatriated reserves to support the construction sector. 
Delays in the repatriation of the international reserves and 
discrepancies about the risk of the investments in public banks led 
President Correa to criticize Central Bank (CB) management, 
prompting the mass resignation of CB staff in December 2009. 
[Note: the repatriation of reserves is so far more rhetoric than 
reality, as all it entailed initially was altering the accounting 
of funds on the CB's balance sheet: shifting funds from the CB's 
account with the Bank for International Settlements (BIS) to the 
public banks' accounts with the CB.  These resources remain 
deposited in overseas accounts, mainly with the BIS, until the 
public banks draw down on their CB accounts.] 
 
 
 
¶7.   (SBU)   On December 12, 2009, interim CB President Diego Borja 
announced the immediate repatriation of international reserves 
totaling $864 million, with $400 million directed to Banco de la 
Vivienda, and Banco del Pacifico for financing home mortgages and 
about $200 million to the Ministry of Urban Development to finance 
a $5,000 subsidy for purchases of homes valued at less than 
$60,000.  Separately, the Ecuadorian Social Security Institute 
(IESS) agreed to provide an additional $200 million in financing of 
home mortgages. 
 
 
 
¶8.   (SBU)   As President Correa has commented a number of times in 
recent public speeches, only a fraction of the promised resources 
have reached the intended destination.  Analysts believe the 
stimulus' impact has been weakened by bureaucracy and economic 
uncertainty, while GoE officials claim there are not many housing 
programs ready to receive financing.  Meanwhile, the public banks 
have invested some of these resources in private financial banks, 
which have increased their deposits as a result of the stimulus 
plan.  Also slowing new construction is the Ministry of Urban 
Development's approval process that can take months to complete. 
Lenders also claim that, although they are ready to create loans, 
many builders do not provide the necessary documentation, or have 
unrealistic income expectations.  Banco del Pacifico was allocated 
$200 million to increase lending to home buyers and builders, but 
so far has only granted credits for $25 million.  The Ecuadorian 
Social Security Institute (IESS) has only approved 1 of 32 loan 
requests.  Even without these delays, potential homebuyers remain 
reluctant to take on the substantial debt a home purchase would 
represent. 
E 
 
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Consumer Credit Card Debt Increases during Economic Downturn 
 
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¶9.   (SBU)   The growth in credit card debt in Ecuador slowed in 
2009 to 8.6%, down from an average annual growth rate of 20% from 
2000 to 2008.  In 2009, credit card debt increased to $2.57 
billion.  Of the nearly 14 million people in Ecuador, 2.9 million 
have a credit card, placing the average credit debt among credit 
card holders at about $900 compared to $8500 in the US.  Although 
credit purchases for consumer goods such as appliances, computers, 
clothing, toys, and jewelry decreased last year, credit purchases 
for basic products and services at grocery stores and fast food 
restaurants increased.  The recent economic downturn also pushed 
delinquency rates on credit cards from 3.8% in 2008 to 5.1% by the 
end of 2009 (compare to 4.5% in the United States at end of 2009). 
 
 
 
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Fuel Smuggling Across Ecuador's Borders 
 
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¶10.   (SBU)   Subsidized fuel in Ecuador has attracted the 
attention of opportunists along both its northern border with 
Colombia and southern border with Peru, due to the wide disparity 
in pump prices between Ecuador and its neighbors.  While gasoline 
and diesel in Ecuador sell on average for about $2.50 and $2.00 a 
gallon, respectively, Colombians are paying in the range of 
$3.40/gallon for gasoline and $2.90/gallon for diesel.  Peruvians 
living in Lima pay even higher prices, with gasoline roughly in the 
$3.60 to $5.00 range (depending on octane level).  The gap has 
fomented a sizable black market for Ecuadorian fuel between the 
Ecuadorian border city of Tulcan, and the Colombian city of 
Ipiales, and the southern border with Peru is reportedly wide-open 
(at least on the Ecuadorian side), with few obstacles to smuggling 
of fuels or any other products.  Media reports about activities on 
the Colombian border allege that smugglers are using modified 
vehicles to transport gasoline, diesel, and propane.  Also 
according to press reports, the provincial government of Carchi, 
where Tulc????n is located, has initiated a program to reduce the 
size 
of the black market, now estimated to employ some 3,000 people. 
HODGES