Located on the west coast of South America, sharing borders with Colombia and Peru, Ecuador has a population of 13.7 million. It was a part of the Inca Empire until the arrival of the Spanish in the 16th century. Ecuador gained its independence as a part of Gran Colombia in 1822, and as an independent country in 1830. Historically, the economy of the country has relied heavily on agriculture with the export of primary products including bananas, flowers, and shrimp. However, for many years the major export was cacao, used to make cocoa. There was also a substantial export economy in sugarcane, tobacco, and cotton. Some of the latter was turned  into  clothes  in workshops  known  as obrajes, where many locals, in poor working conditions, would make woolen and cotton clothes. Sugarcane was often used to make pure sugar, and also molasses and rum. Most of this came from “Costa,” the coastal region of the country that developed at the expense of the “Sierra,” the Andean highlands. The Spanish also established a large shipyard at the main port, Guayaquil, and it soon became one of the biggest in Spanish America.

With  independence   in  1830, much  of Ecuador’s population  of about 500,000 was working in agriculture as sharecroppers. Labor was cheap and the country’s cash crops, which were grown for export, were able to be produced more cheaply than in most other countries.  As a result, Ecuador’s economy  was very much linked into the world economy by the middle of the 19th century. This meant that at times of economic slump overseas, the Ecuadorian economy would suffer. To increase the amount  of foreign income, in the second part of the 19th century, the production from cacao  was tripled—it  became  the  mainstay  of the economy and also Ecuador’s principal source of foreign currency—and  the total exports of the country increased  1,000 percent.  Although  Quito  remained the  capital,  Guayaquil  came  to  be the  commercial center of the country, and for imports and exports.

During the 1930s and the 1940s, pestilence caused a major diminution of cacao production throughout the country, and the government  sought to revitalize the economy by promoting  the growing of bananas. This started in 1948, but there was a sudden increase in  demand  for  cacao,  and  although  bananas  had started  to replace cacao as the major export crop by the mid-1950s, Ecuador remained the sixth largest exporter  of cacao in the world in 1958. The banana industry, however, was successful with help from the United  Fruit  Company,  although  demand  began to fall in the late 1960s, and by 1972 the country had to, once again, restructure itself.

By the 1980s, agriculture and fishing were still the largest employers in the country, and made up nearly half the country’s foreign currency earnings. In 1986, bananas, coffee, and cocoa combined  made up only 2.4 percent of the country’s total gross domestic product.  By this time Ecuador also started to benefit from the tourist  industry, with many people visiting the Galapagos Islands, and there was coastal fishing from Guayaquil, the country’s largest city and a major port. Guayaquil now has a population  of over 2 million, compared to just less than 1.5 million for Quito.

The discovery of petroleum  in the early 1970s and its exploitation  have transformed the  country.  This coincided with a major increase in the world demand for petroleum, and with the oil crises of 1973–74 and 1979, petroleum rapidly became one of the major sectors of the Ecuadorian economy. This helped finance increasing government  expenditure  and in May 1992 about 1.1 million hectares were handed back to indigenous communities. To ensure that the economy continued  to remain  strong, in 1992, Argentina  had pegged the local currency, the Sucre, to the U.S. dollar, and Ecuadorian president  Jamil Mahuad decided in 2000 to adopt the U.S. dollar as the official currency of his country.  Although  there  were initial political problems, the U.S. dollar was adopted in 2001.

In 2008, Ecuador  was decried  for attempting  to wrongly get billions of dollars from Chevron through legal maneuvers over what some saw as bogus pollution charges against Chevron.

Bibliography:   

  1. “Banana Republic Behavior,”  Wall  Street Journal (August  18, 2008);
  2. Carla Calero,  Arjun  Bedi, and  Robert  Sparrow,  Remittances,  Liquidity  Constraints and Human  Capital Investments  in Ecuador (Institute  of Social Studies, 2008);
  3. Carlos de la Torre and Steve Striffler, The Ecuador Reader: History, Culture, Politics (Duke University  Press,  2008);
  4. Vicente Fretes  Cibils,  Marcelo Giugale and Eduardo Somensatto, Revisiting Ecuador’s Economic and  Social Agenda  in  an  Evolving Landscape (World  Bank, 2008);
  5. Gerhard Drekonja,  “Ecuador:  How to Handle  a Banana Republic Turned  Oil State,” Boletin de Estudios Latinamericano  y del Caribe (v.28, 1980);
  6. The Europa Year Book (Europa Publications, 2008);
  7. Jorg Faust, Political Fragmentation, Decentralization and Development Cooperation: Ecuador in the Latin American Context. Studies (Deutsches Institut  fur Entwicklungspolitik  [German Development Institute], 2008);
  8. Carlos Larrea Maldonado, “Transnational Companies and Banana Exports from Ecuador 1948–1972,” North-South (v.7/14, 1982);
  9. John D. Martz, Politics and  Petroleum  in  Ecuador  (Transaction Books, 1987).