Ecuador: Meeting the Challenge of Change

Despite its wealth of natural resources and key position on the South American continent, Ecuador remains a relatively little known country. Less than a year after the election of new President Lucio Gutierrez brought an end to nearly a decade of political unrest, H.E. Juan Salazar Sancisi, the Ambassador of Ecuador to France, shares his views on Ecuador’s economic recovery and its role in the regional integration process.


The Diplomatic Letter: Mr. Ambassador, President Gutierrez’s induction into office on 15 January 2003 confirmed the restoration of political stability in Ecuador. The new administration is facing a volatile economic situation. How does it plan to modernize the country and reform the state government? What is Ecuador doing to reshape its political system and rejuvenate its political community, both indispensable to the country’s long-term development?

H.E. Juan Salazar Sancisi: Last year’s election brought to power our new President Lucio Gutierrez, who was sworn into office on 15 January 2003. This restored our country’s political stability, after long years of instability that saw several presidents step down without finishing out their elected terms in office. President Gutierrez enjoys widespread popular support. His election opens a brand-new phase in Ecuador’s democratic process. I should emphasize that President Gutierrez won 54% of the vote, ensuring him a legitimate mandate. I would also like to point out that very important sectors of Ecuadorian society are part of in the current administration, including our indigenous peoples. Their representatives hold several key posts, including the Ministry of Foreign Affairs, the Ministry of Agriculture, the Ministry of Education and Culture, and the Ministry of Tourism. The political instability seen in Ecuador and other countries in the region has not been caused by a lack of credibility in their democratic systems. It is a consequence of the dire economic, financial and social situation in these countries, which is forestalling the pressing needs of their most underprivileged citizens. The current administration is trying to counter this, doing its utmost to meet these totally justified demands. We must recall, however, that Ecuador’s foreign debt accounts for nearly 40% of the state’s annual budget.
As soon as it took office, the new administration began launching measures designed to revamp the state system and improve our production system. It is also determined to redefine the country’s overall strategy, to meet the challenges of globalization. We lay great importance on the concepts of fiscal restraint, withholding of taxes, restructuring the customs service, and producing oil. These are all important pillars that will enable us to steadily increase state revenues. As for your question on rejuvenating our political community, the election of our current president should be seen as a step in this direction. In the last election Ecuadorian voters could chose between eleven candidates, most representing our conventional political parties. As you already know, the final vote came down to two candidates, both of them unconventional. Moreover, it must be stressed that our conventional political parties are fully aware of the  need to rejuvenate. Many of them have consequently been working to that end since the last election. Ecuador now has many young political leaders with excellent university educations and a deep understanding of national realities.

T.D.L.: Eradicating poverty and corruption, two of President Gutierrez’s key themes, is vital in order to turn the country back around. Will the government enact measures to streamline the country’s judicial and customs systems, which have crippled Ecuador’s internal functioning and kept it from opening up its economy? Have the terms of the agreement recently reached with the IMF curbed the government’s room to maneuver in the social arena?

H.E.J.S.S.: Fighting poverty and corruption were the two main themes of President Gutierrez’s campaign. They won great favor with the Ecuadorian people, who cast a large number of their votes in support of his candidacy. The President of the Republic has taken wide-ranging action to resolve these problems.
In terms of fighting poverty, it should be noted that the state budget has been realigned and now sets aside considerable funds for the social sector, with special emphasis on education and health services.
As for eliminating corruption, let me just give you a few examples. The government has taken a series of steps to extradite a handful of bankers who tried to dodge legal measures by seeking political asylum abroad. Unfortunately, the administrative procedures required to extradite someone are long and complicated. Political decisions and careful follow-through are simply not enough. The government continues, however, to do everything in its power to ensure success in this area. We have also taken important steps aimed at clearing off the monetary deficit created by these bank failures, thanks to the Deposits Guarantee Agency.
In addition, we have laid out measures designed to curb the outlay of state resources. Ecuador’s ministries and government institutions are required to comply with these measures. The various monitoring bodies and the state prosecutor work together very closely in this arena.
As for Ecuador’s relations with the International Monetary Fund, we have signed a Letter of Intent with the goal of stabilizing our macroeconomic factors as well as our national development. By putting our house into order, we can hope to see better days in the most deficient sectors. The national government would like to restructure the debt, and has opened negotiations to that end. This would allow us to decrease the percent of revenues used to service the debt, and thus enable us to tackle the various problems in the social arena. Ecuador and the Club of Paris recently held new negotiations in Paris. We reached an agreement on 13 June 2003, when a new repayment schedule was approved. This agreement will make it easier to carry through with the Letter of Intent signed with the IMF. I should also underscore the fact that in negotiations of this kind, it is also possible to convert the external debt into social investment. This makes it possible to devote revenues set aside to repay the debt to projects directly benefiting the country, the rural sector in particular. Let me conclude by underscoring the fact that the government has earmarked a considerable part of the state budget for the social arena.  

T.D.L.: As a member of the Andean Community (CAN), Ecuador has helped further the regional integration process launched in the late 1960s. Has the adoption of the dollar as the country’s currency affected economic ties between Ecuador and other CAN member countries? Why do you think the Andean Community has run into so many difficulties as it endeavors to create a common market? Has the resolution of the territorial dispute between Peru and Ecuador brought  changes in bilateral and even regional relations?

H.E.J.S.S.: The adoption of the dollar as Ecuador’s main currency was the result of the most severe economic crisis in the nation’s history. In 1998, Ecuador was hit by El Nino, which caused enormous damage in the agricultural sector and its infrastructures. The price of oil fell to $7 a barrel, among other things, and the crises in Russia and Asia made their impact felt throughout the entire region. After months of social unrest, and after an exorbitant monthly devaluation, the government had no other choice but to adopt the dollar as the only legal currency in circulation. This measure stabilized the economy and, most notably, brought down inflation. Economic agents and international investors responded favorably. The Ecuadorian economy grew 5.4% in 2001, 3.4% in 2002, and is expected to grow another 3.1% this year. Our GDP also increased, climbing from $16 billion in 1998 to $22 billion this year. But while the country has been stabilized, there is no denying that a handful of industrial sectors and several export industries have lost their competitive edge, mainly because other Latin American countries have also devaluated their respective currencies.
During the Fourteenth Andean Presidential Council, held on 27-28 June 2003 in Colombia, Ecuador took over the presidency of the Andean Community. Our Ministry of Foreign Affairs will serve as the CAN Pro Tempore Secretariat. During this council, the presidents took several decisions of key importance to the Andean integration process, defining policy for the second phase and laying out a wide-ranging and multidimensional agenda.
In the political and commercial arenas, the Heads of Government made forging a common South American space between the Andean Community and Mercosur one of their top priorities. They also laid special emphasis on bolstering the social agenda. They are set to approve a number of new projects this coming December, including the Integrated Program for Social Development, an Indigenous Table to promote the rights of Indian peoples, and the promotion plan for the Andean Human Rights Letter. In the trade arena, vital strides were made toward launching the Andean Common Agricultural Policy (ACAP). Set to be approved this coming September, the ACAP will give us an organized policy on agricultural questions. Along with this political decision, headway was also made on technical issues, so that problems concerning nonconformance with Andean standards can be resolved without delay. In another arena, the Labor Program was further reinforced in view of the creation of the Common market in 2005. Other measures were also adopted, to speed up integration and development in border zones.
There has also been good headway on the issue of sustainable development, especially in the exchange of views in international forums.
Finally, new education and cultural programs have been set up. At the intermediary level,  a Chair for Integration in our high schools was created. Training programs to promote the preservation of the Andean nations’ cultural heritage have also been put in place. The Andean Community has indeed had problems creating a common market, but that is to be expected in any regional integration process. It took Europe fifty years to reach this same point. The Andean Community is the most advanced regional integration project between developing countries. In that sense, I believe that the Andean countries are gradually realizing that their industrial growth is fully dependent upon the Andean market. The regional integration process has won the support of a large part of the population. For our part, we have a very positive view of the Andean Community. They are our sister countries. Our proximity is a geographic fact, and we must take full advantage of it, to strengthen the entire Community through free trade and also increase our trade with other regions of the world.
The Peace Treaty signed with Peru has been widely hailed at both the regional and international level. It is a clear example of a peaceful solution to a disagreement. In short, the entire region, including the disputing countries, displayed a good degree of political maturity and showed exactly what makes democracy work: respect for the will of the people. In this particular case, the Ecuadorian and Peruvian people wanted brotherhood and understanding. This agreement presents a variety of major advantages for both parties: it gave an immediate boost to common efforts to spark the development of our border provinces. Programs and projects focusing on the areas of health care, education, housing and agriculture were put into action, and are gradually changing the lifestyles of the people in these provinces. What’s more, trade between our two countries has also increased substantially. Peru is now our third leading trade partner. It should also be noted the Ecuador's trade with its two neighbors, Peru and Colombia, now accounts for 15% of total foreign trade and continues to grow significantly every year. Tourism trade between the two countries is also booming, with all the benefits this brings to our border zones and to both countries. This trend is also making an impact at the regional level, which is being further bolstered by the other strides I mentioned above. A region free of clashes will foster investments and tourism, the two main pillars of growth and development.

T.D.L.: Brazil has taken over the helm of Mercosur, giving the organization new impetus. Could this help speed up negotiations between CAN and Mercosur on the proposed free trade zone in South America, set to come into being on 31 December 2003? On a broader level, will the FTAA help spur stronger economic growth in Ecuador and throughout Latin America?

H.E.J.S.S.: As concerns the negotiations to create a free trade zone in America, we cannot deny that Ecuador’s main trade interests lie in the United States, which accounts for a high portion of our trade.
The outcome is going to depend on the ongoing talks. It is too early to say that opening up trade is negative in and of itself. Ecuador is well integrated at the international level, with an openness score above 60%.
The FTAA can be a tool for spurring the economic development of Ecuador and of the continent’s other countries. The international trade system is benefiting greatly from the American continent’s wealth of resources, through commercial exchanges. There are, however, great differences between the various countries participating in these negotiations, and it is important for us to set up mechanisms and practices that will enable us to reduce these differences and improve how the costs and benefits of this system are divided up.

T.D.L.: Colombia’s internal strife has presented the Andean region with one of its biggest problems. The implementation of the Colombia Plan and the continued presence of guerillas in the border zone have created serious security problems for Ecuador.  Determined to see Ecuador “become one of the United States’ best allies in areas of mutual interest,” President Lucio Gutierrez has turned over the Manta military base to American troops for a period of ten years. What role is Ecuador destined to play in the resolution of this conflict? On a wider level, how can your country help combat drug trafficking?

H.E.J.S.S.: Ecuador hopes that the internal conflict in Colombia will be resolved as quickly as possibly, which is why it has called for launching a peaceful dialogue. That is the role we hope to play. We want to help find a solution to this conflict, and President Gutierrez’s proposals and declarations all target that same end. He is personally involved in the efforts to reach a settlement, with support from the entire region. The agreement for the Manta base has made it possible to fight the trafficking of illegal drugs, which are corrupting our societies and making the Colombia problem all the more violent while at the same time fueling it with funds.

T.D.L.: As the first region in Latin American to sign a cooperation agreement with the European Union, the Andean Community has shown growing interest in strengthening its ties with Europe since the 1999 Rio Summit. Will the negotiations for a new political cooperation agreement, opened in May 2003, further bolster EU-Andean ties? What does Ecuador hope to achieve through this cooperation? As your country gradually opens up, does it intend to leave a little room for Europe? Ecuador is heavily in debt. Could this debt possibly be converted into social and economic investments?

H.E.J.S.S.: Latin America and Europe have a shared history. Both regions are part of Western culture. We share the same vision of life as well as opinions on how to handle problems, which have naturally made us key political and trading partners. In that light, the Andean Community has always supported building closer ties with Europe. Andean integration has always taken European integration as its model. We are working hard to forge – from our own unique reality – a body that will enable our countries to live together in peace, facilitate cultural and commercial exchanges, and give our countries the best chance to play an active role in the international community.
All the factors that bring us together have naturally created a close relationship that is growing stronger and stronger with time. This is why the Andean Community and the European Union have decided to negotiate a new Political Dialogue and Cooperation Agreement. It will be signed shortly, and will serve as the springboard for the negotiation of an association agreement that includes a free trade zone between the two blocs.
Ecuador has been saying for several years now that the external debt should be converted into social investment projects, particularly in the areas of education and health, areas key to any country’s development.

T.D.L.: Colombia  proposed striking an agreement with France in order to obtain the release of hostages held by rebels. Could France step in to help build closer political cooperation throughout South America? There is wide potential for strengthening Franco-Ecuadorian ties in the commercial arena. Could you outline other areas where cooperation could be bolstered? Could expanded university exchanges between our countries lead to better mutual understanding and help forge longer-lasting ties?

H.E.J.S.S.: France is a country that makes its presence strongly felt throughout Latin America. Our two countries are united by long-standing cultural and political ties. France has always served as a model for the most progressive sectors of Ecuadorian society.
This relationship is echoed in our cultural and trade ties, as well as in investments. The great geographic distance between our counties does, however, affect these ties, despite technological advances that shorten that distance. We have a long tradition of cooperation in the educational arena, with dozens of Ecuadorian students taking specialized courses in France.
Our ties are also very close in the political arena: in the short amount of time I’ve been in Paris, I’ve had the pleasure of receiving visits from the Ecuadorian Minister of Economy, the Commander-in-Chief of Police, the Commander-in-Chief of the Armed Forces, the Vice Chairman of the Executive Board of the Guayaquil Chamber of Commerce, and several renowned artists. Just a few days ago, the French Secretary of State for Foreign Affairs visited Quito with a large delegation of MFA representatives. This shows the intensity of the ongoing exchanges between our two countries. Nevertheless, in view of the great potential of each country, these relations are fleeting. This is why I am taking this opportunity to issue an invitation to work together even more closely, to strengthen our ties and make them more productive. To that end, I will do my utmost to give bilateral ties a fresh boost all across the board, laying special focus on multiplying our trade ties and expanding technical and cultural cooperation.