Ecuador's pinch

Patrick Crow
Washington, D.C.
[email protected]

Low oil prices are hurting oil-exporting nations, and Ecuador is a prime example.

It posted its largest trade deficit ever last year, $957 million, due to double blows from El Ni?o and the collapse of world oil prices. In 1997, it had registered a $598 million surplus.

For the first time since 1972, crude and products were no longer the country's largest source of export earnings, slipping to $825 million. They trailed behind bananas at $1.07 billion and shrimp at $852 million.

The last time Ecuador ran a trade deficit was in 1987, when an earthquake destroyed its main crude pipeline and interrupted its oil exports.

Ecuador is Latin America's sixth largest oil producer and fourth largest exporter.

In 1998, it produced 383,000 b/d, about 300,000 from state-owned Petroecuador and the rest from private companies.

Austerity drive

This year, President Jamil Mahuad wants to halve the $1.2 billion budget deficit the government registered in 1998.

As part of that campaign, the government has ended fuel subsidies and increased electricity prices, irritating liberals and labor unions.

Also, in an effort to reduce retail prices through greater competition, Ecuador plans to drop petroleum product price controls and end the state's monopoly on product imports.

Later this year, the government wants to sell at least 51% of its interests in six electric power plants and related transmission infrastructure. It hopes private investments will end chronic electric power shortages.

These reforms have not gone smoothly. President Mahuad's economic policies recently were the target of nationwide protests, and many of Petroecuador's 5,000 employees have joined in the demonstrations.

Oil investments

Last year, the world oil price drop forced Petroecuador to reduce its investments by $300 million, resulting in a 3% drop in its oil production.

Congress reacted to that with a law last summer that allows private companies to develop Petroecuador's proven reserves.

The government is pushing comprehensive legislation that it hopes would encourage up to $200 million worth of joint ventures between Petroecuador and foreign companies this year.

Given the current low-price environment, that program may fall considerably short of the $200 million goal.

For instance, ARCO recently announced it would cut its investments in Ecuador 25% this year to $150 million, because of low world prices.

Ecuador also wants to fund projects to follow up on a treaty it signed last October with Peru, ending a decades-long border dispute in the Andes.

The two nations recently launched a 10-year program to build international highways, integrate their electrical grids, and jointly develop water, oil, and mineral resources.

As part of the pact, Peru would allow Ecuador to use its northern pipeline to ship crude to the Pacific Ocean for export.