TBY talks to Jeannette Sánchez, Coordinating Minister of Economic Policy, on the prospects for foreign investment, the drivers behind Ecuador’s economic growth, and potential areas for expansion.
TBY What factors have propelled Ecuador’s economic growth beyond initial analyst estimates?
JEANNETTE SÁNCHEZ Ecuador’s trade balance for 2011 surpassed even our own initial forecasts. The economic growth was 7.8% for 2011. This level of growth is very important for the country, and it reflects the global trading conditions that have favored this region, especially in terms of primary exports. The behavior of the oil market was of course important, but our analyses show that public and private investment accounted for 46% of the growth figure. Increased private consumption was definitely a factor; however, the dynamism of the non-oil sector and investments made in the real economy also helped support growth. In 2011, the non-oil sector grew 8.8%. Public investment has helped boost the economy in a counter-cyclical style as a medium-term solution to maintain growth in the face of international uncertainties. As a result of our proactive policies, Ecuador’s economy was less affected by the pressure of the global financial crisis.
What is the government’s strategy to make this positive growth trend sustainable?
There are two main policy lines regarding expenditures. The first is the income redistribution process, through which we carry out proactive policies to boost education, health care, and other welfare initiatives. This line of policy is sustainable because such expenses are recurrent. To support this process, we have implemented an active fiscal policy, involving both income and expenses through a redistributive focus that aims to make long-term investments in society through our own means. Therefore, financing policies have gone hand-in-hand with all of the fiscal reforms we have implemented, and these help guarantee the sustainability of recurrent expenses over the long term. The second main policy line concerning expenditure is that of investment.
How much public investment are you looking to devote to economic development in 2012?
Investment in the non-finance public sector will total around $9.7 billion, which is a significant level for an economy of this size. Ecuador has never seen this level of investment before, and it represents an important bet on changes to the energy matrix, road network, logistics, and social services infrastructure. This will entail a public investment of over 13% of GDP, which is significantly higher than the average for other Latin American states. Other sectors that will be directly affected by these investments include construction, electricity, transport, and oil and gas. The government aims to make large investments in the oil and gas sector that will target the development of refineries, oil wells, and alliances with the private sector in order to develop service contracts.
What are the government’s expectations for foreign investment in 2012?
Foreign investment increased significantly in year-on-year terms over 2011, though we expect FDI to expand even more rapidly in the near future. We closed the year with over $300 million in FDI, and we expect a continuation of the historic trend of such investments being directed toward the energy sector. Foreign investments are typically allocated toward large strategic projects, and this year we will develop several programs to satisfy the needs of investors. We expect a significant increase in foreign investment over the medium term, although it is difficult to make solid estimates at present owing to the state of the global economy. Multilateral organizations that provide the financing for large-scale projects include the Inter-American Development Bank (IDB), the La Caixa Foundation (FLAC), and the Latin American Development Bank (CAF), and Ecuador is opening up new lines with these institutions in 2012.
Which markets have the most potential for expansion in order to support economic growth?
We are experiencing a moment of absolute openness in the exploration of new markets. Ecuador demonstrates very traditional behavior in terms of its commercial relations, and we are very open to the world and our own region. We have to actively begin developing new markets. Outside the region, we have maintained an open attitude. In fact, more than 20 trade offices have been opened, and we have transformed the profile of consular staff in order for them to be more active in commercial terms, in addition to their diplomatic and political duties. We are proactive in terms of conducting market research, promoting our country, selling our products, and seeking smarter options for our exports. We also expect to continue negotiations with Europe, as the government is open to negotiations, though there are certain red lines we cannot cross. We defend our sensitive currency system, which requires a lot of care and seriousness in the management of our balance of payments and trade balance.
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