ON A GROWTH PATH

Ecuador 2013 | FINANCE | INTERVIEW

TBY talks to Diego Martínez V., President of the Board of the Central Bank of Ecuador (BCE), on interest rate strategies, the non-oil trade deficit, and the local investment climate.

Diego Martínez V.
BIOGRAPHY
Diego Martínez V. graduated from the Pontifical Catholic University of Ecuador and has a Master’s degree in Development Economics from the Institute of Social Studies (ISS) in the Netherlands. He has held several important public positions, including Secretary General for Science, Technology and Innovation at SENESCYT. At the National Secretariat of Planning and Development he also took on several senior roles, and has served on the boards of Petroecuador, Petroamazonas, the Electricity Corporation of Ecuador, the National Electricity Board, and the Refinery of the Pacific, among others. He is currently the President of the Board of the Central Bank of Ecuador (BCE).

What role is the Central Bank of Ecuador (BCE) playing in the economic transformation of Ecuador?

First of all, we have to mention that the BCE, as compared to its counterparts in other countries, is not an independent institution and we have chosen to play an economic development role as a central banking institution. According to the constitution of Ecuador, we are a financial institution responsible for the monetary, credit, and financial policies of our country. Overall, the BCE is solely responsible for managing the aggregate liquidity and the payment systems in the country, both public and private. In addition, we also manage the public central securities deposit, macroeconomic statistics, the regulatory framework of the finance sector, the administration of foreign exchange reserves, and the monitoring of public debt levels. Last but not least, the BCE also plays a very important role in expanding finance penetration rates and modernizing payment systems in Ecuador.

How is the BCE strategically tackling financial integration in Ecuadorean society?

We are the main institution responsible for this ambitious strategy. However, we work closely with several other institutions to achieve our strategic goals. Basically, we are modernizing the tools for the promotion of this financial integration.

What is the BCE's interest rate strategy for the upcoming period?

The BCE is the institution in charge of setting the maximum interest rate that can be paid, and we implemented a very ambitious strategy to lower these rates in 2009 and 2010. In this context, in 2010, we introduced some changes, for the BCE has to maintain rates at a reasonable level to keep the economy growing at a good pace, encourage the productive system, and ensure economic soundness for the country. It is important to note that in the last few years we have implemented several changes and reforms in the financial sector around rates and commissions, while keeping in mind the need to safeguard the development of the national economy. For example, we implemented the liquidity pool to make sure banks in Ecuador have a sufficient availability of financial resources, deposit guarantees, and stricter control of the inflow and outflow of dollars in the country. This is a much-needed measure for a dollarized economy like ours, which does not have its own currency, and in which consumers have traditionally opted to make savings deposits abroad. Ecuador today enjoys the highest liquidity levels in its history—around $15 billion, which is 15% to 16% above GDP. In addition, we repatriated a large amount of savings that Ecuador had abroad, and we are channeling it through public banking to fund the country's development.

“Ecuador today enjoys the highest liquidity levels in its history—around $15 billion, which is 15% to 16% above GDP."

How would you assess the development of the trade balance in Ecuador over the next few years?

The trade balance is the main structural challenge for Ecuador and we have to tackle it; the government of Ecuador has already stated its strategic goal to change the country's productive structure and that would enable the country to shift its trade flows. Measures adopted in recent years to tackle the country's dependency on the oil industry have enabled us to be in a better position today and say that the weight of oil in our economy has to be put into context. Its relative significance is decreasing thanks to, for example, the increase in tax and other such incomes. The best example is that Ecuador avoided recession for the last few years, despite low growth in developed countries, and that we closed 2012 on 5% growth, estimating that we will close 2013 on around 4% growth. We also know that the trade balance deficit in non-oil products is significant, and our main goal is to reverse this trend. We started posting positive results in 2012. The main way to address this challenge is to change the productive structure of the country in the short to medium term; the government is committed to bringing in such changes and we are doing all that we can to contribute to this goal.

How would you assess the business climate for foreign investors in Ecuador?

Ecuador is a very attractive investment destination. Factors supporting this include stable interest tax management, robust growth, increasing purchasing power, the lowering of the unemployment rate, and a sound and stable economy. The regulatory and tax frameworks are very much favorable for the establishment of new investments. The government also introduced the Law on Regulation and Market Power, which is essential to attracting foreign investment. Ecuador is not a risky destination, and the most important thing is that we have a long-term vision. Over the last few years we have improved the quality and level of productive and logistics infrastructure across the country. In addition, the country is putting a lot of emphasis—more than any other regional country in terms of population—on enhancing its human capital through scholarships and the strengthening of the higher education sector, as well as the IT and research industries. We believe that these items are key in the transformation of the country and its economy. Finally, Ecuador has considerably reduced poverty levels and we have a bright future ahead, with the government leading the transformation from all points of view and encouraging the arrival of foreign investment. It is a rather small country that nevertheless aims very high, despite the challenges ahead. Ecuador is in a constant transformation and we are on the right path to achieve success.