GROWTH AND STRUCTURE OF THE ECONOMY
Figure 11. Petroleum and Mineral Resources, 1988
Source: Based on information from Orlando Martino, Mineral Industries
of Latin America, Washington, 1988, 58.
Colonial Ecuador was governed first by the Viceroyalty of Peru
and then by the Viceroyalty of Nueva Granada
(see Spanish Colonial Era
, ch. 1). Ecuador differed significantly from the viceroyalty
centers (Lima and Bogotá), however, in that mining never became a
vital part of the economy. Instead, crop cultivation and livestock
raising dominated the economy, especially in the Sierra. The
Sierra's temperate climate was ideal for producing barley, wheat,
and corn. The Costa became one of the world's leading producers of
cacao. Sugarcane, bananas, coconuts, tobacco, and cotton also were
grown in the Costa for export purposes. Foreign commerce expanded
gradually during the eighteenth century, but agricultural exports
remained paramount. Manufacturing never became a significant
economic activity in colonial Ecuador, but busy sweatshops, called
obrajes, in Riobamba and Latacunga made Ecuador an exporter
of woolen and cotton fabrics; a shipyard in Guayaquil was one of
the largest and best in Spanish America; and sugar mills
manufactured sugar, molasses, and rum made from molasses.
When Ecuador gained complete independence in 1830, it had a
largely rural population of about one-half million. The rural
economy came to rely on a system of peonage, in which Sierra and
Costa Indians were allowed to settle on the lands belonging to the
hacendado, to whom they paid rent in the form of labor and a share
of their crop. The economy of the new republic, based on the
cultivation of cash crops and inexpensive raw materials for the
world market and dependent on peonage labor, changed little during
the remainder of the nineteenth and first half of the twentieth
century. Vulnerable to changing international market demands and
price fluctuations, Ecuador's economy was often characterized by
instability and malaise.
During the second half of the nineteenth century, cacao
production nearly tripled, and total exports increased tenfold
(see The Era of Conservatism, 1860-95
, ch. 1). As a result, the Costa
became the country's center of economic activity. Guayaquil
dominated banking, commercial, and export-import affairs. During
the first two decades of the twentieth century, cacao exports
continued to be the mainstay of the economy and the principal
source of foreign exchange, but other agricultural products like
coffee and sugar and fish products were also important exports. The
decline of the cacao industry in the 1930s and 1940s, brought about
by chronic pestilence and the loss of foreign markets to
competitors, had debilitating repercussions for the entire economy.
During the 1950s, government-sponsored replanting efforts
contributed to a partial revival of the cacao industry, so that by
1958 Ecuador was the world's sixth leading exporter of cacao.
Nonetheless, by the early 1950s bananas had replaced cocao as the
country's primary export crop.
The Ecuadorian economy made great strides after 1950, when
annual exports, 90 percent of which were agricultural, were valued
at less than US$30 million, and foreign-exchange reserves stood at
about US$15 million. Between 1950 and 1970, a slow, steady
expansion of nonagricultural activities took place, especially in
the construction, utilities, and services sectors. Construction,
for example, made up only 3 percent of the GDP in 1950, but it
contributed 7.6 percent to the GDP in 1971. Agriculture's annual
share of the GDP was 38.8 percent in 1950 compared with a 24.7
percent share in 1971 (see
table 10, Appendix).
The 1960s saw an acceleration and diversification of the
manufacturing sector to meet domestic demand, with an emphasis on
intermediate inputs and consumer durable goods. By 1971 these
accounted for about 50 percent of industrial output. Still,
manufactured products--mainly processed agricultural goods--made up
only about 10 percent of Ecuador's exports in 1971. Industry was
still at an early stage of development, and about 50 percent of the
labor force worked in agriculture, forestry, and fishing.
Traditional industries, such as food processing, beverages, and
textiles, were largely dependent on agriculture. The small size of
the domestic market, the high production cost in relation to
available external markets, and an undeveloped human, physical, and
financial infrastructure all combined to limit the expansion of
consumer durable goods in the Ecuadorian economy.
The discovery of new petroleum fields in the Oriente (eastern
region) after 1967 transformed the country into a world producer of
oil and brought large increases in government revenue beginning in
(see Petroleum and Natural Gas
, this ch.). That year saw the
completion of the Trans-Ecuadorian Pipeline, a 503-kilometer-long
oil pipeline leading from the Oriente to the port city of
fig. 11). A refinery also was constructed just
south of Esmeraldas. In addition, in 1970 large quantities of
natural gas deposits were discovered in the Gulf of Guayaquil.
Largely because of petroleum exports, Ecuador's net foreignexchange earnings climbed from US$43 million in 1971 to over US$350
million in 1974.
The production and export of oil that began in the early 1970s,
coupled with dramatic international price increases for petroleum,
contributed significantly to unprecedented economic growth. Real
GDP increased by an average of more than 9 percent per year during
1970 to 1977 as compared with only 5.9 percent from 1960 to 1970.
The manufacturing sector alone experienced a 12.9 percent average
annual GDP real growth rate during 1975-77. Ecuador became a lower
middle-income country, although it remained one of the poorer
countries of South America. Economic growth had negative side
effects, however. Real imports increased by an annual average of 7
percent between 1974 and 1979; this spawned an inflationary pattern
that eroded income. During the same period, the country's external
debt grew from US$324 million to about US$4.5 billion.
Data as of 1989