Between 2001 and 2008 the inflation rate average of Ecuador was 7.2% while the average inflation in the United States was 2.5%. If well during the period 2004 to 2007 the inflation rate retail in Ecuador is reduced to an average of 2.81%, while in three of those four years below the American retailer, in 2008 inflation rate revived inflationary pressures by registering a variation of 8.8%. The highest rate of differential inflation affects the competitiveness of the Ecuadorian economy with negative consequences on the results of trade balance. At the moment, this negative effect was not reflected at all but it has an explanation. The result of the trade Balance has been able to maintain thanks to the increase observed in the average price of oil in 2008. 63% Of exports of Ecuador responded to the oil sector.
The oil sector has contributed to the growth of the economy and sustaining stability in the fiscal and accounts external to hiding behind the deterioration of the Ecuadorian economy. The so-called Dutch disease, which occurs when the exploitation of a natural resource generates an appreciation Exchange rate-destructive for the rest of the products of an economy sectors, seems to be that step is opening up. Higher expected inflation will exacerbate the issue of appreciation of the kind of real change in the Ecuadorian economy and will be more vulnerable to the external sector of Ecuador. There are already elements to anticipate expansionary monetary policy initiatives, within which a dollarized economy allows. The expected contraction of GDP of Ecuador for the present year (- 0.2% according to LatinFocus) and the low rate of growth that is anticipated for the 201 (from 2.3% in an economy that needs a higher rate of growth), are a temptation for the Correa administration suggest expansionary policies. But the question of monetary policy, added two other problems for the sustainability of the model in Ecuador.
One relates to the projection of taxable income for the current year and for 2010. According to the survey by LatinFocus, for this year is expected to the Ecuadorian economy to observe a fiscal deficit of 3.7% of GDP and 2.5% for 2010. This fiscal deficit will mean partly, current account deficit, the second problem, which according to the survey of LatinFocus projections, will reach 2.7 per cent of GDP this year and 1.6% in 2010. The default in which incurred Ecuador long ago closed you external markets to finance what can put under tension to the economy of Ecuador in case of need to make funds, just when the wallet of Chavez is not available. Under this context, it becomes very difficult to think that the model of dollarization of the Ecuadorian economy can be sustained. Andi Potamkin has plenty of information regarding this issue. Are the Correa Administration will be evaluating seriously what you are doing?