Ecuador Economy and Financial Information
Lessening Your Concerns About Living Here

Many people ask us about the Ecuador economy. Is it growing? What's it based on? What will happen if the US dollar crashes? We answer many of your questions below.

Ecuador's Currency

Ecuador uses the US dollar as its currency. Typically, this would mean that the local currency would be pegged to the US dollar, one to one. Ecuador, however, uses the actual paper bills and metal coins (including the Sacagawea and Presidents $1 coins) produced by the Federal Reserve in the United States.

Ecuador also mints its own centavo (cent), 5 cent, 10 cent, 25 cent and 50 cent coins.

Using the currency of the US is a good thing for Ecuador in one sense, and not so good in another. It's good because Ecuador just can't print its way out of any economic problems, as the US has tried to do (and failed).

The not so good is that, since we use the same currency, if the USD starts to hyperinflate, it will likely cause problems here in Ecuador. Fortunately, due to the small bilateral trading numbers between Ecuador and the US (neither country exports much to the other country), there won't be as many problems as there could be in Panama, whose economy is very tied to the US one.

Exports

Ecuador's major exports are tourism, shrimp, oil (unfortunately, Ecuador has very little petrochemical infrastructure, so there's no value added processing of oil products), flowers, bananas, chocolate and coffee.

Most of the exports (except tourism) go to countries outside of North America, which is why the economy of Ecuador won't be as affected by US financial problems.

The Ecuador Economy's Inflation Rate

According to the Banco Pichincha website, Ecuador's inflation rate (posted at the end of October 2011) is 5.50% (that's up from the notice in November 2010, which had it at 3.66%).

Other financial statistics, such as some Ecuadorian stock prices and index values, international index values, lending rates, and currency exchange rates, are available on the Picaval website.

That 5.50% national inflation rate (which is higher in Cuenca) is being caused by two factors:

1. Expats moving to Ecuador and bringing cash with them. Buying houses and condos, furniture and appliances, and spending money on food and in restaurants, are all driving up costs here. Plus the fact that we expats generally overpay for anything that doesn't already have a price tag on it.
2. According to a University of Cuenca study, an even bigger factor in high prices in Cuenca is the number of repatriating Ecuadorians arriving here. Over one million Ecuadorians left the country in 1999 and 2000 due to the collapse of the Ecuador economy. Most of them (close to 700,000) came from Azuay province, and many of those came from the Cuenca area.

   Those people went to the US, Spain, Italy and other countries, where they worked hard and started sending money back to Ecuador. That money was used to buy condos and build houses in Cuenca.

   And now those Ecuadorians are moving home, bringing even more money with them. Many are starting businesses with the training and experience they received in their former country. We've met some who have started restaurants, and one who has started a jewelry business in Cuenca.

While that inflation rate of 5.50% sounds high, compare it to the real inflation in the United States, which most non-government economists will tell you is about 11%. Government figures show it at less than 5%. (Both numbers as of October 2011; the numbers in the chart below are updated monthly and may be different from those at the time of writing).

Click on this chart for more real vs. US government statistics

However, with the US Federal Reserve printing money almost faster than the government can spend it, the day is soon coming where US inflation will hit well over 20% and will then likely start to hyperinflate into the thousands of percentage points.

That hyperinflation is a concern here in Ecuador, as mentioned above, because of our use of the US currency as our money.

Interest Rates

Ecuador offers some very good interest rates on deposits. Depending on the amount and the length of time you tie up your deposit, you could earn in the 7%-8% range. However, we don't recommend that you leave your money tied up for longer than 6-12 months at a time. If the USD starts to hyperinflate, you'll want to get your money into stable investments, such as hard assets.

High interest rates on deposits means loan rates are also high. Mortgage rates (typically for no more than 70% of the price) usually start at 12% and go higher. If you do your research, you may find a new condo or townhouse where the developer has negotiated some very good mortgage rates, as low as the 7% range.

Credit Cards

As we discuss in our page about buying appliances in Cuenca, credit cards have large surcharges attached to them.

Ecuador has been, and still is, a largely cash-based economy. It's only been in the last 10 years that credit cards have come to Ecuador, and even later that a lot of stores started to accept them.

But, unlike in North America, where you usually pay the same price whether you pay with cash or with a card, here in Ecuador you'll save big money if you pay with cash.

On big ticket items like appliances and furniture, you could end up saving a few hundred dollars over your entire purchase. And you'll likely receive a few freebies as well, which you won't receive if you pay with credit cards.

If you don't have a bank account here in Cuenca, consider taking out cash advances instead of paying on credit. The money you'll save will more than make up for a day or two of interest charges, plus whatever service charge your card stings you with back home.

Summary

The Ecuador economy is moving along nicely. Between exports (including tourism) and infusions of cash from expats and repatriated Ecuadorians moving here, the country has recovered from the recession.

The government is improving infrastructure (including building or fixing several highways) and telecommunications. And unemployment is relatively low.

Perhaps more importantly, confidence is high among Ecuadorians that the country will continue to do well over the coming years.

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