Ecuador’s anemic economy could be poised for recovery.
For more than two years, low oil prices and a strong U.S. dollar have been blamed for rising unemployment, falling sales and declining tax revenues. Slowly but steadily in recent weeks those factors appear to be turning around.
International oil prices have risen to $50 a barrel for benchmark West Texas crude from a low of $27 earlier in the year. And economic analysts say the U.S. dollar has finally topped out and appears to be on a long downward trend.
“These changes are happening under the radar, so to speak, but they will make a big difference in the long term,” says Latin American investment expert Richard Haynes. “It’s understandable that the government is downplaying the new trends since it doesn’t want to raise false expectations, but it is well aware that things are changing for the better,” Haynes adds.
Since mid-May, Ecuador has been selling its oil for $39 to $42 a barrel, well above the $25 that the national budget is based on. “We’re a long way to getting back to $100 a barrel, but there is a small windfall coming in today and it will continue to grow,” says Haynes, who is an advisor to GoldmanSachs.
Because it produces heavier crude, Ecuador oil sells for about 25% less per barrel than West Texas crude.
Haynes adds that most predictions today are for oil to rise to about $60 a barrel by the end of 2016. Six months ago, he says, oil experts were predicting much lower prices. “What they failed to consider were the wars in the Middle East and the disruptions they cause to the supply stream. The problems in places like Nigeria and Venezuela weren’t considered either. All of this means that reserves are dropping more quickly than expected. The markets were spooked at the end of 2015 and today they have a clearer view of the future.”
He says that the weakening dollar should boost exports in the long term and help on other fronts, such as in the ongoing free trade talks between Ecuador and the European Union.
“The recovery will not come overnight and Ecuador still has the recovery from the earthquake to deal with,” Haynes says. “But I think the long term prospects are quite good. Ecuador has the advantage of being a small, relatively simple economy. It’s not in the same boat as Venezuela and Brazil, which have a multitude or problems, both political and economic, that could take years to resolve. I’ve turned bullish on Ecuador.”