External Debt In Ecuador In Recent Years

External debt in Ecuador in recent years

Introduction

The indebtedness of countries in recent years has been mainly for many of them the primary source of financing and a transitory response to the problems of their financial statements;As is known, national economies always lookhas meant growth in the balance of external debt.

In Ecuador the external debt has meant a significant problem to take into account, since it has been a brake in the development of the country due to the obligations not only financially entails but also political, and this does not understand this not in the sense of political measurestaken in the country for the payment of the debt but rather in the sense that the entry of foreign powers has been allowed in national matters that occur to our nation.

In view of the above exposed, in this work the most important aspects of what the weight of the external debt has been shown, more specifically incidence factors for the fluctuation of the external debt balance making a differentiation making a differentiation.Between public and private debt, debt evolution, debt implications and financing sources for the payment of debt, emphasizing data included from 2000 to the present.

Developing

External debt is the amount of money that a country owes to creditors from other countries, whether companies, banks or institutions. It consists of public debt and private debt. The first refers to debts contracted by the State and institutions, while private is the one that companies and domestic economies must assume.

(Ivan, 2018)

The notion of public debt mentions the set of debts that the State maintains in front of another country or individuals. This is a mechanism to obtain financial resources through the issuance of securities. The State, therefore, contracts public debt to solve liquidity problems or to finance medium or long -term projects. (Pérez, 2014)

The private debt of a country is the sum of all debts that maintain all companies, families and financial entities that reside in that country. Regardless, yes, who has the debt, if it is with national or international investors. (Seville, S.F.)

In Ecuador the balance of total external debt since 2000 has suffered mainly increasing fluctuations;For that year the total debt had a value of $ 14052.7 million representing a 76.7% of the percentage of GDP that recorded a total balance of $ 18318.6 millions. Taking into account this year as the starting point of the analysis it is observed that the balance of the total debt is increasing until 2005, where the indebtedness is located at $ 14536.5 million, which represents 35% of the percentage of GDP counted that year at $ 41507.1 million. It is from 2006 that the debt experiences changing values, but mainly there were reductions of it since until March 2010 a debt of $ 10495 is observed.7 million, which meant a 15.1% of GDP for such a year that it was $ 69555.37 million. The second quarter of 2010 is the starting point of a thorough growth of debt, since the values were increasing in such a way that today such an amount would seem unpayable. Currently the debt is five times more that of March 2010, because in the first quarter of this year there was a total balance of $ 51214.8 million, this represents a 45.3% of the total GDP located at $ 113097.3 millions.

The balance of external public debt has experienced various fluctuations;In 2000 a value of $ 11228 is recorded.8 million representing 61.3% of GDP, which was $ 18318.6 millions;From then on, a slight growth was prolonged for the years 2001, 2002 and 2003, but by 2004 the beginning of a constant decrease in public debt that would even launch the lowest value in the second quarter of 2009 is recorded., year where the value became $ 7014.9 million, representing only 11.2% of the GDP of that year that was $ 62519.69 million;It is from here that the value of public indebtedness grew excessively to its highest point in March 2019, where a debt value of $ 37080 is recorded.3 million which represents 32.8% of GDP recorded until that moment equivalent to $ 113097.3 millions.

External private debt has also led to great changes in its values;In 2000 there is a value of $ 2823.9 million which represents 15.4% of GDP;In the subsequent years they are able.6 million, which represented 7.0% of the GDP of that year that was $ 87924.54 million;From this point there was a constant growth of the debt until reaching March of this year, 2019 and in which a value of $ 14134 is seen.5 million, which represents 12.5% of the total wealth of the country that for March this year was $ 113097.3 millions.

As the growth of debt has been noticed in recent years, although GDP has also increased over time, it is possible to differentiate that this has not even doubled with respect to 2010, while as alreadyHe pointed out before, the total external debt instead has been quintupled in its values, which leads to say that there has been a disproportion marked in the growth rates of both variables, which is clearly reflected in the percentage of GDP that has meantThe debt in each year, where it is clear that this has been constantly rising and year after year it has represented a larger proportion of Ecuadorian wealth.

When making a comparison between public and private debt it is possible to see that based on the year 2000, both have grown but in different proportion, the public debt went from $ 11228.8 million at $ 37080.3 million, a little more than triple;While private debt has been quintupled because it went from $ 2823.9 million to $ 14134.5 million.

Factors

• The evolution of public debt in Ecuador, which has been increasing as it has been seen in recent years, is the product of a series of economic factors such as inadequate economic policies, budget deficit and careless investment growth and public spending. Mentioned the above are some factors of debt growth in recent years:
• Ecuador has been characterized by being an oil exporting country, an element from which it has obtained and obtains financing values for the payment of the debt, so that the fluctuations of the prices of crude oil directly affect the obtaining of resources for resources for resources forthe payment of indebtedness.
• External pressures from those creditor financial institutions of the loans executed through the structural adjustment programs (PAE);In other words, these are the conditions that debt lenders impose on debtor countries with the objective of the loan agreement being completed.
• Little foreign investment attributed to the load that entails the high amount of debt;Also called over -indebtedness, it is said that this factor discourages foreign investment and also acts as a disincentive to the productive apparatus.
• Financial policies limited to dollar management.
• The unsustainable rhythm of public spending in Ecuador, especially in the last decade, has led to social improvements, is true, but that, in some way or another it has generated budget deficits that lead to a new indebtedness because the income generated by taxes and othersresources are not enough to cover this void.
• Price increase
• Strict import controls

Financing sources

The internal debt has been contracted through the state bonds, demanded by local investors, for Ecuador the most important borrowers are:

• Public sector institutions such as the Ecuador Development Bank, Banecuador and the National Financial Corporation.
• Ecuadorian Social Security Institute (IESS).
• Private sector institutions.

The external debt is contracted through multilateral organizations, international banks, foreign governments or bonds, among the main external creditors of Ecuador are:

• International Monetary Fund (IMF).
• world Bank.
• Inter -American Development Bank (IDB).
• Andean Development Corporation (CAF).
• International Agricultural Development Fund (FIDA).
• Latin American Reserve Fund (FLAR).
• International Bank for Reconstruction and Development (BIRF).

Implications

In general, some consequences are established with the acquisition and growth of external debt in Ecuador:

• Investment decrease.
• Balance deficits.
• Frented economic growth.
• Capital flight.
• Risk of breach of payments against oil price fluctuations.
• Imposition of structural adjustment plans (PAE).

The conditions imposed by the IMF through the PAEs imply:

• Fiscal reform for budget balance, increasing taxes, cutting funds for social programs and eliminating subsidies.
• Export promotion and import restriction elimination.
• Opening without restrictions and support for foreign direct investment.
• Privatization of state companies.
• Closure of local companies in the face of the marked competitiveness that multinationals exercise.
• Salary and unemployment reduction.
• Industrialization generates environmental damage.

Conclusions

External debt in Ecuador has meant one of the main sources of financing, as it has been used to generate growth in the country through project financing and investment that increase national production.

Variations in the level of debt in the last years are exceeding the limits ever established in the Organic Code of Planning and Public Finance, which delimited the maximum amount of indebtedness equivalent to 40% of GDP.

The establishment of the PAE is obviously a setback in the fields of economy policy and mostly of society, since all the implications that it entails directly affects these variables in different ways.

Overal. Such is the case of the Rafael Correa government that accumulated a very high debt balance that is reflected in the PIB participation percentages and that are now presented as a threat.

From my point of view, it is clear that indebtedness mostly through negative consequences that benefits, because it is true that, although there has been growth in the country in recent years, this has been minimal.

Bibliography

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