Ecuador Plans to Restrict Imports to Stem Currency Outflow, Shield Economy

Ecuador, which uses the U.S. dollar as its official currency, plans to limit some imports to stem currency outflows and reduce the economy’s “vulnerability” to external shocks, President Rafael Correa said today.

Correa and his Cabinet are analyzing different strategies to reduce imports and haven’t taken a final decision, according to a statement published in the presidential gazette. The statement didn’t say which imports would be affected.

“The constant growth of Ecuadorean imports raises the economy’s vulnerability in the face of external shocks and could become unsustainable in the short- and medium-term,” Correa said in the statement. “It’s necessary to design and implement a strategy of measures that detains the trend and guarantees the adequate flow of currency for the functioning of the economy.”

Correa criticized the nation’s use of the greenback on July 8, saying that capital flight was one of the “grave dangers” of dollarization because it limits liquidity in the economy. He added that the country plans to maintain the dollar as its official currency.

Ecuador, the Organization of Petroleum Exporting Countries’ smallest member, had a balance-of-payments surplus of $1.32 billion in the first quarter, its highest since the third quarter of 2009, according to the central bank’s most recent data. Ecuador reported a $46.7 million trade surplus in May, up from a $169 million deficit in the same month last year, the bank said. The U.S. is Ecuador’s biggest trading partner.

Dollar, Outlook

Ecuador, the third-largest South American supplier of crude oil to the U.S., has seen a decline in that country’s demand for its exports this year, Economic Policy Minister Katiuska King said yesterday in an interview on state television ECTV.

Oil makes up 57 percent of the nation’s exports and provides 24 percent of government revenue, according to the central bank and Finance Ministry, respectively.

King said on June 1 the use of the dollar makes the economy “vulnerable” to international economic crises.

Ecuador’s Finance Ministry today lowered its 2012 forecast for economic growth to 4.2 percent from an earlier 5.17 percent, according to a statement on the ministry’s website.

For 2011, the Finance Ministry kept its growth forecast at 5.24 percent while raising its inflation outlook to 4.13 percent from an earlier estimate of 3.69 percent, according to the statement.

The Andean nation also lowered its oil export forecast for this year to 123 million barrels from 126 million, while raising its 2012 estimate to 138 million barrels from the 137 million expected earlier, the ministry said.

Oil will average $89.80 a barrel in 2011 and $93.10 next year, the statement said.

Ecuador will post a $1.06 billion trade deficit this year, which will widen to a $1.33 billion deficit next year, the statement said.

The Finance Ministry didn’t publish its earlier trade balance forecasts and those estimates weren’t included in the nation’s 2011 budget presented to congress in October.

To contact the reporter on this story: Nathan Gill in Quito at ngill4@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net