The Economic Overview of the Galapagos Islands

Turbulence and painful economic reform characterized Ecuador's economy in the 1990's. In an effort to break the cycle of "boom" and "bust" that plagued the nation for more than a century, the last decade of Ecuadorian regimes instituted a number of fiscal reforms. While these reforms did little to alleviate the country's short-term economic woes, they may yet help the country in the years to come. Ecuador's latest recession seems to be passing, albeit slowly, and most are optimistic that recent reforms, as well as solid support from the international community, will sustain Ecuador's resurgence and place it securely on a path to development and prosperity.

Discovery of large oil deposits in the Amazon region in the 1970's transformed Ecuador's economy from an agrarian one based on the export of a few commodities, such as bananas, cocoa, and coffee, to one reliant on petroleum.

After a brief period of economic prosperity brought on by its new oil wealth, Ecuador experienced its first post "oil boom" economic slowdown. What began as a slowdown ended in a near economic collapse with the sharp decline in world oil prices in 1986, followed by the destruction of a large stretch of Ecuador's sole oil pipeline by an earthquake in 1987. The depression of the late 80's accentuated the country's over reliance on oil and, likewise, pushed the government in the direction of liberalization and diversification, the two elements necessary to insulate the economy against future disasters brought on by the decline of a single product.

An increase in oil export prices in the late 80's allowed Ecuador to recover, at least in part, and from 1988 to 1992, with the oil crisis still fresh in its mind, the Ecuadorian Government began taking measures to stabilize the economy. In 1992, shortly after assuming the presidency, President Sixto Durán Ballén implemented a Macroeconomic Stabilization Plan to fulfill his campaign promise to expand modernization and stabilization efforts.

Adoption of the International Monetary Fund ("IMF") backed Stabilization Plan jump-started a brief economic recovery. Inflation decreased from 60.2% in 1992 to 31% in 1993 and 25.4% in 1994, international reserves increased from a low of USD 224 million in August 1992 to USD 1.2 billion in December 1993 and USD 1.7 billion in December 1994, the GDP grew by 2% in 1993 and 4.3% in 1994.

In January 1995, several crisis, including the military confrontation with Peru, known as the Cenepa Incident, the resignation of the vice-president amidst widespread allegations of graft, and an energy crisis brought on by the recurrence of seasonal shortages, interfered with Ecuador's stabilization efforts and again sent its economy and political system into a tailspin.

In 1996, coastal millionaire Abdalá Bucaram won the presidency based on an unorthodox platform, known as the "Convertibility plan", that he vowed would curb inflation and correct macroeconomic imbalances. The unconventional plan that helped Bucaram ascend to the office of the president, in combination with his own intricacies, ultimately lead to a heated conflict with Congress and a national protest in February1997 that demanded the ousting of his regime. Empowered by the President's unpopularity with organized labor, business, and professional organizations, Congress unseated Bucaram in February 1997 on grounds of mental incompetence.

In May of 1997, following the demonstrations that led to the ousting of Bucaram and the appointment of Interim President Fabián Alarcón, the people of Ecuador called for a National Assembly to reform the Constitution and the country's political structure. On the same day Ecuador's new constitution came into effect, Jamil Mahuad assumed the presidency.

Mahuad, the former Quito Mayor, inherited an unsustainable fiscal deficit, a heavily El Niño damaged infrastructure, a hostile public, as well as Ecuador's myriad of chronic problems. Despite Ecuador's precarious and unsettled state, Mahuad aggressively set out liberalizing the economy and introducing free market policies. His administration received congressional approval to partially privatize some of the major state enterprises, announced the cancellation of subsidies on electricity, cooking gas, and fuel, and attempted to reform the sickly social security system. However unpopular, the changes significantly reduced the government's fiscal deficit and made possibly discussions with the IMF concerning a possible standby agreement.

In 1999, Ecuador's economic woes reached new heights. Political uncertainty and plunging public confidence in the economy brought on by a broad freeze on banking deposits and Mahuad's plans to privatize many state industries and "dollarize" the economy, caused Ecuador's GDP to fall more than 30% in just a year. Other economic indicators told an equally dismal fiscal tale; Ecuador's GDP growth rate fell from a relatively healthy 3.3% in 1998 to a dismal -7% in 1999, and, during the same time span, the per capita income of the nation's 12.4 million inhabitants plummeted more than 30% from USD 1,619 to USD 1,101. In January 2000, the wretched state of Ecuador's economy prompted widespread street protests, which culminated in Mahuad being forced from office.

On January 22, 2000, the Ecuadorian National Congress rejected a break in the constitutional order and ratified the procedure of presidential succession and affirmed Gustavo Noboa Bejarano's, who was Mahuad's vice-president claim to the presidency. Noboa is slated to head the State for the remainder Mahuad's term.

Ecuador's long term economic health depends on the success of modernization and liberalization reforms, including efforts to wean the country off its disproportionate reliance on a few export commodities. Noboa, with his reputation for honesty, has helped Ecuador's economy in the wake of Mahuad's stormy exit, but unless he solves the country's economic problems quickly he may face the same fate as his predecessor.

Economic indicators across the board are improving. Most importantly, the Central Bank of Ecuador (INEC, "Análisis Semanal", and "El Comercio") projects that Ecuador's GDP growth rate will rise from -7% to -2% in the first year of the millennium. Moreover, pegging the Sucre to the U.S. dollar and the process of dollarization, along with substantial help from the IMF and World Bank, are reigning in the extreme inflation that undermined Ecuador's economy in 1998 and 1999. Also, Ecuador's Congress reaffirmed its support for free market principles with its March 1, 2000, with approval of the Economic Transformation Law, a move that assuaged concerns of companies already doing business in Ecuador and one that will do much to attract new foreign investment.

Industry

Flower Exports

Fishing

An estimated 600 families are engaged in fishing. In absolute terms, the number of fishers quadrupled between 1971 and 1996. The growing size of this community coincided with the significant

rise in lobster exports during the 1980s, which led directly to the virtual exhaustion of the resource by the early 1990s. In 1992, the sudden emergence of the sea cucumber fishery, which is highly

profitable by the standards of small-scale fishers, completely changed the behaviourial patterns of the island populace and provoked a wave of immigration reminiscent

Problems shadowing the Galapagos Islands

The current conflict

The establishment of the Galapagos National Park, especially the delimitation of its boundaries, provoked the first major conflict with the local populace. Declaration of the marine reserve in 1986

and approval of the management plan in 1992 produced a second conflict, over the move from a system of free access to that of restricted access, without providing any information or negotiating

with key users of the marine resources.

--Creation of the national park and marine reserves.

The fishing community in the Galapagos Islands, Ecuador, describes a successful experience in protecting a valuable natural area, a prolonged conflict over the use of marine resources by various sectors, and recent efforts to manage the conflict through a participatory process.

• Conservation interests versus small-scale and commercial fishers;

• Local fishers versus mainland fishers;

• Small-scale fishers versus tourism;

• Commercial fishing versus small-scale fishers, the authorities, and tourism; and

• Conservation authorities versus fishing authorities versus military and police authorities.

The following activities were either prohibited outright or subject to seasonal restrictions:

• Catching bivalve molluscs;

• Lobster fishing (a 7-year ban was subsequently changed to a 7-month closed season each year);

• Shark fishing;

• Extraction of black coral; and

• Harvesting of sea cucumbers.

With respect to fishers, there was a general feeling of exclusion brought about by the systematic increase in restrictions on access to fishing resources without any process of consultation or direct or

indirect measures of compensation.