An overview of the effects of monetary policy in Ecuador on GDP and inflation, from 1972 to the present day.
% annual growth rate:
Sources: M2 from Banco Central del Ecuador database and nominal GDP from IMF database, as at February 2022
The medium-term relationship between money and nominal GDP growth in Ecuador, 1972-2020
Five-year moving averages of annual % changes, with 1974 being the start of the first five-year period
Comment on monetary trends in Ecuador
From 1979 (when the country resumed democratic rule) until he early 2000s, Ecuador was characterised by high inflation and frequent economic crises.
A particularly severe crisis erupted in 1998, in the wake of a 15% currency devaluation. Inflation, already running at over 20% per annum, rose to over 100% in 2000. The Ecuadorean government abandoned the Sucre, the previous national currency, and instead adopted the US dollar instead. Although the government of Jamil Mahuad, which presided over the dollarisation process, was overthrown in a coup later in the year, his successor confirmed that the switch to the US currency wold not be reversed, in spite of some protests. The move has provided a far greater degree of stability for the Ecuadorean economy ever since. Inflation fell to 20% within a year and has been under 10% since 2003.
Money growth continued at high levels from 2003 until 2014. Between 2007 and 2017, the country's President, Rafael Correa, adopted a socialist agenda, using the export income from Ecuador's oil exports to fund an ambitious social welfare programme, designed to reduce poverty. When the oil price started to decline in 2014, so did the Ecuadorean economy. Austerity measures had to be introduced, but in spite of protests, Correa remained in office until his term of office ended in 2017. His successor, Lenin Moreno, has moved the country away from Correa's policies, liberalising trade and reducing public spending, including subsidies on fuel. Money growth has continued at modest levels, but GDP growth has improved. Nonetheless, in early 2019, the country has had to turn to the IMF for a loan and the economy remains in a fragile state as there have been protests against the belt-tightening measures which have accompanied the IMF loan.