Ecuador’s Debt, Medellin’s Offices, and Service Economies

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Today's charts:

1. Ecuador’s commodity boom hangover (story by Gabriel Cohen)

2. Do people in Medellin love going into the office? Or what’s the deal? (story by Pedro Madero)

3. Service-oriented economies

Make sure you check out the comment of the week at the bottom!

Economics 💵

Ecuador's Debt Has Risen Back to Crisis Levels

We’ve talked a lot in the past about currencies to be found throughout Latin America. The Venezuelan bolivar and Brazilian real. The Paraguayan guarani and Peruvian sol. The Argentine, Chilean, Colombian, and Mexican peso.

And the Ecuadorian…dollar? Well, not quite.

Outside of the United States, Ecuador is the world’s largest country to utilize the US dollar as its official currency. This has been the case for over 20 years, beginning when Ecuador’s politicians abandoned its former currency, the sucre, as the country faced a growing national debt equal to roughly 60% of gross domestic product (GDP). Two decades later, Ecuador’s problem has returned.

While most Latin American countries haven’t dollarized their economies like Ecuador and Panama have, the region has seen a recurrent theme among its major players. Many economies suffered debt crises and economic recessions at the turn of the century. Their economies rebounded throughout the 2000s and early 2010s on the back of high prices for key exports like oil and foodstuffs—the commodities boom, as it’s so often called.

But after every party comes the hangover, and since the end of the boom in 2014 the region’s major economies are hurting, accruing higher debt as they try to stay afloat.

In 2021, Ecuador’s debt-to-GDP ratio was roughly 62%, even higher than it was in the uncertain early 2000s. Soaring oil prices brought fiscal strength and lower debt even as the country invested heavily in social programs making healthcare and education more accessible for all; with the end of that boom, things are looking rough for a country that just last year needed to restructure roughly $1.6B of debt with Chinese policy banks.

Ecuador is not alone in its difficult debt situation. After all, the same 2021 figures show Colombia at a roughly similar percentage of 64%, while Brazilian debt was equal to an untenable 93% of GDP in 2021. With situations like these, it’s no wonder leaders in Quito and elsewhere are pursuing free trade agreements and trying to boost exports.

At the end of the day, the dollar didn’t save Ecuador’s economy. Nor did oil. It’s only with ensuring that fiscal deficits are put towards sustainable development and economic growth that countries can get their debt situations under control.

Not just in Ecuador. But across Latin America.

Real Estate 🏢