2014 Index of Economic Freedom

Ecuador

overall score48.0
world rank159
Rule of Law

Property Rights20.0

Freedom From Corruption26.0

Limited Government

Government Spending41.8

Fiscal Freedom79.8

Regulatory Efficiency

Business Freedom52.8

Labor Freedom52.0

Monetary Freedom66.1

Open Markets

Trade Freedom71.8

Investment Freedom30.0

Financial Freedom40.0

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Quick Facts
  • Population:
    • 15.2 million
  • GDP (PPP):
    • $153.2 billion
    • 5.0% growth
    • 4.7% 5-year compound annual growth
    • $10,056 per capita
  • Unemployment:
    • 5.3%
  • Inflation (CPI):
    • 5.1%
  • FDI Inflow:
    • $586.5 million
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Ecuador’s economic freedom score is 48.0, making its economy the 159th freest in the 2014 Index. Its overall score is 1.1 points higher than last year, with deteriorations in the management of government spending and freedom from corruption offset by improvements in investment freedom, trade freedom, and labor freedom. Ecuador is ranked 26th out of 29 countries in the South and Central America/Caribbean region, and its overall score is far below the world and regional averages.

Over the 20-year history of the Index, Ecuador’s economic freedom has fallen nearly 10 points, the fifth largest drop of any country. Investment freedom, government spending, and property rights have deteriorated 30 points or more. Ecuador’s economic freedom rose to “moderately free” during the second half of the 1990s but has fallen steadily since then. Over the past five years, Ecuador has been downgraded to a “repressed” economy.

Ecuador continues to lag notably in promoting the rule of law and strengthening the legal framework. The judicial system remains vulnerable to political interference, with corruption further exacerbating institutional shortcomings. Expansionary public spending threatens fiscal sustainability.

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Background

President Rafael Correa, re-elected in 2013 for the third time, wants to return to international credit markets in 2014 for the first time since Ecuador’s $3.2 billion default in 2008 but first will have to negotiate a deal with creditors who in 2009 rejected terms of the country’s debt swap. Constitutional amendments passed in 2011 increased Correa’s control of the media and the judicial system. He has also worked to undercut the Inter-American Human Rights Commission. Ecuador is part of the ALBA group, led by socialist Venezuela, and has strengthened its relations with Iran. Oil revenues and borrowing from China have counterbalanced declining foreign investment from the West and continued capital flight. Economic growth has moderated significantly. Ecuador is the world’s largest banana exporter and has important petroleum reserves. Correa has stiffened contract terms with foreign oil producers and advanced resource nationalism. Approximately one-third of the population lives below the poverty line.

Rule of LawView Methodology

Property Rights 20.0 Create a Graph using this measurement

Freedom From Corruption 26.0 Create a Graph using this measurement

Ecuador has long suffered from political instability and corruption. The weak and politicized judiciary and lack of investigative capacity in government oversight agencies contribute to an atmosphere of impunity. Illicit payments for official favors and theft of public funds reportedly take place frequently. Expropriation is a problem, and the government is constitutionally empowered to control strategic sectors such as natural resources.

Limited GovernmentView Methodology

Ecuador’s top individual income tax rate is 35 percent. The top corporate tax rate has been reduced to 22 percent, and the special rate for reinvested profits remains at 15 percent. Other taxes include a value-added tax (VAT) and an inheritance tax. The overall tax burden is 17.6 percent of GDP. Government spending has risen to 44 percent of GDP. Public debt is low, but the economy continues to suffer from a debt default in 2008.

Regulatory EfficiencyView Methodology

Despite ongoing reform efforts, the overall regulatory environment remains burdensome. Starting a business takes almost two months, but the cost of obtaining necessary permits has been reduced to about half of the level of average annual income. Lack of flexibility in the labor market hinders job growth. Although dollarization produces a modicum of monetary stability, the state makes extensive use of subsidies and price controls.

Open MarketsView Methodology

Ecuador’s average tariff rate is 4.1 percent, and non-tariff barriers continue to interfere with trade. In 2012, the International Centre for Settlement of Investment Disputes (ICSID) hit Ecuador with the largest penalty in the ICSID’s history for expropriating property. Government interference in the underdeveloped financial sector is growing, and state banks have become more dominant.

Country's Score Over Time

Bar Graph of Ecuador Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Ecuador to other economic country groups

Regional Ranking

rank country overall change
1Chile78.7-0.3
2Saint Lucia70.70.3
3Colombia70.71.1
4The Bahamas69.8-0.3
5Uruguay 69.3-0.4
6Barbados68.3-1.0
7Peru67.4-0.8
8Saint Vincent and the Grenadines670.3
9Costa Rica 66.9-0.1
10Jamaica 66.7-0.1
11El Salvador 66.2-0.5
12Dominica65.21.3
13Panama 63.40.9
14Trinidad and Tobago62.70.4
15Paraguay 620.9
16Dominican Republic61.31.6
17Guatemala 61.21.2
18Nicaragua 58.41.8
19Honduras 57.1-1.3
20Brazil56.9-0.8
21Belize56.7-0.6
22Guyana55.71.9
23Suriname54.22.2
24Haiti48.90.8
25Bolivia48.40.5
26Ecuador481.1
27Argentina44.6-2.1
28Venezuela 36.30.2
29Cuba28.70.2
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