2013 Index of Economic Freedom

Ecuador

overall score46.9
world rank159
Rule of Law

Property Rights20.0

Freedom From Corruption27.0

Limited Government

Government Spending47.3

Fiscal Freedom80.1

Regulatory Efficiency

Business Freedom51.5

Labor Freedom48.0

Monetary Freedom66.9

Open Markets

Trade Freedom68.1

Investment Freedom20.0

Financial Freedom40.0

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Quick Facts
  • Population:
    • 15.0 million
  • GDP (PPP):
    • $127.4 billion
    • 7.8% growth
    • 4.2% 5-year compound annual growth
    • $8,492 per capita
  • Unemployment:
    • 4.9%
  • Inflation (CPI):
    • 4.5%
  • FDI Inflow:
    • $567.8 million
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Ecuador’s economic freedom score is 46.9, making its economy the 159th freest in the 2013 Index. Its overall score is 1.4 points lower than last year, with substantial declines in the control of government spending and investment freedom offsetting improvements in labor freedom and freedom from corruption. Ecuador is ranked 26th out of 29 countries in the South and Central America/Caribbean region, and its overall score is far below world and regional averages.

Once considered moderately free, Ecuador has slid significantly in the rankings and continues for a fourth year as a “repressed” economy. The reach of government continues to expand to economic sectors beyond the petroleum industry, and pervasive corruption continues to weaken property rights. The private sector has been marginalized by a restrictive entrepreneurial environment. Ecuador’s underdeveloped financial sector, often subjected to state-directed allocation of credit, limits access to financing and adds costs for entrepreneurs.

The overall investment climate has become increasingly risky because of the repressive political environment. The restrictive trade regime is reducing competition and eroding productivity. By controlling flows of trade and investment, the government has been forcing closer economic and commercial ties with Venezuela and China.

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Background

Re-elected in 2009, President Rafael Correa has ended free trade negotiations with the U.S and has threatened to force a renegotiation of Ecuador’s foreign debt. Constitutional amendments passed in 2011 increased Correa’s control of the media and the judicial system. Correa has also worked to undercut the Inter-American Human Rights Commission, is aligned with Venezuela’s Hugo Chávez, and has broadened Ecuador’s links with Iran. Oil revenues and borrowing from China have counterbalanced declining foreign investment and continued capital flight. Economic growth has been moderate. Ecuador is the world’s largest banana exporter and has significant petroleum reserves, and Correa has stiffened contract terms with foreign producers and advanced resource nationalism. Over 50 percent 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 27.0 Create a Graph using this measurement

The judicial system remains inefficient and vulnerable to political interference. Court judgments are slow and inconsistent. Expropriation is a problem, and the government is constitutionally empowered to control strategic sectors such as natural resources. A new anti-monopoly watchdog agency has increased government intrusiveness in private-sector activity. Corruption is pervasive, and illicit payments for official favors are common.

Limited GovernmentView Methodology

The top income tax rate is 35 percent, and the corporate tax rate is 23 percent. Profits reinvested in capital purchases are subject to a special 15 percent rate. Other taxes include a value-added tax (VAT) and an inheritance tax. The overall tax burden equals 15.2 percent of GDP. Government spending amounts to 41.9 percent of total domestic output. High oil prices have narrowed deficits, and public debt is below 20 percent of GDP.

Regulatory EfficiencyView Methodology

Regulatory efficiency remains poor, and the application of regulations is inconsistent and non-transparent. On average, it takes 56 days to start a company, and obtaining necessary permits costs twice the level of average annual income. The labor market lacks flexibility and hinders job growth. The use of the U.S. dollar as the official currency has injected a degree of monetary stability. Price controls are often used by the state.

Open MarketsView Methodology

Ecuador’s 2011 program of import substitution and voluntary import restraints has been ineffective in controlling the growth of imports. The trade-weighted average tariff rate remains at 6 percent. The investment regime is complex and non-transparent, and decision-making can be highly politicized. Non-performing loans have been increasing, and state interference in banking has expanded.

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
1Chile790.7
2Saint Lucia70.4-0.9
3The Bahamas70.12.1
4Uruguay 69.7-0.2
5Colombia69.61.6
6Barbados69.30.3
7Peru68.2-0.5
8Costa Rica 67-1.0
9Jamaica 66.81.7
10El Salvador 66.7-2.0
11Saint Vincent and the Grenadines66.70.2
12Dominica63.92.3
13Panama 62.5-2.7
14Trinidad and Tobago62.3-2.1
15Paraguay 61.1-0.7
16Guatemala 60-0.9
17Dominican Republic59.7-0.5
18Honduras 58.4-0.4
19Brazil57.7-0.2
20Belize57.3-4.6
21Nicaragua 56.6-1.3
22Guyana53.82.5
23Suriname52-0.6
24Haiti48.1-2.6
25Bolivia47.9-2.3
26Ecuador46.9-1.4
27Argentina46.7-1.3
28Venezuela 36.1-2.0
29Cuba28.50.2
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