Global Slowdown: Ecuador
By Zal Bilimoria, KF9, Ecuador
Ecuador’s 14.5 million residents and their predecessors have experienced much instability in the form of economic strain, political transitions and social unrest. Despite 35 years of civilian government and, for the most part, democratically elected leaders, Ecuador still struggles to improve the livelihoods of the nearly 40% of Ecuadorians that live below the poverty line established by the World Bank. Ten years ago, Ecuador suffered a major economic crisis, forcing the government to abandon its domestic currency and adopt the US dollar. That decision had stabilized the country, but this year’s global financial crisis has again weakened the economy and forced a mass migration of temporal laborers into the urban areas, especially Ecuador’s three largest cities of Quito, Guayaquil and Cuenca, resulting in a rising tide of crime and violence. The official unemployment rate is hovering below 10%, according to 2009 government-provided estimates, but based on evidence on the ground and what newspapers report here in the country, it is an order of magnitude higher.
There are three major types of unemployment: cyclical, frictional and structural. Cyclical unemployment is a result of economic downturns and upturns, causing the national rate to vary based on the business cycle. Frictional unemployment, on the other hand, is a result of workers in transition, searching for new jobs. The most severe form is structural, which involves a mismatch between the number of job vacancies and number of available workers. Ecuador is suffering from all 3, where both cyclical and frictional unemployment are being extended to a more serious structural problem for the country.
Since November 5, a nationwide energy crisis has crippled most businesses with daily power rationing in every zone of every town and city lasting between 3 and 5 hours every day. Half of Ecuador’s economic output is petroleum, but most is destined for foreign lands. Domestically, the country relies on hydroelectric power, and the nationwide drought and lack of alternative fuel sources have brought the country to a standstill. With so much oil, it’s a shame that not more could be used domestically to offset this problem. Coupled with the global financial crisis, the energy crunch could be disastrous for Ecuador as access to capital becomes that much more strained.
The electrical authority does not regularly publish the outage schedule, and so businesses are left without knowing when they need to close their doors. Here at my MFI Fundacion Espoir (“Mi Bankito”), we are currently without power this morning, leaving loan officers with limited resources to complete their duties such as scheduling community bank meetings, arranging car schedules and monitoring delinquencies. Luckily, every community bank portfolio is maintained in triplicate form and updated at each and every meeting, sometimes by the borrowers themselves — of course, being verified by the loan officers prior to the end of the meeting.
Examples of how Kiva borrowers are being affected are unfortunately easy to find in interviews. For example, Felinda in Manta has a restaurant that needed to shut its doors in the evening for dinner, as she could not service her clients. Astromelia in Portoviejo could not use her computer nor print photos for clients using her digital printer when the power went out for 5 hours in the middle of a work day. Here in Cuenca, the drought itself is impacting the many agricultural businesses of Kiva borrowers such as Teresa who lives in the hills behind Cuenca. Many of her chickens and pigs purchased with a Kiva loan have passed away, and she is currently behind on her payments.
The crisis is reported to last until shortly before Christmas as deals with Peru and Colombia to import energy have been signed and are being implemented. The good news is that most Kiva borrowers here in Ecuador for Fundacion Espoir are able to keep up with loan payments due to alternative income streams within the family. The entire country seems to be saving money for a spending splurge during the holiday season. Like U-IMCEC in Senegal, Fundacion Espoir “could take more risks in extending credit to even poorer clients – we have too many ‘safe’ clients in our portfolio today”, says the regional manager of the Manabi office near the coast. With the desire and means to extend more loans to poorer individuals, Espoir’s policies are being altered – what better way to bring the economy out of its exascerbated “F-Bomb” crisis than to further extend credit rather than locking it up?