The nine risks that threaten Ecuador, according to the IMF

Inspections of the Ukrainian Air Force destroyed the military machinery of Russian soldiers in the reclaimed areas in the city of Bucha, Ukraine on April 3, 2022. EFE extension

The extension of the Russian invasion of Ukraine, for 297 days, is deepening the economic and financial crisis of the world.

One of the countries hardest hit by the consequences of the war is Ecuador, according to a report by the Economic Commission for Latin America (Cepal).

This happens because Ecuador’s sales have decreased, as between Russia and Ukraine bought the 4.5% of Ecuadorian exports.

And finding new markets for products going to the Eurasian zone, such as bananas and flowers, has been tricky considering that oversupply has led to a price contest.

It is difficult for Ecuador to compete in the international market under these conditions, due to the strengthening of the dollar.

Against this background, the prices of raw materials experience volatility.

If commodity prices rise, there are opportunities and risks for the country.

The country’s export basket is driven by raw materials, so their increase means more income.

However, the increase in the prices of imported ‘goods’ leads to an erosion of the purchasing power of the population, which leads to “economic and social instability”because it increases poverty and inequality, argues the IMF.

The rise in inflation, which should close at 4% in 2022 in the country, and the worsening of inequalities, can amplify the Social unrest and political instabilitysays the IMF.

In June 2022, the country experienced 18 days of demonstrations, which accounted for $1.115 million in losses, according to the Central Bank and the World Bank.

The IMF does not rule out new unrest in the country, which will lead to capital outflows and a slowdown in the economy.

The Brazilian center for economic studies of the Getulio Vargas Foundation (FGV) agrees on this, claiming that Ecuador will start 2023 with a deteriorated business climate.

A woman asks for money at a church in Guayaquil on Sept. 13, 2022. APIs

The world economy will grow by 1.9% in 2023, according to a forecast by Citi Research, part of the financial services multinational Citigroup.

That growth rate is considered a recession, because it is below the average levels of recent years,” says Ernesto Revilla, head of the Latin American economy at Citi Research.

He adds that “the global slowdown and the tight monetary policy of the United States, with increases in interest rates, will lead to growth of Latin American countries be weak in 2023.”

This is due to the high dependence of the region’s economies on foreign trade.

Ecuador’s gross domestic product (GDP) will grow by 2% in 2023, according to Cepal. And this comes after recording a recovery of 4.2% in 2021 and 2.7% in 2022, according to the Central Bank.

“The biggest risk to Latin America in 2023 is the US Federal Reserve,” Revilla says.

Ecuador, like other countries, could experience trade disruptions due to market closures, due to the emergence of new, more contagious variants of Covid-19; Yet the lack of vaccination in some segments of the population.

2.6 million people, or 15% of Ecuador’s population, have not received a single dose against Covid-19, according to the Ministry of Health.

The world’s central banks have raised interest rates in response to inflationary pressure.

The objective of the measure is to control prices by moderating consumption and increasing wages, limiting credit and investment

Higher interest rates in the world, especially in the US, mean a capital flight for Latin America.

Against this backdrop, governments and businesses in the region are forced to pay higher interest rates to access external finance.

Furthermore, the increase in the cost of money means that emigrants to the United States, including Ecuadorians, save little and, therefore, send less remittances.

Deepening geoeconomic fragmentation and geopolitical tensions is another risk for Ecuador.

Why? Because the world could experience a acceleration of deglobalizationat a time when conflicts are increasing and international cooperation is declining.

This will lead to “reconfiguration of trade, supply chain disruptions, fragmentation of payment systems and technology, rising input costs, financial instability, disruption of the international monetary and financial system, and lower growth,” the IMF says.

The country is vulnerable to cyber attacks on physical or digital infrastructure, including digital money platforms.

The threat can trigger financial instability as well interruption of economic activities.

Los natural disasters, caused by climate change, represent greater damage to the infrastructure of small economies, such as Ecuador.

They also threaten supply chain disruption, leading to inflationary pressures and water and food shortages.