UPDATE 2-Ecuador's economic growth slows to 5 percent in 2012

Tue Feb 26, 2013 3:02pm EST

Related Topics

* Andean country's economy expanded 8 percent in 2011
    * Growth expected to slow again in 2013
    * Government introduces price controls to tame inflation


    By Alexandra Valencia
    QUITO, Feb 26 (Reuters) - The economy of OPEC's smallest
member, Ecuador, grew 5 percent last year, lower than 8 percent
in 2011, hit by slower expansion in the oil and construction
sectors, official data showed on Tuesday. 
    Growth is expected to slow again this year due to global
economic woes and the idling of Ecuador's largest refinery,
which will be partially shut down for several months for an
overhaul. 
    Central bank data showed the oil sector expanded 1.9 percent
last year, well below the 4.6 percent growth recorded in 2011.
    The banana, coffee and cocoa sectors contracted 5 percent in
2012 versus a growth of 13.8 percent in 2011 while construction
grew 9.6 percent versus 21.6 percent a year earlier.
    The full-year 2012 GDP growth met the government's target.
    "We grew 5 percent, after expanding 8 percent, that's
fantastic. That shows that the economy is healthy and there are
no signs of imbalances," Finance Minister Patricio Rivera told
reporters.
    Ecuador received a bump from high crude prices last year as
oil exports increased 6.5 percent in value and 4.5 percent in
volume, the data showed.
    Tax revenues rose 17.8 percent to $11.3 billion, which
allowed leftist President Rafael Correa to spend more on the
poor in the months leading to a presidential election this month
where he won with around 57 percent of the vote.
    "We understand that growth goes hand in hand with (wealth)
redistribution ... We strongly believe in a model of inclusive
growth: redistribution is needed to grow, while growth is needed
to redistribute," Rivera said.
    High state spending is key to Correa's high popularity and
to healthy economic growth in the past three years. However,
Ecuador is highly dependent on oil prices and the economy would
suffer if crude prices were to fall.
    In a bid to diversify the economy, the Correa government has
vowed to attract mining investment and is building hydroelectric
dams that could let the country export energy in the future.
    But he has scared away foreign investors by rewriting
contracts with oil companies to squeeze more revenue out of
them, and with frequent outbursts against capitalism, which he
blames for poverty and inequality in Latin America.
    In an interview with Reuters last week, he ruled out,
however, any major socialist reforms in his new term and said
the country was well placed to attract foreign investment.
    Correa has also vowed to continue spending heavily on
infrastructure in a bid to raise living standards and fight
poverty in his next four years in office. 
    
    INFLATION AND FOREIGN DEBT
    Rivera said the government has introduced price controls for
46 products, most of them food items, in a bid to prevent
speculation and tame inflation. Consumer prices rose 4.16
percent in 2012, below the government's 5.14 percent target.
    Correa, 49, blames banks for a hyperinflation and
devaluation in 1999 that forced Ecuador to adopt the dollar as
the national currency the following year and meant thousands of
account holders lost part of their savings.
    He hiked bank taxes in November to finance a raise in a
monthly stipend paid to about 2 million low-income citizens,
including the elderly and single mothers, to $50 from $35.
    The banking chamber said banks will have less money to grant
loans, which could dampen economic growth.
    Correa defaulted on $3.2 billion of foreign bonds in 2008,
even though Ecuador had the funds to comply with debt
obligations. Since then, the country has been very dependent on
Chinese loans for funding.
    Ecuador could consider issuing foreign bonds for the first
time since the default, but only if "yields are low enough to
make them attractive for the government", Rivera said.
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