Ecuador is rich in natural resources, but since its independence it has remained one of the poorest countries in the Western Hemisphere. Historically dominated by a few wealthy landowning families, Ecuador's Indian peasants and mestizo workers were excluded from mainstream political, military, economic, and social institutions.
Class divisions were paralleled by the regional schism between the agriculturally dependent indigenous people of the temperate highlands and the coastal population, whose livelihood emanated from plantation crops, light manufacturing, commerce, finance, and service industries. With almost 80 percent ownership of land, the oligarchy, which had investments in light industry, finance, and commerce and made up a tiny percentage of the 4.2 million people in 1960, dominated politics and determined the country's economic destiny.
Because the state pursued policies that perpetuated the upper classes' privileged economic status, which is reflected in the grossly unequal income distribution of the second half of the twentieth century, workers have not experienced upward socioeconomic mobility comparable to that in Europe, Canada, or the United States. Foreign development and stabilization loans that the United States and the multilateral banks granted to Ecuador during the cold war perpetuated the uneven income distribution and dependency on foreign capital.
During the export-oriented growth period of 1948-1960 while the banana boom lasted, Ecuador enjoyed relative political and monetary stability. In the mid-1950s, however, the prices of raw-material exports declined relative to prices of manufactured imports, forcing Ecuador to rely on foreign loans to finance imports and development programs. In response to declining export revenue in the second half of the 1950s, the state began moving slowly toward import substitution, which meant even greater reliance on foreign loans and direct foreign investment.
As was the case in the rest of Latin America, import substitution did not result in greater self-sufficiency, especially since bananas, coffee, and cacao accounted for 80 percent of exports even in the early 1970sjust before the oil boom. Monocultural dependence and declining terms of trade favoring the industrialized countries crippled Ecuador's economy, leaving the civilian and military regimes to rely on foreign credits and thus perpetuating a pattern of financial dependence that Washington and the multilateral banks used as policy leverage.
Because Ecuador did not have a diversified, labor-intensive economy with substantial reserves to withstand sharp drops in the volume and price of primary exports and the government was unwilling to undertake structural administrative, economic, and fiscal reforms, foreign borrowing was a method of keeping the finances afloat. And as long as governments in Quito followed policies that Washington and the multilateral lending agencies prescribed, foreign loans continued to finance chronic budgetary and balance-of-payments deficits.
Unlike other Latin American countries that encountered debt crises from independence to the Great Depression, Ecuador had an external public debt amounting to US$42 million from 1820 to 1950. By the end of the 1950sthe foreign debt was US$94 million, and it increased to US$241 million by 1970 and US$6.1billionontheeve of the Latin American debt crisis in 1982.
Furthermore, while US$241 million in 1970 was not inordinate even for Ecuador's small economy, the raw amount of debt as a percentage of gross domestic product (GDP) was 14.7, and the burden fell inordinately on salary and wage earners. Moreover, the pattern of financial dependence in the 1950sand the 1960sandthe reliance on foreign loans continued in far greater volume after the oil boom, making Ecuador the sixth-largest debtor in Latin America in terms of percentage of GDP by the early 1980s.
Distribution of burden and relative indebtedness areas important as the aggregate amount of public debt. In contrast to Bolivia and Chile, which experienced high inflation and virtual economic stagnation, with a growth rate of just 1 percent annually during the 1950s, Ecuador enjoyed relative monetary stability during the export- oriented growth years. Yet, despite currency stability and impressive GDP increases in the 1950s, a 1961 World Bank report concluded that "Ecuador is one of the poorest countries in Latin America, falling in the same category as Bolivia, Haiti, Honduras, and Paraguay when ranked by such indices as per capita income, miles of road and railroad per 10,000 hectares of arable land, and installed power capacity".