Chapter

ECUADOR

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: August 31, 1970.
Exchange Arrangement
CurrencyEffective March 13, 2000, a full dollarization scheme was established. Although the currency of Ecuador is the Ecuadorian sucre, the dollarization legislation makes the dollar the legal tender and provides for a limited issue of domestic coins with small value to remain in circulation to facilitate small transactions and requires that they be fully backed at all times by dollars.
Exchange rate structure
UnitaryUntil February 12, 1999, there were two exchange rates: the free market rate and the Central Bank of Ecuador (CBE) official exchange rate. All legally permitted foreign exchange transactions, other than those conducted through the CBE, were conducted in the free market. The dual exchange rate system was unified on February 12, 1999, when the sucre was floated.
Classification
Exchange arrangement with no separate legal tenderUntil February 11, 1999, the market rate of the sucre against the dollar moved within a preannounced band. The band was ±7.5% around the midpoint, and the pace of depreciation of the band was 20% a year. On that date, the Sucre’s lower limit was S/. 7.261 per $1 and the upper limit was S/. 6.284 per $1.



On February 12, 1999, the CBE allowed the sucre to float freely in the foreign exchange market and the exchange rate arrangement of Ecuador was reclassified to the category independently floating from the category crawling band.



Effective March 13, 2000, a full dollarization scheme was established. The dollarization legislation provides for the central bank to exchange on demand sucres at a rate of S/. 25,000 per $1. The central bank has ceased the creation of sucre-denominated liabilities, and it stands ready to redeem sucre coins and banknotes for dollars on demand. It is envisaged that dollarization will be largely completed within 12 months. Thus, the exchange arrangement of Ecuador has been reclassified to the category exchange rate, no separate legal tender from the category independently floating.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketBanks and other financial institutions authorized to conduct foreign exchange transactions are permitted to conduct forward swaps and options, and transactions in other financial derivative instruments, subject to the supervision and control of the Superintendency of Banks.
Arrangements for Payments and Receipts
Prescription of currency requirementsExchange proceeds from all countries, except for LAIA members, must be received in convertible currencies. Whenever possible, import payments must be made in the currency stipulated in the import license. Some settlements with Hungary take place through bilateral accounts.
Payment arrangements
Bilateral payment arrangements
OperativeThere are arrangements with Cuba and Hungary; balances are settled every four months.
Regional arrangementsPayments between Ecuador and the other LAIA countries may be made within the framework of the multilateral clearing system of the LAIA.
Clearing agreementsYes.
Administration of controlPublic sector foreign exchange transactions are carried out exclusively through the CBE. Exports must be registered with the CBE to guarantee repatriation of any foreign exchange proceeds from the transaction. Private sector foreign exchange transactions related to the exportation, production, transportation, and commercialization of oil and its derivatives may be carried out through the free market or through the CBE. Private sector foreign exchange transactions may be effected through banks and exchange houses authorized by the Central Bank Board.
International security restrictionsNo.
Payment arrears
OfficialArrears are maintained with respect to public and publicly guaranteed debt-service payments to official and private creditors.
PrivateCommercial banks under the control of the Deposit Insurance Agency (AGD) maintain external payment arrears on trade and interbank credit lines.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance payment requirementsPrepayments for imports by the private sector are permitted.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresPrior import licenses are required for agricultural, medical, and psychotropical imports. In addition, Petroecuador (the state oil company) may, without a license, import supplies, materials, and equipment during emergencies.
Negative listImports of psychotropics, used vehicles, vehicle parts and pieces, and used clothes are prohibited primarily to protect the environment and health. Imports of antiques and certain items related to health and national security are also prohibited. Certain imports require prior authorization from government ministries or agencies for ecological, health, and national security reasons.
Import taxes and/or tariffsTariff rates for most goods are zero, 5%, 10%, 15%, 20%, and 40%. Automobiles are subject to a 40% rate calculated on the basis of a set of reference prices. For certain agricultural goods, tariffs are imposed on those with prices below a certain lower benchmark, and rebates are granted on goods with prices above an upper benchmark. Before concluding the negotiations for accession to the WTO, Ecuador replaced its system of price bans for 130 agricultural products with the one used by the Community of Andean Nations. No timetable for the elimination of this syetem has been agreed to by the WTO. All private sector imports are subject to the 10% VAT. Effective January 1, 2000, the VAT rate was increased to 12%. Effective February 9, 1999, goods imported into Ecuador are subject to additional tariffs ranging from 2% to 10%.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Surrender requirementsAll export proceeds must be surrendered to authorized financial entities. However, exporters may deduct up to 15% from their surrender requirement to cover the actual cost of consular fees and commissions paid abroad. The surrender requirement does not apply to exports effected under authorized barter transactions or to exports to countries with which Ecuador has bilateral payment agreements. In such cases, exporters are required to provide official documentation from the recipient country establishing the applicable forms of payment. Exporters of marine products are permitted to retain up to 30% of the f.o.b. value of their shipments to cover the actual cost of leasing foreign ships. Minimum reference prices are established for exports of bananas, coffee, fish products, cocoa, and semifinished products of cocoa to help ensure that exchange proceeds are fully surrendered. Payment of foreign exchange for petroleum exports is made on the basis of the sale prices stated in the sales contracts and must be surrendered within 30 days of the date of shipment. In addition, exporters may deduct from their surrender requirements the cost of Kraft paper and starch or inputs and raw materials imported under the “Industrial Deposits Temporary Admission” regime when exporters require cardboard boxes for packing that are built with Kraft paper and starch.
Financing requirementsNo.
Documentation requirementsBarter transactions require the prior approval of the Ministry of Foreign Trade, Industrialization, and Fisheries, and must be registered with the CBE.
Export licensesExports do not require licenses, but must be registered for statistical purposes.
Without quotasThe export prices of bananas, cocoa, coffee, fish, and semifinished cocoa products are subject to minimum reference prices.
Export taxesAll crude oil exports are subject to a tax of $0.5 a barrel. A fee of $1.02 a barrel is applied to crude oil exported through the pipeline. Effective March 10, 2000, this fee was increased to $1.60 a barrel. This fee increases in accordance with the viscosity of the crude oil and the distance it is transported (in kilometers).
Payments for Invisible Transactions and Current Transfers
Controls on these transfersResidents and nonresidents traveling abroad by air must pay a tax of $25 a person. Airline tickets for foreign travel are taxed at 12%, and tickets for travel by ship are taxed at 8% for departures and 4% for the return trip.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsAll receipts from invisibles must be sold in the free market, except for interest income on exchange reserves of the CBE and all invisible receipts of the public sector, which are transacted at the central bank rate.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital and money market instruments
On money market instruments
Sale or issue locally by nonresidentsThere are controls on the issue of these instruments.
On collective investment securities
Sale or issue locally by nonresidentsThere are controls on the issue of these instruments.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsAll foreign loans granted to or guaranteed by the government or official entities, whether or not they involve the disbursement of foreign exchange, are subject to prior approval from the Central Bank Board. A request for such approval must be submitted by the Minister of Finance and Public Credit to the Central Bank Board, accompanied by detailed information on the loan contract and the investment projects it is intended to finance. In examining the request, the Central Bank Board considers the effects that the loan and the related investment may have on the balance of payments and on monetary aggregates. For public sector entities, the projects to be financed must be included in the General Development Plan.



New external credits with a maturity of over one year that are contracted by the private sector, either directly or through the domestic financial system, must be registered with the CBE within 45 days of disbursement. Nonregistered credits are subject to a service charge equivalent to 0.25% of the credit amount.
Commercial credits
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Financial credits
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Controls on direct investmentNo.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsNo.
Controls on personal capital movementsNo.
Provisions specific to commercial banks and other credit institutions
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsThe reserve requirement for dollar-denominated accounts was 4%, while that for sucre-denominated accounts was 19%. Effective January 27, 2000, the reserve requirements were unified at 9%.
Open foreign exchange position limitsUntil February 11, 1999, there was a limit equivalent to 20% of technical capital of banks.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 1999
Exchange arrangementFebruary 11. The dual exchange rate system was eliminated and the sucre was allowed to float freely. The exchange rate arrangement of Ecuador was reclassified to the category independently floating from the category crawling band.
Imports and import paymentsFebruary 9. Goods imported into Ecuador are subject to additional tariffs ranging from 2% to 10%.
Capital transactions
Provisions specific to commercial banks and other credit institutionsFebruary 11. The open foreign exchange position limit equivalent to 20% of technical capital was eliminated.
Changes During 2000
Exchange arrangementMarch 13. A full dollarization scheme was implemented, making the dollar legal tender.



March 31. The exchange arrangement was reclassified to the category exchange arrangement, no separate legal tender from the category independently floating.
Imports and import paymentsJanuary 1. The VAT on imports was increased to 12% from 10%.
Exports and export proceedsMarch 10. The fee on crude oil exports was increased to $1.60 a barrel from $1.02 a barrel.
Capital transactions
Provisions specific to commercial banks and other credit institutionsJanuary 27. The reserve requirements for dollar-denominated and sucre-denominated accounts were unified at 9%.

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