Ecuador’s steadily-growing economy supports a flourishing financial technology (Fintech) industry and other contemporary business models. In order to keep up with emerging technologies in this and other areas, its government constantly reviews its relevant frameworks. One of these reviews has led to a legislative change recently.
The reason for the changes, besides coping with the ever-changing financial world, is attracting foreign investment. Ecuador has a desire to continue its steady economic growth. We explore Ecuador’s modern economic plan, supported by the International Monetary Fund (IMF). Furthermore, we’ll analyze the opportunities it presents for foreign investment and business.
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A new economic plan
Ecuador has developed a new economic plan designed to set the country’s debt on a firm downward path. Its purpose is to create jobs, protect poorer communities, and bolster the fight against corruption.
Moreover, Ecuador has additional financial support from the international community. The Extended Fund Facility from the International Monetary Fund (IMF) supports this plan with a US$4.2 billion-dollar pledge. Ecuador will then have the financial boost needed to restore sustainable growth that benefits its citizens and businesses.
The program strongly supports the government’s prosperity plan and is features four key pillars:
- fortify the institutional foundations of Ecuador’s dollarization
- boost competitiveness and create jobs
- promote shared prosperity and protect the poor and most vulnerable
- improve transparency and strengthen the fight against corruption.
These reforms are necessary to strengthen the economy and institutions in Ecuador. Policies laid out under these pillars aim to improve growth and boost productivity. As a flow-on result, these pillars will facilitate a positive change in consumer behavior. Consequently, demand will grow in Ecuador’s main and emerging sectors, and local and international supply will follow. These trends are typical indicators of a healthy economy.
These pillars shape an ideal commercial environment for incorporating in Ecuador. Combining this with low wages and the dollarized national currency, Ecuador has the building blocks to offer a more attractive investment destination.
Improving Ecuador’s currency situation
Ecuador adopted the US dollar as its currency in 2000. This allows for smooth international business transactions and expansions. Moreover, the opportunity to hedge operational risk is a welcome one for international businesses.
The Ecuadorian economy does, however, face some challenges as a result of dollarization. Adopting a foreign currency means a rise in the currency’s strength can hurt the prices of your goods. This can subsequently hinder the competitiveness of the country in international markets.
To mitigate this risk, the government plans to reign in public spending, particularly through the optimization of the wage bill. This move aims to make Ecuador’s exports more attractive and competitive.
Moreover, allowing for less rigidity in wages and prices could help support external adjustment. To do this, the government is considering policies that remove instabilities in the labor and product markets and in the financial sector.
Through these legislative changes, Ecuador is reducing the risk related to its dollar value and the value of their goods internationally. Local and international businesses can appreciate a greater sense of security and stability when operating in and from Ecuador.
Another challenge the Ecuadorian government aims to tackle is corruption. The new economic plan shows a desire to reduce the levels of corruption even further. The government is committed to promoting transparency and eliminating corruption in the country. This is because it impacts all corners of the economy.
In order to overcome this problem, the government has implemented new initiatives. These initiatives will help improve business operations, lower public financing costs, and support private investment and jobs. Some key measures include:
- Anti-corruption legislation. This will enhance the independence and power of law enforcement agencies and the judiciary, as well as improve access to government operation information;
- Improving transparency. This will involve publishing central bank financial statements. These will be published as they become available in accordance with international financial reporting standards.
- Improving the safety of systems. This is done by developing anti-money laundering and countering financial terrorism (AML/CFT) policies. Moreover, this includes a national risk assessment that properly prioritizes corruption-related threats and incidents.
- Strengthen the oil sector. By gaining membership into the Extractive Industries Transparency Initiative, Ecuador improves transparency in its economy’s largest sector.
Taking these measures ensures a more transparent working environment in Ecuador. Consequently, businesses can expect a more stable future for the country. With this stability businesses are allowed to fully focus on improving their business plan and create value. This is the desired situation for any foreign investor looking for a new opportunity.
Improving the labor market
The last legislative developments in Ecuador surround the labor market. The country has implemented reforms to make Ecuador an attractive business destination. Also, to boost growth Ecuador is trying to improve formal employment processes. Formal employment reforms include reviewing the system of taxation and removing obstacles to business formation and operation.
Other key reforms include taking steps to encourage private investment, deepening the capital markets, opening international trade, and creating better conditions for the participation of women in the labor market.
By improving the formal labor market, Ecuador’s workforce will see fewer strikes and more employee motivation. Moreover, Ecuador’s four-pillared approach to economic reforms will allow for smoother international business operations. Foreign investors are now made to feel more welcome and more secure in Ecuador’s rapidly developing sectors.
Work with Biz Latin Hub
Recent legislative changes promote an increase in investment viability for Ecuador. With these changes, stable frameworks and increased transparency ensure the long term success of your Ecuadorian business expansion. Improvements in governmental processes, the labor market, and the currency situation set Ecuador on a positive growth trajectory, both economically and institutionally.
If you are interested in investing or incorporating a company in Ecuador and have more questions about finding a knowledgeable local partner to support your business, contact us today.
Our team of local and overseas experts at Biz Latin Hub offers a comprehensive range of professional multilingual market entry and back-office services to ensure your company’s success in Latin America.