Geert Bekaert and Campbell R. Harvey's


Chronology of Economic, Political and Financial Events in Emerging Markets




Major Political and Economic Events


Banking crises (early 1980s): implemetation of exchange program (domestic for foreign debt) to bail out banking system.a2


New regulations were issued for investment by foreign oil companies contracting with the State to explore for, and develop production of hydrocarbons.a3(first entry)


The regulations with regard to reinvestment of profits from foreign investments were modified.a3


The value of inward foreign investment in the form of goods should be certified by the Societe Generale de Surveillance.a3


Interest rate was liberalized. Mehrez and Kaufmann Liberalization date. a1


The procedure for the Central Bank's debt-equity swaps was modified.a3


The regulations governing foreign participation in direct investment were amended as: (1) 49% in banks, financial and insurance companies, and in certain commercial sectors; (2) no limits or prior authorization requirements for agro-industry, agriculture, and manufacturing, while mining and fishing are to be governed by their own specific laws; and (3) prohibition in communications, internal transport, public services, advertising, and in sectors adequately served by domestic enterprises. The establishment of branches of foreign enterprises would be authorized subject to the requirement of a minimum operating capital of S/.50 million.a3


The Central Bank's debt-equity swap scheme was temporarily suspended.a3


Foreign enterprises operating in Ecuador will have to obtain authorization from the Ministry of Industry, Commerce, Integration, and Fisheries for participation in domestic companies if their share exceeds 10% of capital.a3


New regulations governing FDI and foreign loans were issued.a3


The restrictions on private sector imports and exports of gold and on domestic sales were eliminated. Exporters, importers and traders, however, are required to register their transactions with the Central bank.a3


The introduction of the Insider Trading Laws.a4


The period during which foreign credits contracted by the private sector were required to be registered at the Central Bank was extended from 30 days to 45 days after disbursement of the loan.a3


The income tax rate on foreign companies was lowered to 25% from 36%. All other gains would be subject to a tax rate of 33%.a3


The commission of 0.25% applied to public sector foreign loan disbursements was abolished.a3


ADR effective date. (Company=LA CEMENTO NACIONAL, C.A. - 144A, Exchange=PORTAL )a11


The process for approving public sector external loans was amended to exclude prior approval by the Planning Office (CONADE). However, public sector enterprises were required to present to the Monetary Board more stringent financial statements to ensure that the entities can service the debt in a timely manner. The regulatory framework for registering private sector capital inflows was widened to include all types of extended credits. Furthermore, private agents were also required to register changes in repayment schedules, including rollovers of credit.a3


In the first quarter, heavy rains caused by El Nino disrupted fruit and vegetable cultivation and adversely affected the country's business and infrastructure.


The government announced a need for $2 billion in spending over the next 10 years to repair the damage caused by El Nino. The sucre devalued 7.5%.


In the second quarter, oil prices at 12-year lows pressured the country's fiscal and trade deficits.


Jamil Mahuad won the presidential election. He introduced an economic austerity package, sparking violent protests from labor unions and indigenous groups.


The Congress approved a 1% financial transaction tax to replace the moribund income tax scheme.


Worries of a banking crisis increased.


The Ecuadorian central bank abolished the crawling peg exchange rate system, allowing the currency to float freely, but then froze bank accounts to avoid bank runs. The banking sector freezing provoked mass protests throughout the Andean nation.


(Provisions specific to commercial banks and other credit institutions) The open foreign exchange position limit equivalent to 20% of technical capital was eliminated.a3


IMF delayed a $400 million aid package. Bad loans increased 95% year-to-year. The cost of rebuilding the troubled financial sector was valued at 15% to 20% of GDP. Previous central bank president and board resigned in protest of the government's failure in addressing the banking crisis.


In the third quarter, the country became the first to default on its Brady Bond debt and had the largest debt service ratio of any Latin American country.


A nationwide banking audit recommended closing five of 31 banks.


The country defaulted for the second time on $500 million in Eurobond debt. The president and the Congress failed to reach agreement on a 2000 budget. The government took over 15 of 40 banks.


(Provisions specific to commercial banks and other credit institutions) The reserve requirements for dollar-denominated and sucre-denominated accounts were unified at 9%.a3


The currency fell 20% for the first week. The president called a state of national emergency, and announced the change in Ecuador's monetary base from the sucre to the U.S. dollar. People came out into the streets because of the precipitous drop in wages. Mahuad was driven out of office and Vice President Gustavo Naboa assumed power with the support of the military.


The Congress approved dollarization, privatization of state-owned power and telephone companies, and an amendment allowing private companies to build a US$600 million oil pipeline.


In the second quarter, the IMF agreed to loan US$304 million to Ecuador conditional on 4% budget deficit and 1% GDP growth. Inflation rose to 10% and unemployment near 15%, leading to strong protests against price hikes.


The Petroecuador privatization was cancelled and the privatization of electricity companies was delayed.


The government announced an increase in salaries. The government's debt burden, estimated to be 93% of GDP, was reduced through a swap of Ecuador's defaulted sovereign debt with 12- and 30-year notes.


Inflation fell to 3.7%, and the prime lending rate was down from 50% in January to 15.9%.


Congress approved the sale of up to 51% of 18 electricity companies. Partial privatization of Petroecuador was approved and compulsory military entitlements to oil revenues were curtailed.


The government announced sharp hikes in gasoline and cooking gas prices. But intense protests compelled the government to withdraw these steps soon after. IMF reached a tentative agreement with Ecuador preparing for the fist IMF payments in six months from a $300 million loan program.


Congress rejected President Gustavo Noboa's proposal to increase revenues by an increase in value-added tax (VAT). S&P downgraded Ecuador's rating.


Congress and the president agreed on the structure of an internal revenue service and social security reform, launching the VAT increase. Equities skyrocketed.


The government shut down the country's largest state-owned bank because of severe liquidity problems, leaving depositors with devalued accounts and frozen assets.


Economy Minister Jorge Gallardo resigned.


Oil prices declined sharply.


Protests by indigenous peoples bring the country's oil production to a near standstill. The protesters demand that more of Ecuador's oil revenue should be invested in their communities.


Government Suspends Electricity Privatizations due to a lack of interested buyers.


Congress approved the Fiscal Discipline bill, setting limits on fiscal spending


Andean Business Forum Opens, aiming to consolidate and develop commercial relations among businesspeople in the region, explore new development strategies and improve links between importers and exporters in the Andean region. b1


Court Orders Imprisonment of Former Finance Minister for corruption


The Inter-American Development Bank (IDB) will give two loans to Ecuador worth a total of US$60m.


Leftist and former coup leader Lucio Gutierrez wins presidential elections. He takes office in January 2003.


The Managing Board of the IMF approved a US$204m credit line on 21 March, marking the end of a negotiating process lasting over a year. b1


Ecuadorian Government Eliminates Import Taxes on Production Inputs and Capital Goods


Former president Gustavo Noboa, who faced corruption charges, goes into exile in the Dominican Republic. b6


After months of tension, the partnership between President Gutierrez and Pachakutik has finally collapsed.


Struggling president Lucio Gutiérrez gathered scant support and faced strong protests as Ecuadorians remembered the military coup that ousted their former leader, Jamil Mahuad.


Ecuadorian President Lucio Gutiérrez has ordered active members of the armed forces - who also work within public institutions - to resign their posts in public office, following the congressional rejection of aspects of the president's constitutional reform programme related to the country's military. b1


Jail crisis: Hundreds of people are held hostage by prisoners demanding better conditions, shorter sentences. Police regain control after 10 days.


President Lucio Gutiérrez yesterday authorized the Finance Ministry to issue some US$1.035bn in external debt this year, with the publication of an executive decree. b1


Regulations on Foreign Investors


Restrictions: Foreign investors are free to invest in any industry except for those involved in oil exploration and production. Domestic and foreign investors are treated equally. Foreign investments and credits must be registered with the Central Bank for statistical purposes. Private ownership in not allowed in oil, minerals and electricity.

Taxation: No dividends or capital-gains tax.a6


Restrictions: No change.

Taxation: No capital-gains taxes until 2001.a7


Restrictions: Foreign investors may remit 100% of net profits and capital without restrictionInvestors may also repatriate the proceeds from liquidation of their investments freely.


Restrictions: Government royalties in the mining sector were eliminated to encourage additional investment.

Taxation: No capital gain tax. Corporate tax rate is 25%.


Restrictions: Telecommunication sector is opened to foreign investors.

Taxation: No change.


Restrictions: 1. Foreign investment with up to 100% foreign equity is allowed without prior authorization or screening in most sectors of the Ecuadorian economy currently open to domestic private investment. 2. Foreign investors must register their investments with the Central Bank for statistical purposes. 

Taxation: no change. b1