Correa curbs imports as crisis looms

QUITO, Ecuador

Posters plastered on the walls of supermarket chains across this Andean nation proudly declare “Ecuador First.” But for many shoppers, buying domestic is no longer really a matter of choice.

In what may be the world’s most protectionist response to the global economic crisis, Ecuador’s leftist government has imposed import restrictions on everything from Peruvian shampoo to Chilean grapes and U.S.-made running shoes.

President Rafael Correa says he had to take drastic action to prevent the collapse of an oil-dependent economy shocked by plunging petroleum prices, flagging remittances from workers abroad and the drying-up of foreign investment.

Ecuador is particularly vulnerable because it is one of only a few countries in the world - El Salvador and Panama are the next biggest - that have adopted the U.S. dollar as their currencies. It can’t print its own money, so it uses currency printed in the United States. A severe trade deficit could thus drain Ecuador of dollars, potentially causing economic collapse.

It’s a possibility that also worries CIA Director Leon Panetta. He listed Ecuador - along with Argentina and Venezuela - last month as countries in dire economic straits that could be destabilized by the worldwide economic crisis.

“We can’t continue to throw away the money from our oil, the money of our migrants, to buy imported perfumes and imported liquors,” Mr. Correa said as he explained the import restrictions.

Many imports suddenly became out of reach for Ecuadorean shoppers when the measures took effect Jan. 22. Countless jobs also are at stake, in Ecuador and in the Andean neighboring areas that account for nearly half of Ecuador’s imports.

“I think the country painted itself into a corner, and I don’t think there was anything else that could be done,” said Manuel Chiriboga, director of Quito’s nonpartisan Foreign Commerce Observatory.

The barriers affect 627 types of goods and take one of three forms: import volume decreases up to 35 percent; import duty increases to between 30 and 35 percent; or surcharges such as $12 per kilogram for textiles and $10 per pair for shoes.

These measures are as severe as any of the protectionist moves catalogued by the World Trade Organization last month, and no other country has tougher import restrictions, said Gary Hufbauer of the Peterson Institute for International Economics in Washington, D.C.

Oil sales account for 40 percent of Ecuador’s budget, but Mr. Correa isn’t just concerned about declining petroleum revenues. Exports of bananas, flowers, shrimp and other products also are down.

Mr. Correa, a U.S.-trained economist, said the restrictions should keep $1.46 billion from flowing out of Ecuador’s $50 billion economy.

While Ecuador’s economy is small in global terms, free-trade disciples fear a general spread of similar protectionist measures will seize up the global economy just when it needs rebooting.

Already, the International Monetary Fund predicts global trade will decline by 2.8 percent this year - the first contraction in almost 30 years - as country after country makes protectionist moves. They include:

Story Continues →