Table of Contents

Introduction..........................................................................................................................2

Background..........................................................................................................................2

Figure 1: Location of Ecuador.............................................................................................4

Figure 2: Location of the OCP pipeline...............................................................................4

The Problems with Oil.........................................................................................................5

Figure 3: Percent of Population living in Poverty 1998......................................................8

Figure 4: Foreign Direct Investment in Ecuador.................................................................9

Figure 5: Evolution of Oil and Non-Oil Exports...............................................................12

Figure 6: Oil Production, Refinery Capacity and Net Exports in Ecuador.......................13

Figure 7: Trends in Oil Price.............................................................................................15

Figure 8: Trends in Price of Oil, Ecuador Specific............................................................15

Figure 9: Economic Breakdown by Industry - Ecuador....................................................18

Conclusion.........................................................................................................................20

References..........................................................................................................................21
Candidate Code: cpv 008 The Impacts of …Page 2 2

Introduction
Oil is one of the modern world’s most prized resources. It has the potential to

give its governing body great wealth and power if handled correctly. This paper addresses

the question of whether or not the discovery of oil in Ecuador was beneficial for the

people of the nation. Unfortunately the discovery and exploitation of oil in Ecuador has

fueled corrupt governance, environmental and cultural degradation as well as climbing

debt. Oil money enabled the government to take out loans which contributed to a culture

of debt and poverty. Indigenous people lost large areas of land which contributed to a

cultural decline. Unhappy citizens protested in the streets. Attempts at improving

infrastructure and reshaping the economy failed and brought forth insurmountable levels

of foreign debt. The oil industry has not been beneficial to Ecuador because poor

governance has caused any benefits to be overshadowed by the negative social,

environmental and financial consequences. The value in this investigation will come from

research in three main areas. The first is a look into issues surrounding globalization and

the effect of a global economy on a developing nation. Then this study will act to dispel

common notions that oil is the solution to all economic problems and those issues in

developing nations can be solved solely by an increase in capital. Finally the feasibility of

an economy that relies solely on the production of raw materials specific to a single

product will be discussed.

Candidate Code: cpv 008 The Impacts of …Page 3 3

Background

The Oriente region of Ecuador is the easternmost area of land which is the

nation’s main oil extraction land. The Oriente is part of the Amazon Rainforest and

contains part of the Amazon River basin. This area is considered to be one of the world’s

ten major biodiversity hot spots (Wood & Porro, 2002). Before oil extraction began, the

area was mostly inhabited by indigenous people who lived untouched by modern society

(Amazon Watch, 2006). The search for oil in the Amazon began in 1921. In 1967 the first

oil field opened near Lago Agrio (Roos & Van Renterghem, 1997). In current times, oil is

piped from the Oriente across the Andes to the Esmeraldas where it is exported or

refined. There are two major pipelines to do this job, the trans-Ecuadorian (SOTE) and

the Oleoducto de Crudos Pesados (OCP). The trans-Ecuadorian pipeline began shipping

oil in 1971, and the OCP followed in 2003. Initially the majority of oil extraction was

controlled by Texaco, Standard Oil Company, Shell and a few other foreign enterprises

(Roos & Van Renterghem, 1997, p. 49). By law in Ecuador people own the land that they

live on, but the government has control over the resources underneath the ground and are

able to manipulate them however they see fit. It was not long before the entire Amazon

region was deemed an “oil extraction area.” (Roos & Van Renterghem, 1997) In 1971

Ecuador came under military rule (Gerlach, 2003). The government created a state-run

petroleum company: Corporación Estatal Petrolera Ecuatoriana (CEPE) also known as

the Ecuadorian State Oil Corporation (Roos, 1997). Democracy was restored when Borja

became president in 1989 and the CEPE was restructured and given a new name:

Petroecuador (Roos & Van Renterghem, 1997).

Candidate Code: cpv 008 The Impacts of …Page 4 4

Figure 1. Location of Ecuador

Colombia

Ecuador

Peru

Note. From Sheppard Software. Blank map of South America. Retrieved January 11, 2009 from
<http://www.sheppardsoftware.com/southamericaweb/blankmap.htm>

Figure 2. Location of the OCP pipeline

Note. From Goodland, Robert. Ecuador: Oleoducto de Crudos Pesados (OCP) (heavy crude oil pipeline)
Independent compliance assessment of OCP with the World Bank’s environmental and social policies.
(2002) Retrieved on January 11, 2009 from
<http://www.amazonwatch.org/amazon/EC/ocp/reports/ocp_asses_report_0209.pdf>
Candidate Code: cpv 008 The Impacts of …Page 5 5

The Problems with Oil

During the 1960s and 1970s Texaco developed the Lago Agrio and Shushufindi

oil fields while also helping to build the trans-Ecuadorian pipeline (Whitten, 2003). As

oil was a newly discovered resource in Ecuador, oil extraction and processing had begun

before the necessary regulations surrounding its exploitation had been created. Lack of

environmental law for oil extraction allowed oil companies, primarily Chevron Texaco

and CEPE to exploit oil with few laws to protect surrounding areas and people. Water

contamination became a large problem. Numerous heavy metals and other harmful

substances are brought to the surface during exploratory drilling (Whitten, 2003). Waste

pits were used in an attempt to dispose of the dangerous materials. Unfortunately, the

waste pits in Ecuador were often unlined so any substances could easily seep out of the

pits and contaminate the surrounding area (Brooke, 1994). Waste pits were legal in most

countries at the time (Chevron U.S.A. 2008) but pits in Ecuador were not well

maintained, leading one to believe that this practice would not have been legal elsewhere.

Furthermore, even if waste pits were kept to legal standards, oil extraction has still caused

environmental damage that had never before been encountered in Ecuador. At present,

most international regulations state that drillers must re-inject these waste products deep

into the earth (Brooke, 1994). Without a doubt, the introduction of new industrial

materials that contaminated the natural state of the Ecuadorian landscape is a negative

effect of oil production in the nation.

The degradation of natural habitat will cause negative effects for all who need the

natural resources for survival. Industrialization of the Amazon has caused numerous

animal species to die out. River dwellers, crocodiles, water birds, and fish populations
Candidate Code: cpv 008 The Impacts of …Page 6 6

have all been greatly reduced (Amazon Watch, 2006). In the forest areas rodents, turkeys,

boar and monkeys have fled due to the increase in noise, light, and loss of habitat from

the construction of processing plants (Amazon Watch, 2006). This can only foretell the

negative effects on the people who use these same rivers for drinking and bathing. Some

of the affected indigenous groups are the Cayapa, Secoya, Huaorani, Oriente Quichua,

Cofàn and Shuar (Gerlach, 2003). The Cofàn, Kichwa and Shuar Indians argue that their

populations have decreased, although this fact is a largely debated topic. Speculation

about the reliability of sources and methods used to measure indigenous populations

bring conflict to this issue. However, there have been studies that link cancer rates with

people living in areas of oil extraction. Skin diseases, abortions and respiratory problems

were also found to be prevalent in people living in these areas (Goodland, 2002). The loss

of culture, if not population, can be measured qualitatively and is evident in the Amazon

region of Ecuador.

The lack of evidence supporting the decreasing Cofàn population does not

disguise the fact that the people noticed rashes from bathing in the contaminated water

near their residence. They had to avoid drinking the water and could no longer bathe in

their traditional fashion (Tayler, 2005). As Gerlach describes in Indians, Oil and Politics

(2003) the Cofànes found that vast tracts of their land were turned into roads and

extraction sites. The government, fearing conflict between natives and the oil company,

placed the indigenous people into villages. Village life did not follow native traditions

and at school Christianity was taught instead of indigenous values and culture. Modern

farming replaced traditional methods as there was no longer enough land to continue old
Candidate Code: cpv 008 The Impacts of …Page 7 7

practices. The loss of native culture is a definite negative effect of the oil industry in

Ecuador.

The Cofanes are the most notable case of indigenous rebellions against large oil

companies. They filed a law suit against Chevron Texaco, an oil company that began oil

production in Ecuador. In the Chevron Texaco and Cofàn court case, Texaco argues that

they can not be at fault because regulations surrounding the dumping of waste did not

exist at the time of the alleged infraction (Chevron U.S.A. Inc. 2008). This court case was

very controversial as both sides accused the other of skewing results of tests and the case

was tried in both Ecuador and the Untied States after allegations of unfair trials (Chevron

U.S.A. 2008). Since indigenous people did not traditionally have the resources available

to them to make statements against the government, there is reason to believe that the

Cofànes’ situation was dire. The fact that an indigenous group asserted their rights in this

specific situation can be considered a positive effect of the oil industry. It is, however,

overshadowed by the reason behind the act of protest: that indigenous culture was

destroyed.

Indigenous people have not seen any improvement in their lives within the last

thirty years (BBC News, 2002). This is unnerving especially because it is these people

specifically who suffered the most from the expansion of oil and who face the most

severe forms of poverty, as can be seen in Figure 3. In 1988 the wealthiest 10 percent of

the population held 47 percent of the income while the poorest 20 percent held only 2.55

percent of the nation’s income. This trend became more severe in 1993 when the

wealthiest 10 percent held 54.7 percent of the income and the poorest 20 percent held

only 1.68 percent (Gerlach, 2003). Yet again, indigenous people protested against the
Candidate Code: cpv 008 The Impacts of …Page 8 8

government on the topic of oil. Protesters blocked almost sixty oil wells and five

refineries on one occasion. Their aim was to have more oil revenues spent on investments

in their communities rather than to pay off external debt. (BBC News, 2002). It is clear

that in many cases oil has not brought improved the quality of life for citizens, only civil

unrest.

Figure 3. Percent of Population living in Poverty 1998

% of population living in % of population living in extreme
poverty poverty
National 62.5 26.9
Indigenous 86.9 55.6
Non- 61.1 25.2
Indigenous
Note. From Georgetown University (2006). Indigenous peoples, democracy and political participation /
pueblos indígenas, democracia y participación política. Retrieved January 11, 2009 from
<http://pdba.georgetown.edu/IndigenousPeoples/demographics.html>

As can be seen in Figure 4, foreign investment in Ecuador has drastically

increased since the discovery of oil. Kunkel reported in 2003 that ninety percent of

foreign investment goes to the oil industry. However the foreign companies that are

invested in Ecuador are doing little to benefit the people of the nation. Money gained by

multinational corporations (MNC) does not help the growing poverty in the nation. The

bulk of the profits go overseas to the already wealthy people. This phenomenon only

contributes to a larger worldwide gap between the rich and the poor.
Candidate Code: cpv 008 The Impacts of …Page 9 9

Figure 4. Foreign Direct Investment in Ecuador

1400 ECUADOR: Inversión Extranjera Directa

1200

1000

millones de USD dólares 800

600

400

200

0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Note. From World Trade Organization (2005). Trade policy review report by Ecuador. Retrieved January
12, 2009 from <www.sice.oas.org/ctyindex/ECU/WTO/ENGLISH/WTTPRG148_e.doc>

By 2003 the trans-Ecuadorian pipeline had broken more than thirty times spilling

more than 16.8 million gallons of crude oil into the Amazon basin. (Roos & Van

Renterghem, 1997) This oil was never cleaned up. The most serious of all spills occurred

in March 1987 when an earthquake left the trans-Ecuadorian line out of commission for

over five months (Gerlach, 2003). This oil spill destroyed nearby lakes and rivers and

delayed export of oil. One can assume that an oil spill of this magnitude will have a

lasting effect on living creatures in the area. People who rely on nearby streams for water

will no longer have that essential resource. This event also points out the fragility of

Ecuador’s economy. Since the nation’s financial well being essentially relies on the

export of oil, any pipeline leaks have dramatic impacts on the economy.

Construction of the OCP pipeline has been controversial since its very conception.

Frequent oil spills from the preexisting Trans-Ecuadorian pipeline made citizens hesitant

to allow the pipeline to cross their land. On a worldwide scale, this pipeline follows a

path through seven national parks and protected areas, splitting the Mido Nambillo Cloud
Candidate Code: cpv 008 The Impacts of …Page 10 10

Forest in half (Foley & Jermyn, 2006). Environmental destruction was inevitable as the

forest must be cleared to construct the pipelines, but almost no attempt to assess the

environmental impact of the new pipeline has been made by the government (Amazon

Watch, 2006). The addition of a new pipeline causes imbalance to the fragile ecosystems

in areas with high biodiversity. Moreover, any environmental degradation resulting from

the pipeline reduces the amount of natural landscape which harms any tourism in the

area. Not only does the OCP pipeline allow the government to rely on greater income

from oil, it destroys some aspects of the tourism industry, which could have provided a

much needed facet of a diverse economy.

Yet another problem was revealed after construction of the line had begun.

Construction was suspended because of environmental management plan violations,

proof that the construction of this line had serious negative effects on its surroundings.

(Amazon Watch, 2006) The pipeline did not meet the minimal World Bank environmental

standards. This is an extremely serious problem if one considers the number of national

parks the pipeline runs through and the level of biodiversity of the area. The cost was

almost $200 million over budget and the government was forced to take out a loan.

(Amazon Watch, 2006) This decision could have major consequences especially

considering that in 2001 Ecuador had the highest per capita debt in South America

(Amazon Watch, 2001). On May 17, 2001 two indigenous coalitions, the Confederation

of Indigenous Nationalities of Ecuador (CONAIE) and the National Federation of

Indigenous Afro-Ecuatorianos and Peasants, Ecuador (FENOCIN) worked together to

oppose the construction of the OCP. (Goodland, 2002) Upon completion the pipeline had

a capacity of 450,000 bpd, however only 180,000 bpd is currently being shipped.
Candidate Code: cpv 008 The Impacts of …Page 11 11

(Kunkel, 2003) Bill Kunkel, a reporter on the status of the OCP in Ecuador has said “[the

OCP] may face serious difficulty unless ways are found to diffuse the sore spots: restore

damaged countryside and heal the rift with indigenous peoples and environmentalists.”

(2003, ¶ 22)

Traditionally Ecuador has been a producer of a single export which accounted for

the majority of the nation’s Gross Domestic Product (GDP). The discovery of oil has only

enabled this type of economy to remain prevalent. Two major export changes within the

twentieth century alone are one indicator of the unstable nature of this type of economy.

The main export changed from cocoa to bananas and finally to oil. This type of economy

continues to go through cycles of boom and bust. Ecuador experienced an oil “boom” in

the mid 1960s and somewhat of a “bust” beginning in the 1980s (Handelsman, 2000).

When oil has finally run dry in Ecuador the government will be forced to restructure the

economy for a third time since the early 1900s. Hopefully this time the economy will be

structured for long term stability, something that has escaped the nation in recent years.

Figure 6 shows that the amount of oil extracted is far more than is refined in Ecuador.

Figure 5 shows that when oil is not exported, the economy has the ability to gain income

from other sources. Perhaps an increase in the refinery capacities would be a step towards

economic independence through diversification in future years.

Candidate Code: cpv 008 The Impacts of …Page 12 12

Figure 5. Evolution of Oil and Non-Oil Exports

Exportaciones Petroleras y No Petroleras

Oil and non-oil exports
4,050.00

3,550.00

f.o.b.FOB
3,050.00

de dólares
2,550.00
of dollars

2,050.00
Millones
Millions

1,550.00

1,050.00

550.00
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Exportaciones Petroleras Exportaciones No Petroleras

Oil exports Non-oil exports

Note. From World Trade Organization (2005). Trade policy review report by Ecuador. Retrieved January
12, 2009 from <www.sice.oas.org/ctyindex/ECU/WTO/ENGLISH/WTTPRG148_e.doc>
Candidate Code: cpv 008 The Impacts of …Page 13 13

Figure 6. Oil Production, Refinery Capacity and Net Exports in Ecuador

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
Total Oil
Production
(thousand barrels 207 214 214 240 261 284 295 175 303 281
per day Rounded
to nearest
thousand)
Refinery
Capacity 86 87 90 79 84 82 88 88 122 123
(thousand barrels
per day)
Net Exports
(Production-
Consumption) 123 126 119 155 178 198 203 85 210 190
(thousand barrels
per day)
GDP (based on 2606. 2877. 3072. 3022. 3182. 3337. 3429. 3232. 3604. 3664.
PPP per capita 17 85 54 39 64 00 09 07 98 36
GDP)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Total Oil
Production
(thousand barrels 286 301 324 349 370 396 398 389 377 374
per day Rounded
to nearest
thousand)
Refinery
Capacity 145 142 142 147 148 148 148 148 168 176
(thousand barrels
per day)
Net Exports
(Production-
Consumption) 189 197 205 237 250 272 268 254 239 246
(thousand barrels
per day)
GDP (based on 3830.3 4072. 4220. 4308. 4508. 4583. 4685. 4857. 4916. 4584.
PPP per capita 6 84 96 46 42 43 09 02 83 67
GDP)
2000 2001 2002 2003 2004 2005 2006 2007
Total Oil
Production
(thousand barrels 396 413 393 411 529 533 536 512
per day Rounded
to nearest
thousand)
Refinery
Capacity 176 176 176 176 176 176 176 176
(thousand barrels
per day)
Net Exports
(Production-
Consumption) 266 273 251 265 377 378 376 -
(thousand barrels
per day)
GDP (based on 4726.4 5303.
PPP per capita 5 39 - - - - - -
Candidate Code: cpv 008 The Impacts of …Page 14 14

GDP)
Notes for Figure 6. Dashes indicate that data was not available.
Adapted from: EconStats (2008). Ecuador. Retrieved January 11, 2009 from
<http://www.econstats.com/weo/CECU.htm> and
Energy Information Administration (2008). Ecuador energy profile energy data series. Retrieved January
12, 2009 from <http://tonto.eia.doe.gov/country/country_time_series.cfm?fips=EC>

When an economy relies so heavily on the international price of a good, their

government and people lose some level of control over their economic success. Volatile

world market prices dictate the economic success of the Ecuadorian nation. Figures 7 and

8 show the dramatic changes in oil price starting in the early 1990’s. One can see the

obvious fluctuations in these years that were not as noticeably detrimental to the

economy of Ecuador. The Ecuadorian government can not dictate any changes that may

occur. (Gerlach, 2008) Fluctuations in price can not be controlled in any real way by the

government. It would be far more beneficial to support a variety of income sources in

order to achieve economic stability. A successful long term goal was not necessary when

oil was discovered as the cash flow was sufficient to support the extravagant spending

needs of the politicians and keep unhappy protesters at bay. The success of oil acted as a

cover for inefficiencies in the overall economic plan for the nation. Unfortunately for the

people of Ecuador the government during the oil boom was not one that consistently kept

the best interests of the citizens in mind.

Candidate Code: cpv 008 The Impacts of …Page 15 15

Figure 7. Trends in Oil Price

Note. From Energy Information Administration (2008). Annual oil market chronology. Retrieved January
11, 2009 from <http://www.eia.doe.gov/cabs/AOMC/Overview.html>
Figure 8. Trends in Price of Oil, Ecuador Specific

Note. From Energy Information Administration (2009). Petroleum navigator. Retrieved January 11, 2009
from <http://tonto.eia.doe.gov/dnav/pet/hist/wepcecoriw.htm>

Petroecuador, the state run oil enterprise, has few regulations. The government

allows for environmental regulations to be broken in order to hold revenue (Gerlach,

2003). Furthermore, all of the Amazon area including Indian Territory and national parks
Candidate Code: cpv 008 The Impacts of …Page 16 16

has been designated oil extraction region (Roos & Van Renterghem, 1999). The amount

of oil extracted exemplifies the current economic ideologies in Ecuador. Between 1980

and 1985 the price of crude oil fell (Gerlach, 2003). To combat falling prices, the

Ecuadorian government increased production of oil by almost 1/3. This act was in direct

conflict with the Organization of the Petroleum Exporting Countries (OPEC), and

Ecuador was forced to leave the organization (Roos & Van Renterghem, 1997). The

drastic measures taken to protect the oil industry clearly demonstrate Ecuador’s reliance

on this single product. By 1990 1.5 billion barrels of oil had been extracted, this was

believed to be about half of the nation’s oil reserves (Roos & Van Renterghem, 1997).

The speed at which the oil was extracted shows little planning by the government. If the

economy relied so heavily on the export of this single product, and it was believed that

half of the reserves were extracted, it would not be in the best interests of the nation to

increase the rate of extraction. Data from Figure 6 shows that there was a definite

increase in the oil extraction rate at this time.

In the early 1970s, when oil was first exported, Ecuador’s political situation was

not ideal for correctly handling the excess money that was available. In 1972 Guillermo

Rodriguez Lara led a coup d’état which overthrew the previous dictator. The army

decided that politicians were unable to spend Ecuadorian money with the best interests of

the people in mind, so the nation was ruled by the military. Lara was overthrown in 1979

when he lost public support due to lack of public spending of oil revenue (Gerlach,

2003). During military rule the state’s share of oil profits increased and this money

financed military operations. From 1972 to 2000 45% of Ecuador’s oil revenue went to

the armed forces (Gerlach, 2003). This outrageous spending was not legislatively
Candidate Code: cpv 008 The Impacts of …Page 17 17

approved; however poor government structure and corruption allowed this to go

unnoticed (Gerlach, 2003). The corrupt political situation in Ecuador caused the increase

in capital made through the oil industry to be spent on resources that did not affect the

quality of life of the citizens. As previously seen in Figure 3 the poverty rate in Ecuador

was extremely high, the money made from the oil industry should have helped those

living in poverty, rather than to fund an industry that inflicts pain and suffering.

The less than stable government seemed to have too much control over the

economic outlook of the nation. Prospective oil income allowed leaders to take large

loans to finance import substitution. Between 1972 and 1982 public expenditures

increased 12 percent annually (Gerlach, 2003). Public service jobs were created and the

government provided subsidies for a variety of goods. State owned industrial companies

were established in hopes of building a strong industrial sector (Roos & Van Renterghem,

1997). High tariffs contributed to the import substitution philosophy, providing less

competition so that local businesses could flourish. Tax collection dwindled, and citizens

became accustomed to living tax free (The World Bank, 1991). Even the oil industry

could not obtain the capital necessary to run this type of economy. Large loans needed to

be taken out in order to cover the costs of financing modernization and import

substitution (Gerlach, 2003). With oil reserves backing the loans, Ecuador had no

problem receiving large sums of money. Unfortunately the industrial sector Ecuador was

hoping to build never materialized (Roos & Van Renterghem, 1997). Figure 9 shows that

in fact, the industrial sector of the economy in Ecuador has shown little improvement

over the past twenty years.

Candidate Code: cpv 008 The Impacts of …Page 18 18

Figure 9. Economic Breakdown by Industry - Ecuador

Note. From The World Bank Group (2008). Ecuador at a glance. Retrieved January 12, 2009 from
<http://devdata.worldbank.org/AAG/ecu_aag.pdf>

The government relied on loans to continue growth until the 1980s when the price

of oil began to fall. The levels of corrupt government were known internationally and

high levels of state involvement in the economy paired with the high tariffs made

Ecuador undesirable among foreign investors (Gerlach, 2003). At the same time,

modernization and globalization made the international market much more competitive.

Ecuador went into recession, interest rates rose as did inflation and foreign debt

continued to grow. Between 1982 and 1988 per capita GDP decreased 17 percent (The

World Bank, 1991). There were numerous nationwide strikes as the government could no

longer satisfy the conflicting needs of the citizens with their excesses. The falling price of

oil had made loan repayment almost impossible. The lack of capital made it impossible to

keep up with the quickly industrializing world. Ecuador could not be competitive on the

world market, nor could they improve the quality of their goods. Poverty became more

common. Agencies such as the International Monetary Fund, World Bank, Inter-

American Development Bank, Andean Development Corporation, and the Paris Club all

pressured Ecuador to reduce its spending (Gerlach, 2003).

The International Monetary Fund (IMF) supports the exploitation of oil in

Ecuador. This type of income creates revenue in the short term, the type necessary for the
Candidate Code: cpv 008 The Impacts of …Page 19 19

repayment of loans that Ecuador had taken out to finance previous economic problems

and corrupt rulers (Roos & Van Renterghem, 1997). Up to eighty percent of the earnings

form the oil in the newly developed OCP pipeline will be used to pay back loans to the

IMF (Amazon Watch, 2006). Ecuador was forced to ask for balance-of-payments support

from the IMF on multiple occasions. The IMF has built a repayment plan that supports oil

exploitation and cutting government spending on social services (Roos & Van

Renterghem, 2003). Other reductions in spending include selling off of costly or

inefficient state enterprises and reducing subsidies on gas, transportation, electricity and

food. Education and health care subsidies will also be reduced as the IMF does not see

these practices as being sustainable for the Ecuadorian government. Thousands of state

sector jobs were lost and twenty thousand government employees were fired (Roos &

Van Renterghem, 2003). The government had to begin collecting taxes again.

Opposition has been met from unions, indigenous groups and nationalists

(Kunkel, 2003). The loss of subsidies on consumer goods such as food and gasoline

would have had a dramatic impact on the lives of poverty stricken citizens of the nation,

especially with the influx of state sector workers who had been recently laid off.

Numerous people protested the increase in domestic fuel prices. The protesters were such

a strong force that the government called a state of emergency in January of 2001 (BBC

News, 2001). In their 1975 report (p.1, ¶ 1), the General Secretariat of the Organization

of American States had stated “The long run benefit to Ecuador from the oil industry will

depend in large measure upon how the profits from the oil production are used.” Today it

is clear that the government did not make wise choices with the use of their oil money

and as a result the Ecuadorian nation has suffered.

Candidate Code: cpv 008 The Impacts of …Page 20 20

Conclusion

This study has concluded that the discovery of oil in the Oriente region of

Ecuador enabled inefficient government and economic systems to exist. The government

was unprepared to handle the new level of wealth that oil brought to the nation. While

Ecuador was lacking environmental regulations, foreign businesses took advantage of the

indigenous people and the landscape causing damage to the biodiversity of the area. The

government increased spending and incurred huge debts, but was unable to control the

falling price of oil on the world market. Significant aspects of Ecuadorian culture were

lost due the industrialization of the Amazon region and a subsequent decline in

indigenous populations. Citizens lost their jobs and fell into poverty; protests broke out

in the streets. The overall effect of oil on Ecuador was not positive during the time frame

studied. Since oil has only become a major industry in Ecuador within the last forty

years, one would expect that the next twenty years will be a decisive time for the future

of the nation. If attempts to stabilize the declining economy are effective and the demand

for oil increases, the results of a similar study made in the near future could yield

dramatically different results. Moreover, as more studies surrounding the effects of living

in an oil extraction region are undertaken, the largely debated topics in this study such as

the effects of oil on drinking water and the decline of indigenous populations will have

conclusive evidence to support or contradict the arguments made in this paper.

Candidate Code: cpv 008 The Impacts of …Page 21 21

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