Why Ecuador?

by | Jan 28, 2003 | Archives

Why will Ecuador always be a great place to be? There are at least two reasons, the first we saw yesterday being that it sits on the equator which contains a special energy. Learn the second reason below.

Ecuador is unique for many reasons. We looked at the first in yesterday's message. The second main reason is because it has direct sunlight 365 days a year and topography that ranges from sea level to over 22,000 feet. Going from the coastal plain into the mountains of Ecuador the bio diversity is the same as going from the equator to the Arctic Circle. Ecuador has it all and has many things that no other place has.

For example did you know that trees in Ecuador do not have seasonal rings?

There are other unduplicated benefits in Ecuador, but before sharing them, may I digress.

“Ecuador has it all. Beauty, convenience, low cost and opportunity.” I wrote these words nearly ten years ago when Merri and I first visited this unique equatorial country as investors.

The country really paid off financially for us, but as is so often the case what we thought we were looking for was only a smidgen of what we received. Ecuador has brought our lifestyles ever so much more than just extra cash. Incredible luxury, heart warming sweetness, breath taking beauty, much better health and pleasant surprises at every turn. Yet having lived, worked and played there now for nearly ten years we are just beginning to realize how really special and what enormous joys and pleasures this tiny country has.

Slightly smaller than the state of Nevada, Ecuador has four highly distinct zones, the Amazon jungle basin, the Andean central highlands, the Coastal Plain and the Galapagos. Not only do these four regions offer highly different lifestyles and opportunities distinct from each other, each also offers unique sights, sounds and thrills that you cannot obtain anywhere else in the world. Yet it is all so compact! Nothing is much

more than an hour or two away. In Ecuador you encounter cultures, knowledge, birds, plants, sights, scenes and sounds you will not find anywhere else in the world.

Yet there is even more that is hard to explain. A sweetness that lies just below the surface permeates all things and makes them somehow enjoyable in ways that are difficult to describe. Merri and I have taken over 1,000 investors to this country since we first began.

Again and again they say the same. “I don't know what it is that I feel so good here, but I love it. I have to come back again.”

Perhaps it's the random, jumbled, apparent lack of order in a society where things do work. The airport is organized and gets better every time we arrive. The political system does move forward (Ecuador is South America's oldest democracy), the legal system does work. Perhaps it is the way things work differently there. Perhaps it is the incredibly low cost of fresh fruit, clean air and pure water. Whatever it is, many of those who have accompanied me have (like Merri and me), bought homes, moved there and bettered their lives in a multitude of ways.

Perhaps it is the slight differences because like good ice cream, the nuances often say more than the obvious. Cracks in a wall, its patina and peeling paint speak more loudly than color, architecture and design. So I'll describe the current circumstances of the country below, but written words are never enough. I'm writing the logical reasons why you might love Ecuador here, but you need to visit. Ecuador is a place for the heart and it will be your heart that rules in Ecuador, never your mind.

Ecuador is at a crossroads. It stands in a position where it can really rise from its third world state or sink into an even deeper time of turmoil. There are three driving forces at work, the first being economics. The country has a batch of new projects going on that will bring an infusion of cash. The biggest deal is the new oil pipeline now about 80% complete. This will increase the government's revenue by about 30%. A new airport is being built in Quito, plus there is increased military spending in Manta and construction as this coastal town is being turned into an important port. These projects give the country hope. On the downside the country is in an economic mess and has about $2.2 billion of debt, a huge amount for the nation's small economy. How can they back all these dollars? Dollars leads us to the second driving force, which is the nation's dollarization. The idea of abandoning the sucre and using the U.S. dollar as the nation's currency was that this will stop inflation because it limits the politicians' ability to spend. This is a good idea and the long-term stability will be good. The IMF loves this as do many of the other bright boys in top western economic posts…all who have never tried to run a country surrounded by other nations that do devalue their currencies. Dollarization will be good if it can survive, but here is the problem.When the sucre existed it created two economies, the local and the global economy. As inflation rose in Ecuador the sucre devalued. Wages in sucre rose to match the devaluation and the real cost of basics that were created in the local economy such as food, clothing and shelter remained about the same. One year it cost a sucre for a loaf of bread and a person earned a sucre an hour. So an hour's work bought a loaf of bread. Then when the sucre dropped by 100%, wages rose to two dollars an hour and so did the price of bread.This is a nasty little system that pushes most of the poor in Ecuador further and further from the global economy. The poor became less and less capable of buying TVs, cars, or anything imported from the U.S. and abroad. But the system works in so far as people have enough for food clothing and shelter.

With dollarization, inflation becomes real. The cost of food rose. The farmers loved this. They got more and more for their bananas, corn, potatoes and such. But the poor worker who lives in the city gets caught in the crunch. His wages don't rise and his costs do!

Ecuador has one of the largest disparities between rich and poor and a failed land reform in the 70s (I won't go into details here) has swollen the number of city poor. So now the bulk of the population face great economic difficulty due to dollarization.

Plus there is one more rub. Neighboring Peru, Bolivia, Colombia, Venezuela and Argentina do not use the U.S. dollar and their currencies have fallen. Thus Ecuador is becoming increasingly uncompetitive. Huge debt and a currency pegged to the U.S. dollar are what pushed Argentina into its current muddle. In other words, the cure may be so painful that the patient cannot survive the treatment.

Enter the third driving force, a new President backed for the first time by the huge indigenous population. President Lucio Gutierrez, an army colonel, who was a key figure in the bloodless coup of the last corrupt President. His role in this coup brought him great popularity and his indigenous connections were enough to put him into office on a reform campaign.

The man is probably sincere, but like Jimmy Carter may be overwhelmed by events. He has no political experience at all. He is inheriting an economic mess and in his first week managed to get everyone mad at him by adding a luxury tax (which made the wealthy mad), raising gas prices (which made the poor mad) and loping 20% off of all government salaries over $1,000 monthly including his own (which made all the top civil servants mad).There are some good news stories on the net about the challenges the new president faces including one from Pravda (The former USSR paper-who would have thought!) Their address is http://english.pravda.ru/main/2003/01/16/42118.html. Other good stories are http://www.miami.com/mld/miamiherald/news/world/4609728.htm and http://ca.news.yahoo.com/021125/5/qgv6.html. As I said, my opinion is that the country is at a crossroads. Prices are not as low as they were for sure, but the place is still inexpensive. The streets are not as safe as they were, but especially out of the city and away from the Colombian border, Ecuador is not a dangerous place.

There are enormous historic, economic, cultural obstacles to overcome. Three forces are about to clash.

The first are the few very rich families, who have always been in economic and political control. Since there is no middle class, these business families have never used capital markets and have kept business ownership to themselves. Without capital markets they have depended on low cost labor rather than capital equipment. If they stick to this old paradigm, as real wages rise (especially in relation to the neighboring countries) they will become increasingly uncompetitive.

The second force is the huge number of very poor. They want change, better lives, etc., but do not understand global economics. They want change without changing and/ or evolving to fit into today's modern industrial world. They want the goodies of the west but do not know what to do or how to integrate successfully into the global economy.

The third force is the new President. He has promised to attack graft. But can he do this with success? He has 17 seats out of the congressional 100. Unless he can form a consensus of change, he will likely be caught between a very large rock and a very hard spot.

My humble opinion is that education is the only real way to make the shifts required. The country must focus its newly found incoming cash flow on education. The poor must be helped to become more productive so they can rise. My guess is the funds will go instead to handouts to quell uprisings and to more graft.

This is hardly an optimistic opinion but regardless, there will be opportunity. If the country moves the right way, they will enjoy increased stability, productivity and we can participate in helping this wonderful nation join its place in the global economy.

Should the old system continue there will be more crises. Dollarization will collapse and a new devalued currency introduced. If this happens we'll have some more real estate tours where land will become available at rock bottom prices (just as we are doing in Argentina right now (see details of Argentina course).

The zero on the roulette wheel will be law and order. If the majority who is poor make enough fuss, law and order may decline. This is always the businessman's risk.

My feeling is that the unchangeable good parts will remain. Sweet people, more sight and sounds than you can find anywhere else, exquisite biodiversity of flora and fauna. There will be a rich, ancient culture full of wisdom to mystify you and bring you back again and again. The people have an inherent sweetness that has been ingrained for thousands of years. I do not believe that this will suddenly go away. A portion of the indigenous population (the Otavalans) are perhaps the most successful indigenous community in the world. Their influence is a stabilizing factor.

Plus there is more flora, fauna, some really great Indian markets, jungle lodges, incredible fishing, hiking, sightseeing and such. The many readers who have moved to Ecuador tell me they still love living in this place, as do Merri and I. Ecuador is a great place to visit, live in or do business. There are still some real estate deals but one has to search and work at this (which is true anywhere). I hope to see you sometime there!

Until next message, I hope wherever you are is a great place to be!