U.S.

DEPARTMENT of STATE
2021 Investment Climate Statements: Ecuador
______________________________________________

Executive Summary

The government of Ecuador under President Moreno has focused on reducing the size of the
public sector and its influence on the economy and sought private sector investment to drive
economic growth. Facing serious budget deficits and the economic fallout from the COVID-19
pandemic, the Moreno Administration rationalized the size of government, merged ministries,
and reduced the number of state-owned enterprises. Other cost-cutting measures include
reducing fuel subsidies and reducing the number of public employees. Still, Ecuador is saddled
with a very large public sector, and Moreno has committed to continue government spending
on social welfare programs. In September 2020, the International Monetary Fund approved a
$6.5 billion, 27-month Extended Fund Facility for Ecuador, and has already disbursed $4
billion to aid in economic stabilization and reform. The IMF program is in line with the
government’s efforts to correct fiscal imbalances and to improve transparency and efficiency in
public finance. The economy will likely be slow to recover as the Central Bank estimates an 8.8
percent GDP contraction in 2020 and 3.1 percent projected growth in 2021. By the end of 2020,
only 34 percent of the eligible working age population was fully employed.

To increase private sector engagement in the economy and attract Foreign Direct Investment
(FDI), the Ecuadorian government passed a Productive Development Law containing tax
incentives in 2018 to spur investment, changed tax and regulatory policies for mining, and
issued new Public-Private Partnership regulations to increase private investment in
infrastructure projects. Ecuador is a dollarized economy that has few limits on foreign
investment or repatriation of profits, with the exception of a five percent currency exit tax, and
is actively seeking foreign investors. It has a population that views the United States positively,
and the Moreno Administration has expanded bilateral ties and significantly increased

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cooperation with the United States on a broad range of economic, security, political, and
cultural issues.

Despite these efforts, FDI inflow to Ecuador has remained very low compared to other
countries in the region, due to a number of problems, most notably corruption. Ecuador is
ranked in the bottom third of countries surveyed for Transparency International’s Perceptions
of Corruption Index. President Moreno declared the fight against corruption as a top priority.
The independent judicial branch prosecuted government officials, including two of Moreno’s
former vice presidents, as well as individuals involved in the Odebrecht and other corruption
scandals. Ecuador’s highest court upheld convictions against former President Rafael Correa
and 19 others in 2020 for a bribery scheme involving contributions by private companies to
finance his political party illegally. Economic, commercial, and investment policies are subject
to frequent changes and can increase the risks and costs of doing business in Ecuador.

Sectors of Interest to Foreign Investors

Petroleum: Per the 2008 Constitution, all subsurface resources belong to the state, and the
petroleum sector is dominated by one state-owned enterprise (SOE) that cannot be privatized.
To improve efficiencies, the government may offer concessions of its refineries and issue
production-sharing contracts for oil exploration and exploitation. The government has gradually
reduced its consumer fuel subsidies since May 2020 by aligning domestic fuel prices with
international prices. The Ecuadorian government held a successful public tender for oil
production-sharing contracts (Intracampos I) in 2019 and reportedly plans to move to
production sharing contracts as the standard for future tenders.
Mining: The Ecuadorian government has reduced taxes in the mining sector to attract FDI.
Presidential Decree 475, published in October 2014, reduced the windfall tax and sovereign
adjustment calculations. The Organic Law for Production Incentives and Tax Fraud Prevention,
passed in December 2014, included provisions to improve tax stability and lower the income
tax rate in the mining sector. The previous Correa administration also developed mining sector
incentives such as fiscal stability agreements, limited VAT reimbursements, remittance tax

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exceptions, and mechanisms for companies to recover their investments before certain taxes are
applied.
Electricity: The government plans to offer concessions to develop wind, solar, hydro, biomass,
biogas, geothermal, biofuel, combined cycle, and gas fired electrical generation plants to further
diversify the energy matrix. It is also exploring possibilities to connect to the electrical grid the
oil and shrimp sectors, which largely use independent generation capacity, and improve the
cross-border electrical transmission connection with Peru. Non-hydro renewable energy
projects in Ecuador are eligible for U.S. International Development Finance Corporation (DFC)
financing.
Telecommunications: The government is finalizing the valuation model for 4G bands (700 and
2.5 ghz) following consultations with the International Telecommunications Union and the
U.S. Federal Communications Commission. Ecuador’s telecommunications regulator Arcotel
plans to publish the new valuation model as well as an updated fee schedule for
telecommunications services by the end of April 2021. The spectrum auctions for the 4G bands
will take place under the new administration as well as any 5G valuation model, deployment,
and commercial rollout. The current government is considering a concession of the state-owned
telecommunications company CNT, as well as diversification of its core network hardware
away from Chinese vendors.
E–Commerce: In 2020, E - Commerce sales comprised approximately two percent of
Ecuadorian GDP – one percentage point higher than in 2019. The COVID-19 pandemic
provoked an overnight digital transformation in the country changing consumer habits and
business strategies. While many Ecuadorians are interested in purchasing online, they are
limited in their ability to receive international shipments due to logistics and customs problems
upon arrival in Ecuador. The Ministry of Production launched the National E-Commerce
Strategy in 2021, establishing a framework for facilitating the digital transformation in the
country. The strategy focuses on strengthening the current legal framework, capacity building
for small and medium enterprises (SMEs), and improving logistics and payment gateway
capabilities.

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 Table 1: Key Metrics and Rankings

Measure Year Rank Website Address

TI Corruption 2020 92 of 198 http://www.transparency.org/research/cpi/overview
Perceptions Index
World Bank’s 2019 129 of 190 http://www.doingbusiness.org/en/rankings
Doing Business
Report
Global Innovation 2020 99 of 129 https://www.globalinnovationindex.org/analysis-
Index indicator

U.S. FDI in 2019 $619 https://apps.bea.gov/international/factsheet/factsheet.cfm

partner country
($M USD, stock
positions)
World Bank GNI 2019 $6,090 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD
per capita

1. Openness To, and Restrictions Upon, Foreign

Investment

Policies Towards Foreign Direct Investment

Ecuador is open to FDI in most sectors. The 2008 Constitution established that the state
reserves the right to manage strategic sectors through state-owned or -controlled companies.
The sectors identified are energy, telecommunications, non-renewable natural resources,
transportation, hydrocarbon refining, water, biodiversity, and genetic patrimony (i.e. flora,
fauna and ancestral knowledge). Although in recent years Ecuador took steps to attract FDI, its
overall investment climate remains challenging as economic, commercial, and investment
policies are subject to frequent change. From January to September 2020 (latest information
available), FDI flows to Ecuador amounted to USD 897 million, 45 percent more than 2019
levels (USD 619 million) but still 36 percent lower than 2018 levels (USD 1.4 billion). FDI
continues to be lower compared to other countries in the region.

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There are no laws or practices that discriminate against foreign investors, but the legal
complexity resulting from the inconsistent application and interpretation of existing laws and
regulations increases the risks and costs of doing business in Ecuador. Under the prior Correa
administration, disputes involving U.S. companies were politicized, especially in sensitive areas
such as the energy sector. This resulted in several high-profile international investment dispute
cases, with companies awarded damages in international arbitral rulings against Ecuador in the
last few years. In addition, several cases are pending final arbitral rulings.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities are allowed to establish and own business enterprises and
engage in all forms of remunerative activity, with limitations in strategic sectors as enumerated
in the Constitution. There are no investment screening mechanisms for inbound investment,
and the Ecuadorian government actively seeks international investors. One hundred percent
foreign equity ownership is allowed.

For license and franchise transactions, no limits exist on royalties that may be remitted,
although financial outflows are subject to a five percent capital exit tax. All license and
franchise agreements must be registered with the National Service for Intellectual Property
Rights (SENADI). In addition to registering with the Superintendence of Companies,
Securities, and Insurance, foreign investors must register investments with Ecuador’s Central
Bank for statistical purposes.

Other Investment Policy Reviews

Ecuador conducted a trade policy review with the World Trade Organization in March 2019;
information can be found at https://www.wto.org/english/tratop_e/tpr_e/tp483_e.htm.

In the past three years, Ecuador has not conducted an investment policy review with the
Organization for Economic Cooperation and Development (OECD) or the United Nations
Conference on Trade and Development (UNCTAD).

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Business Facilitation
In 2018, Ecuador folded ProEcuador (https://www.proecuador.gob.ec/), the entity that is
responsible for promoting economic development through exports, imports, and investment in
Ecuador, into the Ministry of Production, Foreign Trade, Investments and Fisheries (MPCIEP).
ProEcuador is now a Vice Ministry within MPCIEP and has 27 offices in 23 countries,
including three in the United States. Ecuador is ranked 129th out of 190 countries in the World
Bank’s Ease of Doing Business report for 2020, with particularly low rankings for Starting a
Business (177), Resolving Insolvency (160), and Paying Taxes (147).
A newly created company will at a minimum be required to register with the Superintendence
of Companies, Securities, and Insurance (http://www.supercias.gob.ec/), the municipal
government, the Internal Revenue Service, and the Social Security Institute. The registry with
the Superintendence of Companies is a completely online process as of April 2019. The
incorporation of companies in Ecuador grew almost eight percent in 2020 (10,800 new
companies), propelled by the introduction of the simplified joint-stock company (SAS). The
SAS came into effect in May 2020 following the enactment of the Organic Law on
Entrepreneurship and Innovation.
Outward Investment

Ecuador does not restrict domestic investors from investing abroad. ProEcuador (see above) is
responsible for promotion of outward investment from Ecuador. Foreign investments are
subject to a currency exit tax of five percent.

In February 2017, voters passed a government-backed referendum prohibiting elected officials

and public servants from having financial dealings in tax havens and other suspect jurisdictions.
The list includes several U.S. states and territories that do not have state income taxes. The
prohibition entered into force in September 2017.

The United States and Ecuador signed the Protocol on Trade Rules and Transparency in
December 2020 under the Ecuador-U.S. Trade and Investment Council Agreement (TIC). The
agreement updates the TIC with new annexes in four areas: Trade Facilitation and Customs
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Administration, Good Regulatory Practices, Anti-Corruption, and SMEs. The Protocol awaits
legislative ratification (as of April 2021).

2. Bilateral Investment and Taxation Treaties

Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment
treaties, including its agreement with the United States. The Government of Ecuador notified
the U.S. government of its withdrawal from our Bilateral Investment Treaty (BIT) on May 18,
2017, effective May 18, 2018. Investments made prior to withdrawal are covered for 10 years,
but the abrogated BIT covers no new investments in Ecuador.

Ecuador signed in June 2018 a Comprehensive Economic Partnership Agreement with the
European Free Trade Association, which includes Switzerland, Norway, Liechtenstein, and
Iceland. The Ecuadorian National Assembly ratified the agreement in April 2020. The
accession of Ecuador to the European Union’s Multiparty Trade Agreement with Colombia and
Peru became effective January 1, 2017. In May 2019, Ecuador, Colombia, and Peru signed the
United Kingdom-Andean Countries Trade Agreement to ensure trade continuity with the
United Kingdom following its exit from the European Union. Ecuador’s National Assembly
approved the Ecuador-UK Trade Agreement in July 2020 and it entered into force on January
1, 2021. Ecuador concluded limited trade agreements with El Salvador and Nicaragua in
November 2017. Ecuador is negotiating a Strategic Cooperation Agreement with South Korea.
Ecuador also is in the process of finalizing a new trade agreement with Mexico that would
permit it to negotiate membership in the Pacific Alliance.

Ecuador is negotiating a Tax Information Exchange Agreement with the United States.
Ecuador does not have a bilateral taxation treaty with the United States.

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3. Legal Regime

Transparency of the Regulatory System

While there is a focus within the Moreno administration to improve transparency and
government accountability, progress has been slow. Economic, commercial, and investment
policies are subject to frequent changes and can increase the risks and costs of doing business in
Ecuador. National and municipal level regulations can conflict with each other. Regulatory
agencies are not required to publish proposed regulations before enactment, and rulemaking
bodies are not required to solicit public comments on proposed regulations, although there has
been some movement toward public consultative processes. Government ministries generally
consult with relevant national actors when drafting regulations, but not always and not broadly.

The Government of Ecuador publishes regulatory actions in the Official Registry and posts
them online at https://www.registroficial.gob.ec/ . Publicly listed companies generally adhere
to International Financial Reporting Standards (IFRS). While there are some transparency
enforcement mechanisms within the government, they tend to be weak and rarely enforced.

There are no identified informal regulatory processes led by private sector associations or
nongovernmental organizations.

International Regulatory Considerations

Ecuador is a member of the Andean Community of Nations (CAN) along with Bolivia,
Colombia, and Peru. Ecuador is an associate member of the Southern Cone Common Market
(MERCOSUR). Ecuador is a member of the World Trade Organization (WTO) and notifies
draft regulations to the WTO Technical Barriers to Trade (TBT) Committee. Ecuador ratified
the WTO Trade Facilitation Agreement on October 16, 2018.

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Legal System and Judicial Independence

Ecuador has a civil codified legal system. Systemic weakness in the judicial system and its
susceptibility to political and economic pressures constitute challenges faced by U.S.
companies investing in Ecuador. While Ecuador updated its Commercial Code in May 2019,
enforcement of contract rights, equal treatment under the law, intellectual property protections,
and unstable regulatory regimes continue to be concerns for foreign investors.

Laws and Regulations on Foreign Direct Investment

Ecuador does not have laws specifically on FDI, but several have effects on overall investment.
The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December
2014, includes provisions to improve tax stability and lower the income tax rate in the mining
sector. The Organic Law of Incentives for Public-Private Associations and Foreign Investment
from 2015 includes provisions to improve legal stability, reduce red tape, and exempt public
private partnerships from paying income and capital exit taxes under certain conditions. The
Productive Development Law of 2018 enumerates tax incentives for new investments and
investments in rural or border areas. ProEcuador’s
website https://www.proecuador.gob.ec/ provides a guide for investors in English and
Spanish and highlights the procedures to register a company, types of incentives for investors,
and relevant taxes related to investing in Ecuador.
Competition and Antitrust Laws

The Superintendence of Control of Market Power reviews transactions for competition-related

concerns. Ecuador’s 2011 Organic Law for Regulation and Control of Market Power includes
mechanisms to control and sanction market power abuses, restrictive market practices, market
concentration, and unfair competition. The Superintendence of Control of Market Power can
fine up to 12 percent of gross revenue companies found to be in violation of the law.

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Expropriation and Compensation

The Constitution establishes that the state is responsible for managing the use and access to
land, while recognizing and guaranteeing the right to private property. It also provides for the
redistribution of land if it has not been in active use for more than two years.

The Article 101 of the 2015 Telecommunications Law grants permission for the occupation or
expropriation of private property for telecommunication network installation provided there are
no other economically viable alternatives. Service providers must assume costs associated with
the property’s expropriation or occupation.

Dispute Settlement
ICSID Convention and New York Convention

Ecuador withdrew from the International Centre for the Settlement of Investment Disputes
(ICSID Convention) in 2010. Ecuador is a signatory to the convention on the Recognition and
Enforcement of Foreign Arbitral Awards (1958 New York Convention). The 2018 Productive
Development Law clarifies the permissibility of international investor-state arbitration under
the 2008 constitution and includes provisions permitting arbitration at venues within Latin
America.

Investor-State Dispute Settlement

Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment
treaties, including its agreement with the United States. The Government of Ecuador notified
the U.S. government of its withdrawal from the BIT on May 18, 2017, with the effective date
of May 18, 2018. The treaty further specifies that all U.S. investments in place at the date of
termination enjoy the protections of the treaty for the subsequent 10 years. There have been
numerous claims against Ecuador under the BIT that have gone to international arbitration.
There are two active cases awaiting a final decision.

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International Commercial Arbitration and Foreign Courts

Several U.S. companies operating in Ecuador, most notably in the petroleum sector, have filed
for international arbitration due to investment claims. The Government of Ecuador in the past
treated these disputes as a political issue, speaking negatively about investors involved in these
cases. Payment of arbitration awards generally takes longer than a year, although the
Government of Ecuador has paid all final awards. Ecuador’s 2008 Constitution limited
investor-state arbitration to regional arbitration entities and was the primary driver of the 2017
termination of BITs.

Bankruptcy Regulations

Ecuador is ranked 160 out of 190 in the category of Ease of Resolving Insolvency in the World
Bank’s 2020 Ease of Doing Business Report. With the goal of protecting consumers and
preventing a real estate bubble, the National Assembly approved in June 2012 a law that allows
homeowners to default on their first home and car loan without penalty if they forfeit the asset.
The provisions do not apply to homes with a market value of more than 500 times the basic
monthly salary (currently USD 200,000) or vehicles worth more than 100 times the basic
monthly salary (currently USD 40,000).

In cases of foreclosure, the average time for banks to collect on debts is 5.3 years, usually
taking 4.5 years for courts to approve the initiation of foreclosures. After the appointment and
acceptance of an auctioneer, it takes about six months for the auction to take place. World
Bank’s Doing Business Report estimates that foreclosure proceedings result in costs equal to
about 18 percent of the value of the estate in question, and a recovery rate of 18.3 cents on the
dollar.

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4. Industrial Policies

Investment Incentives

In August 2018, the National Assembly approved the Productive Development Law that
provides income tax exemptions and VAT exemptions to attract investments, good for 12 years
in all areas except the cities of Quito and Guayaquil, where it is 8 years, and border regions,
where it is 20 years. In December 2015, Ecuador’s National Assembly approved a Public-
Private Partnership law intended to attract investment. The law offers incentives, including the
reduction of the income tax, value added tax, and capital exit tax, for investors in certain
projects. It designates Latin American arbitration bodies as the dispute resolution mechanism.
The law came into effect upon publication in the Official Registry on December 18, 2015. The
Organic Law of Production Incentives and Tax Fraud Prevention, which took effect on
December 30, 2014, provides tax incentives related to depreciation calculations and income tax
rates, which could benefit some foreign investors. The Ecuadorian government is moving
toward a Public-Private Partnership model to attract investments particularly in the energy and
transportation sectors but does not yet offer sovereign guarantees or joint finance on those
projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

The 2010 Production Code authorized the creation of Special Economic Development Zones
(ZEDEs) that are subject to reduced taxes and tariffs. The government considers the extent to
which projects promote technology transfer, innovation, and industrial diversification when
granting ZEDE status. Foreign-owned firms have the same investment opportunities as national
firms.

Performance and Data Localization Requirements

Nationally the government does not mandate local employment. However, the Organic Law of
the Amazon, approved by the National Assembly on May 21, 2018, mandates that any
company, national or foreign, operating within the area covered by the law (the Amazon Basin)

12
must hire at least 70 percent of their staff locally, unless they cannot find qualified labor from
that area. The 2015 Organic Law for the Special Regime of the Galapagos (LOREG) and its
regulations enacted in April 2017 include the mandatory hiring of local residents. The law
stipulates non-residents can be hired only if companies demonstrate there are no local
candidates with the required skill set.

There are no requirements for foreign IT providers to turn over source code and/or provide
access to encryption. Companies can currently transmit data freely into and out of Ecuador, and
there are no requirements to store data within the country. The National Assembly is
considering a draft data protection bill that may include high fines for data protection
infractions, prior consent for cross-border data transfer, and parental consent requirements.

On October 11, 2016, Ecuador’s National Assembly passed the Code of the Social Economy of
Knowledge, Creativity, and Innovation, covering a wide range of intellectual property matters.
Article 148 of the Code establishes that agencies must give preference to open-source software
with content developed in Ecuador when procuring software for government use. Executive
Decree 1073 of June 2020 mandated an order of preference when procuring software for the
government: 1) Open-Source; 2) Ecuadorian-Developed; 3) Software with Some Ecuadorian
Content; and 4) Internationally-Developed.

Visa and residency requirements are relatively relaxed and do not inhibit foreign investment.

5. Protection of Property Rights

Real Property

Ecuador ranks 73rd out of 190 in the 2019 World Bank’s Doing Business Report’s category for
Ease of Registering Property. Foreign citizens are allowed to own land. Mortgages are available
and the recording system is generally reliable.

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Intellectual Property Rights

Enforcement against intellectual property infringement remains a problem in Ecuador.

In April 2016, the United States Trade Representative (USTR) moved Ecuador from Priority
Watch List to Watch List in its annual Special 301 Report on intellectual property, and Ecuador
has remained on the Watch List since then. In December 2020, SENADI issued implementing
regulations for the Code of Knowledge, Creativity, and Innovation Social Economy (Ingenuity
Code) – the legislation that covers intellectual property rights. Nonetheless, SENADI has
limited enforcement capacity and remains hampered by a lack of funding and personnel due to
budget cuts. The Ingenuity Code itself also requires reform to address several gaps limiting
effective IP enforcement.

Piracy of computer software and counterfeit activity in brand name apparel is widespread, and
enforcement is weak. Pirated CDs and DVDs are readily available on many streets and in
shopping malls, and copyright enforcement remains a significant problem. The Bahia Market in
Guayaquil is mentioned in USTR’s 2020 Review of Notorious Markets for Piracy and
Counterfeiting. A lack of ex-officio authority for the Ecuadorian Customs Service limits its
scope of action to seize IPR infringing products, and there have been few enforcement actions
to protect IPR. SENADI was established in January 1999 to handle patent, trademark, and
copyright registrations. SENADI reports information on its activities on its website
at http://www.propiedadintelectual.gob.ec/ .
For additional information about national laws and points of contact at local IP offices, please
see WIPO’s country profiles at http://www.wipo.int/directory/en/.

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6. Financial Sector

Capital Markets and Portfolio Investment

The 2014 Law to Strengthen and Optimize Business Partnerships and Stock Markets created
the Securities Market Regulation Board to oversee the stock markets. Investment options on the
Quito and Guayaquil stock exchanges are very limited. Sufficient liquidity to enter and exit
sizeable positions does not exist in the local markets. The five percent currency exit tax also
inhibits free flow of financial resources into the product and factor markets. Foreigners are able
to access credit on the local market, but interest rates are high and the number of credit
instruments is limited.

Money and Banking System

Ecuador is a dollarized economy, and its banking sector is healthy. According to the
Ecuadorian Central Bank’s Access to the Financial System Report, approximately 59 percent of
the adult (over 15 years old) population (6.9 million people) has access to a bank account.
Ecuador’s banks hold in total USD 47.9 billion in assets, with the largest banks being Banco
Pichincha with about USD 12.2 billion in assets, Banco del Pacifico with about USD 6.9
billion, Banco de Guayaquil with about USD 5.7 billion, and Produbanco with about USD 5.4
billion. The Banking Association (ASOBANCA) estimates 2.7 percent of loans are non-
performing. Foreigners require residency to open checking accounts in Ecuador.

Ecuador’s Superintendence of Banks regulates the financial sector. Between 2012 and 2013,
the financial sector was the target of numerous new restrictions. By 2012, most banks had sold
off their brokerage firms, mutual funds, and insurance companies to comply with Constitutional
changes following a May 2010 referendum. The amendment to Article 312 of the Constitution
required banks and their senior managers and shareholders with more than six percent equity in
financial entities to divest entirely from any interest in all non-financial companies by July
2012. These provisions were incorporated into the Anti-Monopoly Law passed in September
2011.

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The Organic Monetary and Financial Code, published in the Official Registry September 12,
2014, created a five-person Monetary and Financial Policy and Regulation Board of
presidential appointees to regulate the banking sector. The law gives the Monetary and
Financial Policy and Regulation Board the ability to prioritize certain sectors for lending from
private banks. The Code also established that finance companies had to become banks, merge,
or close their operations by 2017. Of the 10 finance companies in Ecuador, two became banks,
six closed their operations or are in the process of closing, and two were absorbed by other
financial institutions. There are 24 private banks in Ecuador as of December 2020.

Electronic currency appeared in 2014 with the approval of the Organic Monetary and Financial
Code, which established the exclusive management of the system by Ecuador’s Central Bank.
In 2017, with the approval of the Law for the Reactivation of the Economy, Strengthening of
Dollarization and Modernization of Financial Management, electronic currency management
was transferred to private banks. The Central Bank issued Regulation 29 in July 2012 requiring
all financial transfers (inflows and outflows) to be channeled through the Central Bank’s
accounts. In principle, the regulation increases monetary authorities’ oversight and prevents
banks from netting their inflows and outflows to avoid paying the five percent currency exit
tax.

Foreign Exchange and Remittances

Foreign Exchange

Ecuador adopted the U.S. dollar as the official currency in 2000. Foreign investors may remit
100 percent of net profits and capital, subject to a five percent currency exit tax. There are no
restrictions placed on foreign investors in transferring or repatriating funds associated with an
investment.

Remittance Policies

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Resolution 107-2015-F from Ecuador’s Monetary and Finance Board issued in July 2015
exempted some payments to foreign lenders from the capital exit tax. Among other
requirements, the duration of the loan must be more than 360 days, the loan must be registered
with the Central Bank, and the resources must be destined for specific purposes, such as to fund
small businesses or social housing.

The Financial Action Task Force (FATF) announced October 23, 2015 that it had removed
Ecuador from the list of countries with strategic deficiencies in anti-money laundering and
countering the financing of terrorism (AML/CFT) regimes. Ecuador will undergo its next
FATF mutual evaluation in 2021.

Sovereign Wealth Funds

The Government of Ecuador does not maintain a Sovereign Wealth Fund (SWF). Approved in
July 2020, Ecuador’s Public Finance Law (COPLAFIP) established a Fiscal Stabilization Fund
to invest excess revenues from extractive industries and hedge against oil and metal price
fluctuations.

7. State-Owned Enterprises (SOEs)

Ecuador has a total of 19 SOEs. The major SOEs include those for petroleum (Petroecuador),
electricity (Electricity Corporation of Ecuador – CELEC – and the National Corporation for
Electricity – CNEL), and telecommunications (National Corporation of Telecommunications –
CNT). The SOES combined have approximately 30,000 employees. Ecuador’s Coordinator of
Public Companies maintains a list of SOEs at: https://www.emco.gob.ec/Emco2/empresas-
publicas-2/ .

As part of the government’s austerity measures to deal with the COVID-19-related economic
crisis, the government announced in May 2020 the liquidation of eight SOEs. These include the
state-owned airline (TAME), the post office (Mail of Ecuador), the railroad company
(Ecuadorian Railways Company), a social development firm using profits from natural

17
resource revenues (Strategic Ecuador), training centers for athletes (High Performance Training
Centers), an agricultural storage company (National Storage Units), the public media company,
and a science and technology research firm (Yachay City of Knowledge).

The 2009 Organic Law of Public Enterprises regulates SOEs. SOEs are most active in areas
designated by the 2008 Constitution as strategic sectors. SOEs follow a special procurement
regime with greater flexibility and limited oversight. The Law of Public Enterprises requires
SOEs to follow generally accepted accounting principles; however, SOEs are not required to
follow the same accounting practices as the central government, nor do they have to participate
in the electronic financial management system used in most of the public sector for budget and
accounting management. SOEs are eligible for government guarantees and face lower tax
burdens than private companies. SOEs generally do not have professionally audited financial
statements. The Ministry of Economy and Finance approves SOEs’ annual budgets and often
slows distribution of funds to SOEs to compensate for other government expenditures.

Ecuador is not party to the Government Procurement Agreement (GPA) within the framework
of the World Trade Organization.

Privatization Program

The Ecuadorian Constitution prohibits privatization of state-owned enterprises, but the

Ecuadorian government is seeking to offer long term concessions to operate some of its assets,
such as the Sopladora hydroelectric plant, CNT, and the Esmeraldas oil refinery. In addition,
the Ministry of Production, Trade, Investment and Fisheries is considering projects to be
developed as potential public private partnerships.

8. Responsible Business Conduct

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Article 66 of the 2008 Constitution guarantees the right to pursue economic activities in a
manner that is socially and environmentally responsible. NGOs such as the Institute of
Corporate Social Responsibility and the Ecuadorian Consortium for Social Responsibility
promote responsible business conduct. Many Ecuadorian companies have programs to further
responsible business conduct within their organizations. The Energy Ministry announced
Ecuador’s adherence to the Extractive Industries Transparency Initiative (EITI) in October
2020 and set up a multi-stakeholder group to develop an EITI work plan.

Ecuadorian law prohibits all forms of forced or compulsory labor, including all forms of labor
exploitation and child labor. Article 42 of the labor code establishes that all companies engaged
in global or domestic supply chains are required by law to pay minimum wage, ensure eight-
hour workdays, and pay into social security. The Ministry of Labor’s Directorate for Control
and Inspections is the authority that enforces the law. Ecuador currently has four products
included on the Department of Labor’s Bureau of International Labor Affairs list of goods
which it has reason to believe are produced by child labor or forced labor in violation of
international standards, as required under the Trafficking Victims Protection Reauthorization
Act (TVPRA) of 2005. These include the exploitation of child labor in the production of
bananas, bricks, flowers, and gold.

Ecuador’s flower production consortium, in coordination with the International Labor

Organization and the Ministry of Labor (MoL), undertook a series of efforts to eliminate child
labor from flower farms in 2020. The MoL reported that labor inspections of large flower farms
in 2020 in Pichincha province did not find instances of child labor. This positive outcome is
largely because these farms are part of the Business Network for a Free Child Labor Ecuador
and are committed to the elimination of child labor. In contrast, Ecuadorian media in 2020
covered child labor violations at abaca fiber (Manila hemp) plantations run by a Japanese
subsidiary company. According to media reports, the Ombudsman’s office and MoL carried
out inspections from 2017 to 2020 at the company’s 32 plantations and fined the company over
$150,000 including for child labor violations. The MoL said in a 2019 report that it had found

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child labor, inhumane working conditions, labor risks, and work accidents at the company
plantations.

9. Corruption

Corruption is a serious problem in Ecuador, and one that the Moreno administration is
confronting. Numerous cases of corruption have recently been tried, resulting in convictions of
high-level officials, including former President Correa, former Vice President Jorge Glas, and
former Vice President Maria Alejandra Vicuña, among others. U.S. companies have cited
corruption as an obstacle to investment, with concerns related specifically to non-transparent
public tenders, dispute resolution, and payment of arbitration awards.

Ecuadorian law provides criminal penalties for corruption by public officials, but the
government has not implemented the law effectively, and officials have engaged in corrupt
practices. Ecuador ranked 92 out of 180 countries surveyed for Transparency International’s
2020 Perceptions of Corruption Index and received a score of 39 out of 100. High-profile cases
of alleged official corruption involving an Equadorian state-owned petroleum company and a
Brazilian construction firm illustrate the significant challenges that confront Ecuador with
regards to corruption. The Ecuadorian National Assembly approved anti-corruption legislation
in December 2020. The legislation, which reforms the Comprehensive Organic Penal Code,
creates new criminal acts including circumvention of public procurement procedures, acts of
corruption in the private sector, and obstruction of justice. It also includes 11 provisions
reforming the laws governing the public procurement system and the Comptroller General’s
Office.

Illicit payments for official favors and theft of public funds reportedly take place frequently.
Dispute settlement procedures are complicated by the lack of transparency and inefficiency in
the judicial system. Offering or accepting a bribe is illegal and punishable by imprisonment for
up to five years. The Comptroller General is responsible for the oversight of public funds, and
there are frequent investigations and occasional prosecutions for irregularities.

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Ecuador ratified the UN Anticorruption Convention in September 2005. Ecuador is not a
signatory to the OECD Convention on Combating Bribery. The 2008 Constitution created the
Commission for Citizen Participation and Social Control (CPCCS), tasked with preventing and
combating corruption, among other responsibilities. The 2018 national referendum converted
the CPCCS from an appointed to a popularly-elected body. In December 2008, President
Correa issued a decree that created the National Secretariat for Transparency (SNTG) to
investigate and denounce acts of corruption in the public sector. The SNTG became an
undersecretariat and was merged with the National Secretariat of Public Administration June
2013. President Moreno established the Anticorruption Secretariat within the Presidency in
February 2019 but disbanded it in May 2020 for allegedly intervening in corruption
investigations conducted by the Office of the Attorney General. The CPCCS can receive
complaints and conduct investigations into alleged acts of corruption. Responsibility for
prosecution remains with the Office of the Attorney General.

Resources to Report Corruption

Alleged acts of corruption can be reported by dialing 159 within Ecuador. The CPCCS also
maintains a web portal for reporting alleged acts of corruption: http://www.cpccs.gob.ec . The
Attorney General’s Office actively pursues corruption cases and receives reports of corruption
as well.

10. Political and Security Environment

Widespread public protests in 1997, 2000, and 2005 contributed to the removal of three elected
presidents before the end of their terms. Large-scale but peaceful demonstrations against the
Correa government occurred in June 2015. Some indigenous communities opposed to natural
resource development have blocked access by petroleum and mining companies. Opposition to
the government’s decision to remove fuel subsidies led to nationwide violent protests in
October 2019. The protests paralyzed the country for 11 days, causing significant property
damage, including to petroleum and telecommunications infrastructure. A dialogue between the
government and indigenous protest leaders, mediated by the United Nations and the Catholic

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Church, led to the government’s decision to restore the fuel subsidies. Security along the
northern border with Colombia deteriorated significantly in late 2017 and early 2018, when
dissident Revolutionary Armed Forces of Colombia groups attacked police and military units
and kidnapped civilians, resulting in several deaths. Military and police increased their presence
in the zone, and violence in the northern border area calmed in 2019, although illicit activities
continue. Violence related to drug-trafficking organizations increased in 2020 and 2021,
particularly in Ecuador’s port cities.

11. Labor Policies and Practices

While Ecuador’s Statistics Institute shows 66 percent workforce participation, and an

unemployment rate of 5.7 percent, the official underemployment rate is 22.3 percent, and it is
estimated that 47.3 percent of workers are in the informal sector. Semi-skilled and unskilled
workers are relatively abundant at low wages. The supply of available workers is high due to
layoffs in sectors affected by Ecuador’s flat economic growth since 2014. The COVID-19
economic crisis is estimated to have resulted in the loss of 230,000 jobs in the formal sector in
2020. In addition, first Colombian and now Venezuelan migrants have added to the informal
labor pool. The National Wages Council and Ministry of Labor Relations set minimum
compensation levels for private sector employees annually. The minimum basic monthly salary
for 2020 is USD 400 per month.

Ecuador’s Production Code requires workers be paid a dignified wage, defined as an amount
that would enable a family of four with 1.6 wage earners to be able to afford basic necessities.
Ecuador’s Statistics Institute (INEC) determines the cost and the products that are considered
basic necessities. In February 2021, the monthly cost of basic necessities was USD 712.07,
while the official family wage level is at USD 746.67. As of January 2021, INEC estimated
34.0 percent of workers had adequate employment. INEC defines adequate employment as
earning at least the minimum basic salary working 40 hours per week.

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Ecuador’s National Assembly approved in June 2020 limited labor reforms in an emergency
law (Humanitarian Law) valid for two years to address the economic impacts of COVID-19.
These reforms allowed for the reduction of working hours up to 50 percent and salary up to 45
percent; ability to modify a labor contract with mutual agreement between employer and
employee; new temporary contracts for new investments that can be changed to permanent
contracts at the end of the temporary period; and layoffs without severance payments only
when the company closes entirely.

Ecuador’s National Assembly passed a labor reform law in March 2016 intended to promote
youth employment, support unemployed workers, and introduce greater labor flexibility for
companies suffering from reduced revenue. The law established a new unemployment
insurance program, a subsidized youth employment scheme, temporary reductions in workers’
hours for financially strapped companies, and nine months of unpaid maternity or paternity
leave.

The Law for Labor Justice and Recognition of Work in the Home, which included several
changes related to labor and social security, took effect in April 2015. The law limits the yearly
bonus paid to employees, which is equal to 15 percent of companies’ profits and is required by
law, to 24 times the minimum wage. Any surplus profits are to be handed over to IESS. The
law also mandates that employees’ thirteenth and fourteenth month bonuses be paid in
installments throughout the year instead of in lump sums. Employees have the option to opt out
of this change and continue to receive the payments in lump sums. The law eliminated fixed-
term employee contracts and replaced them with indefinite contracts, which shortens the
allowable trial period for employees to 90 days. The law also allows participation in social
security pensions for non-paid work at home.

The Labor Code provides for a 40-hour work week, 15 calendar days of annual paid vacation,
restrictions and sanctions for those who employ child labor, general protection of worker health
and safety, minimum wages and bonuses, maternity leave, and employer-provided benefits.

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The 2008 Constitution bans child labor, requires hiring workers with disabilities, and prohibits
strikes in most of the public sector. Unpaid internships are not permitted in Ecuador.

Most workers in the private sector and at SOEs have the constitutional right to form trade
unions, and local law allows for unionization of any company with more than 30 employees.
Private employers are required to engage in collective bargaining with recognized unions. The
Labor Code provides for resolution of conflicts through a tripartite arbitration and conciliation
board process. The Code also prohibits discrimination against union members and requires that
employers provide space for union activities.

Workers fired for organizing a labor union are entitled to limited financial indemnification, but
the law does not mandate reinstatement. The Public Service Law enacted in October 2010
prohibits public sector workers in strategic sectors from joining unions, exercising collective
bargaining rights, or paralyzing public services in general. The Constitution lists health;
environmental sanitation; education; justice; fire brigade; social security; electrical energy;
drinking water and sewerage; hydrocarbon production; processing, transport, and distribution
of fuel; public transport; and post and telecommunications as strategic sectors. Public workers
who are not under the Public Service Law may join a union and bargain collectively since they
are governed by the provisions under the Labor Code.

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