Low oil prices, OPEC cuts and Rafael Correa's energy policy are causing havoc in the Ecuadorian economy

Authors:
Luis Alberto López Rafaschieri and José Alberto López Rafaschieri
www.morochos.net

Unfortunately things have changed for the oil-producing countries, given that the price of a barrel of oil has lost more than one hundred U.S. dollars in less than a year. This has drastically reduced the income of oil producers and is particularly affecting countries with the weakest economies.

However, things are worse for the oil-rich countries that are OPEC members, as they face not only lower oil prices, but also production cuts ordered by the organization to defend prices.

Although OPEC cuts may eventually impact the market favorably, their effects are not immediate. So this waiting period can cause serious damage to member countries that have problems with their finances.

This can be seen especially in a country like Ecuador, which is struggling to pay its foreign debt due to the weakness of their public finances. But now, if OPEC wants a cut of 40.000 barrels a day from the Ecuador's production -this country currently produce 500.000 barrels a day- this will cause a daily loss of $1.600.000, or $48.000.000 per month, to the Ecuadorian finances.

Perhaps this does not seem very big, but we must take into account that Ecuador is a small economy, whose GDP barely exceeds 50 billion dollars and that depends on 60% of oil exports. Consequently, if OPEC cuts leave a country like Ecuador with a yearly loss of 576 million dollars, they represent a major problem.

Paradoxically, it was Rafael Correa who reintegrated Ecuador into the OPEC last year, so he cannot blame previous governments for these commitments.

Until now, the Correa government has invented to fulfill its OPEC quota by imposing the cuts to private oil companies operating in Ecuador. However, this measure does not improve the government's fiscal balances and has the potential to scare off investments of foreign oil companies interested in Ecuadorian energy projects, which necessarily will require private capital to be completed. Especially if we consider that Correa's political godfather, Hugo Chavez, is also running out of money.

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