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A Special International Report Prepared by
The Washington Times Advertising Department - Published on April 21, 1999
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Advertisers
(1) Bell South
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Banks working to promote investment and development
"Our problems were coming to a head," says Manuel Vivanko, President of the Banco del Estado. "Ten banks need emergency credits and can't cope with additional problems. The banks were closed to prevent a rush to withdraw." Although Argentina, Mexico, Bolivia and Chile have all frozen accounts in the past and have emerged stronger than before, this is the first time that banks were forcibly closed in Ecuador. "There are over 40 financial institutions, which is too many," Vivanko explains. "Combined with the Asia and Brazilian financial crisis and the rapid devaluation of the sucre" there was no choice but to close all financial institutions.
Though much anger about the current situation focusses on the banking system, there are many banks that are working for the economic and social development of the country. These strong banks have been around for over 25 years, have solid finances and concerned leadership. One such bank is Banco del Pacifico. Founded 27 years ago, the bank has $1.7 billion in activity, 9,000 stockholders and an international financial group that manages the bank's activities, which include an insurance company. The bank also sponsors Ecuanet, a non-profit organization and one of Latin America's first Internet providers. Arturo Queroz, Executive President of the bank, believes President Mahuad is fighting an uphill battle to reform Ecuador's economic and financial system. "Mahuad is the best president we have had in the last 20 years. He received the country in bad shape. He knows what must be done. Besides El Nino and a decrease in oil prices, the President had to deal with a legacy of four presidents who didn't change their paths while the world did." Ecuador rose from the ranks of developing to developed nation due to petroleum. However, the oil dollars were not wisely disbursed. Government bureaucracy and budgets became inflated and more money was spent than collected. When oil prices dropped, Ecuador was ill prepared. Queroz believes that for Ecuador to come out of this current crisis it needs to join the world and open its economy to foreign investment. At the same time he sees an opportunity for entrepreneurs to exploit underdeveloped areas, such as agroindustry, tourism and minerals. The National Financial Corporation (CFN) is another financial institution that has come to the aid of the country. When President Mahuad addressed the country on March 11th, he announced over $930 million in aid from multinational institutions, including the Corporacion Andina de Fomento (CAF). However, he also stressed that CFN, one of the country's own institutions, was extending lines of credit for agricultural production, microenterprises and multi-sectoral projects. CFN has been a solid institution for 34 years. It has also been an entrepreneurial one, finding new areas to develop and new ways to do so. Created as a first floor bank for developmental change, CFN was involved in the privatization of the country's cement and sugar cane industries as well as the Hotel Colon. However back in 1994, its mission was changed to provide lines of credit and incentives for export, as well as non-financial help, which includes training for small and microentreprises. Raul Cuesta, President of the Board of Directors, showed the bank’s entrepreneurial side as he explained about programs that train bankers how to originate and follow-through on medium to long-term projects (a new concept). Other projects provide incentives for nontraditional agroindustrial products, such as melons, mangos, blackberries and pitahaya (a unique Andean fruit). Development institutions such as the Banco del Estado and CAF are also working for Ecuador. The former continues to plan for Ecuador's future when the country will be increasing exports will be in need of a solid infrastructure. The bank supports frontier and Amazon programs, including building roads to connect Peru and Ecuador and providing potable water, a $1.6 billion feat. CAF is an organization created by the Andean countries 28 years ago. This development bank works with private and public sectors to finance large infrastructure projects, to furnish direct credits to medium and large companies and to provide medium-term financing for concessions. As a sign that the country needs more second tier, medium and long term financing, the government is focusing on the stock exchange. This small country is an exception in Latin America with two exchanges. When bank accounts were frozen, the President said that people who required access to capital could get a certificate from their bank, which could then be negotiated on the stock exchange. Enrique Arosemena, General Director of the Guayaquil Exchange, believes that if the government can tackle high interest rates, then the stock exchange will see more action. As interest rates decline and social security reform passes (allowing for pension funds), the exchange will grow. The reform of the financial institution is a top priority for Ecuador. A new law was recently passed to clean up the system. In the meantime, banks will have to prepare themselves for consolidation and the entrance of more, stronger foreign banks. Banco del Pacifico has done so by merging with Banco Popular. To remain healthy, banks will need to keep their books clean, focus on their core businesses and promote consumer confidence. These tasks may not be easy, but with proper management, the best banks will continue to prosper. |
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Table of Contents (1) President Mahuad announces new economic plan |
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The banking system in Ecuador has faced many challenges in recent months. In response to a rapid and massive devaluation of the sucre and a subsequent rush on banks, President Jamil Mahuad closed banks for a week to prevent a further charge on a fragile banking system. When the banks were opened, people found their current, savings and fixed term sucre accounts were partially frozen, while their dollar accounts were fully frozen.
When the banks were opened a full week later, an early dash to withdraw money and change sucres to dollars was followed by calm. On the whole, people were prepared to accept the economic reform package instituted by the government. As part of the measures, Mahuad stated that a team of international auditors would come to Ecuador to conduct an audit and to examine the state of the financial system.