QUITO, Ecuador (AP) — Ecuadoreans are already contending with a rumbling, ash-spewing volcano and rising living costs because they use the appreciating U.S. dollar as their currency.
Now they’ve been told that Ecuador’s oil — its principal export and a vital source of government funding — costs more to produce than it earns.
President Rafael Correa explained on Tuesday, during a visit to areas threatened by the Cotopaxi volcano, that it costs the OPEC nation $39 to produce a barrel of oil for which it only receives $30.
If crude prices remain below $40 that could mean more budget cuts or higher taxes.
Ecuador produces 538,000 barrels a day and under current circumstances stands to lose up to $3 million a day on them, though the state-owned Petroecuador oil company says it was profitable for the first half of 2015 because oil averaged $47 a barrel.
The country also has fixed-price contracts — the most significant with Petrochina from 2009 and Thailand this year that represent about $7 billion in sales.
Oil sales contribute 13 percent to the national budget, or about $3.1 billion.
Tumbling oil prices this year have already prompted Correa to cut spending by $2.2 billion, Finance Minister Fausto Herrera said last week.
The government hasn’t yet specified what programs will be cut. However, Correa did say that “for example some of the substantial improvements in education would be delayed.”
Correa has come under criticism for not squirreling away any cash for emergencies but instead spending it on public works and other programs that have helped make the leftist economist popular.
The economic crunch and Correa’s response have helped his opponents, who have been organizing street protests against him since June that have in recent weeks flared into violence.
Well, the rising dollar comment is stupidity. If you have a dollar, and the dollar rises in value, then, you’ve gained, not lost, value. I don’t know why that’s hard to understand. It’s when you hold other currencies which depreciate in value vs the dollar which gets you hurt. As stated, Ecuador trades in the US dollar. If their cost of living is increasing, it isn’t because their dollars are now worth more. ……. Sometimes, I think the economic AP writers just throw idiotic stupidity in just to aggravate me. Yeh, this is me, in the US with my dollar ….. “oh, I’m so hurt my dollar is increasing in value, please someone make it stop!!!!! Please let is be as worthless as Mexican Peso!!!!!”
But, this post isn’t about the US dollar valuation.
The interesting part is the oil sales contributing to 13% of the national budget. It’s state owned and was 40% of all of their exports in 2014.
$39/barrel is a huge cost considering the oil they’re pumping isn’t shale or hard oil. But, then, that’s leftards for you.
Did you know Ecuador has a “Transparency and social control branch” of government? Heh!
But, friends, this is what leftism brings you. In times of plenty, such as times when the price of oil is high for oil exporting nations, people tend to live for today without thought or concern for tomorrow. It seems to be human nature. But, the human experience tells us that times are not always good and bountiful. This is why continuous and increasing deficit spending is folly.