| Abstract: | Summary Since the early 1980s, Ecuador has increasingly adopted a pro-free trade posture and has removed most restrictions on its capital account. Foreign capital, however, has not penetrated key sectors of the economy as the privatization drive has stalled and financial markets have remained weak. The combination of open capital accounts and meager foreign capital inflows has not proven particularly beneficial to Ecuador. Specifically, some aspects of the internationalization of capital such as offshore banking have created significant limitations for the conduct of monetary and exchange rate policy and have added to the vulnerability of the country in the face of economic crises. These negative externalities of cross-border short-term capital movements are not balanced by inflows of long-term foreign capital. |
