The Constitution reserves to the state the sole right to exploit natural resources and to create and maintain the basic national economic infrastructure. The central government traditionally handled this responsibility through a decentralized approach to economic development. Over the decades, the government formed numerous autonomous or independent agencies in an ad hoc fashion to perform public services or develop natural resources. Some of these independent enterprises became large and powerful and functioned largely beyond government control or monitoring.

Mismanagement and inefficiencies characterized many independent agencies. PETROECUADOR, for example, the largest and perhaps most important state-owned enterprise, which was responsible for much of Ecuador's petroleum production and refining, was not required to pay dividends or to meet established performance standards. Because it had no control over oil-generated income, PETROECUADOR lacked the incentive to keep production costs down or to improve efficiency. The Ecuadorian Institute of Electrification (Instituto Ecuatoriano de Electrificación--Inecel), which was founded in 1961 under the auspices of the Ministry of Energy and Mines, was unable to coordinate its major departments, or to set the rates charged to electricity consumers. As a result, Inecel relied on the government to meet operating costs. The Ecuadorian Institute of Telecommunications (Instituto Ecuatoriano de Telecomunicaciones-- Ietel), established in 1972 and attached to the Ministry of Public Works and Communications, suffered from poor internal organization and weak financial management.

The government's highly bureaucratic and decentralized approach to economic development thus served as a disincentive to entrepreneurs, who were forced to battle an array of regulations controlling business and commerce. Cumbersome administrative procedures often resulted in protracted and costly delays in such fundamental activities as procurement, business registration, and trade transactions.

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Source: U.S. Library of Congress