A series of unfavorable economic developments in the second half of the 1980s, beginning with the decline in oil revenues in 1986 and a devastating earthquake in March 1987, curtailed national government outlays, including spending on the armed forces. The precipitous drop in the value of Ecuadorian currency meant an escalation of the cost of imported weapons, on which the armed forces almost entirely depended. In September 1988, the new administration of Rodrigo Borja Cevallos (1988- ) cancelled a US$106-million contract with Argentina for the purchase of armored vehicles and other equipment. Even prior to this, other planned procurements, such as the purchase of planes for an additional fighter squadron, had to be postponed.

In 1987, the most recent year for which such data were available in late 1989, the Ecuadorian government reported that defense expenditures totalled 32.0 billion sucres--equivalent to US$188 million at the prevailing rate of exchange (for the value of the sucre--see Glossary). The defense budget for 1987 did not reflect the cut that followed the earthquake. The corresponding figure for defense in 1986 was 20.4 billion sucres, equivalent to US$166.2 million.

Although defense expenditures apparently declined after the end of military rule in 1979, it was difficult to draw conclusions about trends in defense spending owing to a number of factors, including variations in the dollar-sucre exchange rate. Analysts believed that the true cost of defense exceeded the officially budgeted figures by a considerable amount because of unreported nonbudgetary spending. The armed forces covered these costs, which observers believed to have been as high as the official defense expenditures in some years, through profits from business enterprises owned by the military and receipts from the sale of petroleum abroad. A portion of revenues from petroleum production above a stipulated level was allocated to a special military account, but the amount involved and the formula by which it was calculated remained confidential. Low oil production levels and depressed prices in the late 1980s necessitated a sharp curtailment of imports of military equipment.

The United States Arms Control and Disarmament Agency (ACDA) estimated Ecuador's military expenditures at US$250 million in 1987. ACDA noted, however, that this estimate omitted most arms acquisitions. According to ACDA, annual defense spending had risen over a ten-year period from US$150 million in 1978. If defense expenditures for 1978 were converted to 1987 dollars, however, they would come to US$245 million--nearly equal to the 1987 expenditures in purchasing power. The lowest levels of defense spending during the decade were in 1983 and 1984, when military outlays fell below US$160 million, calculated in 1987 dollars.

According to ACDA's analysis, based on 1987 data, Ecuador's annual defense expenditures of US$25 per capita were lower than the average for Latin America as a whole (US$36 per capita), although well above comparable figures for Brazil and Colombia. T3fb The defense budget of its larger neighbor and rival, Peru, was four times as great per capita. The number of persons in military service per 1,000 population (4.4 in 1987) almost mirrored the average for Latin America as a whole, although it was higher than the figure for Brazil or Colombia and lower than that for Peru. Military expenditures constituted 15.3 percent of central government expenditures in 1987 and 2.6 percent of gross national product (GNP--see Glossary). These ratios compared to 10.4 percent of central government expenditures and 2.0 percent of GNP for Latin American countries as a whole, but were again well beneath the corresponding figures for Peru.

Data as of 1989