The service sector constituted the largest component of the Ecuadorian economy, accounting for almost 50 percent of the GDP in 1987. The largest parts of the service sector were wholesale and retail trade at 29 percent, financial services at 23 percent, and transportation and communications at 15 percent of servÍÍÍÍices. Although contributing half the nation's wealth, financial services were inadequate, and the communication and transportation networks remained underdeveloped.

Financial System

The country's modern finance and banking system began in 1948 with the establishment of the Central Bank. The Law of the Monetary System of 1961 defined the functions of the Central Bank, which included issuing and stabilizing the national currency, providing credit to the private sector, managing foreign-exchange reserves, controlling import-export permits, carrying out the Monetary Board's policies, supervising private banks, and regulating international financial transactions. The bank also maintained a check clearinghouse, rediscounted and made advances to commercial banks, and published economic data.

In 1989 the structure of the banking system resembled a threetiered pyramid with the Monetary Board at the apex. The Bank Superintendency and the Central Bank occupied the next tier and lent funds to four state-owned financial institutions. At the bottom came the commercial banks, savings and loan associations, and finance companies, which operated at the local level.

The Monetary Board regulated the entire banking and credit system, including the Central Bank. In the 1980s, the board's eleven members included the chairman, appointed by the president of Ecuador, and the ministers of finance and credit agriculture and livestock energy and mines and industry, commerce, integration, and fishing. Also included were the president of the National Planning Board, two representatives of national chamber of commerce organizations, a representative of the commercial banks, the general manager of the Central Bank, and the head of the Bank Superintendency. The Monetary Board's functions included formulating the country's economic policy determining interest rates and setting Central Bank credit levels, minimum reserve requirements, and exchange rates.

The Bank Superintendency supervised and controlled banks, finance companies, and insurance companies. The Congress appointed the head or superintendent from three candidates proposed by the president. Funded by compulsory contributions from the financial institutions under its control, the Bank Superintendency also collected and published banking statistics.

The national government and the private banks jointly owned the Central Bank and tasked it with carrying out the policies of the Monetary Board and for supervising the activities of private banks. All private banks in Ecuador were required to invest at least 5 percent of their capital and reserves in the Central Bank, and together they owned the majority of shares in the Central Bank. Headquartered in Quito, the Central Bank had sixteen branches in other cities and towns i d59n the lalate 1980s.

The four major government-owned financial institutions were the National Development Bank (Banco Nacional de Fomento--BNF) the Securities Commission-National Financial Corporation (Comisión de Valores-Corporación Financiera Nacional--CV-CFN), more commonly known as the National Financial Corporation (Corporación Financiera Nacional--CFN) the Ecuadorian Housing Bank (Banco Ecuatoriano de la Vivienda--BEV) and the Development Bank of Ecuador (Banco de Desarrollo de Ecuador--Bede), formerly known as the Cooperatives Bank of Ecuador. Each institution had a specialized role: the BNF provided loans for agriculture and industry, the CFN lent capital to industries utilizing local raw materials or making handicrafts, the BEV promoted low-income housing, and the Bede lent funds to local credit cooperatives, especially those in rural areas.

The thirty-one commercial banks were the most important financial institutions in the country, attracting the major portion of deposits and making the largest percentage of total loans in the banking system. Only four of the commercial banks were foreign: the United Holland Bank from the Netherlands, Citibank and the Bank of America from the United States, and Lloyd's Bank from Britain, formerly known as the Bank of London and South America. In 1986 the Bank of Pichincha, Pacific Bank, Philanthropic Bank, People's Bank, and Continental were the five largest locally owned commercial banks.

Several other types of private financial institutions existed in 1988. Eleven savings and loan associations, 26 finance companies, 123 cooperative savings institutions, and 4 credit card companies provided various forms of financing or credit. The Ecuadorian Development Finance Company (Compañía Financiera Ecuatoriana de Desarrollo--Cofiec) was founded in 1966 by local and foreign commercial banks, local businessmen, several international finance firms, and the CFN. Cofiec was an important source of funds to private industry, both in the form of loans and in equity investment.

Two stock exchanges operated, one each in Quito and Guayaquil. Although the Quito exchange handled almost twice as many transactions as the Guayaquil exchange in 1986, neither was large. The great majority of trading occurred in government issues and mortgage bonds, with only a small amount of trading in common stocks or other securities. Most Ecuadorian businesses were owned by small numbers of individuals, and few resorted to public financing to raise capital.

Data as of 1989