A Nice B&B Getaway in Punta Carnero, Ecuador!

The Schmidt's home
 in Punta Carnero, Ecuador

John and Heather Schmidt didn't set set out to pursue a dream of owning their own Bed & Breakfast in Ecuador.  However, sometimes life has a way of having a dream come and find you!

This couple from Arizona's Valley of the Sun, like so many ex-patriates, came to Ecuador hoping to be able to salvage some their hopes for their retirement after the economic woes in the US.  As many readers now know, Arizona was one of the hardest hit markets in the U.S. when the real estate housing bubble burst.

Heather collected shells
as they remodeled!

Suzanne and I had been introduced to Heather and John through a mutual friend in Arizona who referred them to us for help and advice in their preparation to explore the possibilities of moving to Ecuador.

When they finally arrived and began to explore the coastal area near Salinas, they almost abandoned hope of finding what they were looking for.   However, almost at the last minute they found a four bedroom spacious home with large front and back yards and a casita directly across from the beach in Punta Carnero.  Punta Carnero Beach is a nice stretch of smooth sand just south and around the peninsula from Salinas.  It is a beach popular with surfers because of regularly occurring large waves.  That creates riptides that are sometimes rough for swimming but it is always great for walking and shelling.

They made an offer on the property and even hired a caretaker.  Shortly before they left, they were talking about all the amazing space they had (each bedroom already had its own bath and the downstairs floor plan was open and spacious).  Slowly the previously unborn idea of creating a Bed and Breakfast began to germinate.

First things first;  they had to return to the US to begin prep for moving to Ecuador.  There were challenges but fortunately things worked out very well.  By spring they were back in Ecuador, in the full throes of remodeling and even traveling to Cuenca to pay a visit their lawyer who were helping them establish permanent residency.  We were glad to finally meet this gracious couple in person and give them a friendly welcome to our adopted land.

The view from our room!

Naturally, when all was complete and they announced their opening, Suzanne and I looked for an opportunity to come over and take their new facility for a test drive.   We booked their front beach bungalow room with a hammock on the balcony overlooking the surf.  The first morning Suzanne hit the beach in search of shells to add to her collection.  I wasted no time in becoming enamored with the two beautiful dogs they had adopted: Annabel and Josie.  

A great place to relax.

Our comfortable room!

Despite being totally new at this kind of venture, Heather and John are superb attentive hosts and they have a done a wonderful job of creating a relaxing casual, comfortable facility.  Nearby Salinas and La Libertad offer opportunities for shopping, fishing, whale watching , restaurant hopping or you can do  long leisurely strolls on the beach.   If you enjoy a nice breakfast, be sure to request the delicious torte de fideo.  By all means prepare to recharge your batteries when you visit.   The name of the facility is Las Palmas del Mar and you can find them on Facebook or at www.laspalmasdelmar.com.

Head to the coast and put your feet up for a spell.  Say hi to John and Heather and give Annabel and Josie a pat for Roger!

Use the pool when the waves are high!

Roger's girlfriends:  Annabel & Josie!

Las Palmas del Mar......we look forward to returning there again in the future as we continue our own Ecuadorian journey "juntos en el camino dela vida".

Ecuadorian economics and its impact on prospective new residents! (Part II)

In our last blog, we discussed the turbulent economic history of Ecuador and the fact that, despite a growing and booming economy today, this period still has an impact on everyday living in Ecuador and these residual concerns should be considered by potential newcomers wanting to reside here.

The Alcaldia (City Hall) in Cuenca.  It was formerly the main branch of
Cuenca's oldest and largest bank which failed in the 90's.

Now on to a look at the country's financial institutions.  It, of course, can be helpful as an expatriate to have an account here.  When we arrived the second time to become permanent residents, we were able to open a savings account at a bank utilizing just our passports as identification, but it wasn't easy.   It required references from established Ecuadorian citizens (in our case, our attorneys), a translator and it took almost four hours to accomplish.   Once we obtained our residency cedula, we were able to add a checking account but it took the better part of the afternoon to convince our bank to do that without having us endure a six month waiting period!  To say they can be more bureaucratic than government agencies is not an exaggeration.    On the advice of our attorneys we basically utilize our accounts here just for monthly living expenses and a small cash reserve.  We write a monthly check to ourselves from our account in the US and deposit in our account.  It avoids the hassle of  constant international ATM withdrawals (which sometimes presents some special hazards).  The accounts also help provide for automatic payments (insurance, etc) and deposits (required for IVA refunds if you are tercera edad).    We do, however, maintain the majority of our investment funds and savings in accounts in the US.   Two major reasons:  1. if we would ever decide to return to the US (or to another country) there is a 5% tax levied on funds transferred out of Ecuador.  2.  the potential risk due to the instability of local financial institutions, particularly in the case of large deposits.

During all three of the financial shut downs this past year, there were articles in which depositors were quoted as saying they were told their accounts were insured, but that didn't seem to be the case.  They weren't lied to, but financial institution insurance on deposits here is a far, far different animal here than what you are accustomed to in the US.  It is NOT the equivalent of FDIC and FSLIC.   In the case of the recently shut down Coopera, the insurance took the form of a self insured trust account managed by the Coopera itself.  

Prospective account holder question: "Will my account be insured?"

Coopera truthful answer:  "Yes"

Reality:   In the case of mismanagement,  self insurance is of questionable value and offers extremely limited protection!

Ecuador does now have an institution called COSEDE (Corporation del Seguro de Depositos or Deposits Insurance Corporation).  By law, all financial institutions controlled by the Superintendent of Banking and Insurance without any pre-existing comparable deposit insurance coverage are required to join COSEDE and make annual contributions to it.  It is a federally established private corporation but it is NOT, however, backed with federal funding, only the contributions of the member institutions.  The board sets an account account limit on an annual basis (for 2013, the amount was $30,000.  It is somewhat vague as to whether larger accounts are covered up to a $30,000 limit or at all.  In any case, the insurance kicks in only if there is a total failure and closure of the financial institution. If, however, the accounts in the institutions are sold and transferred to other institutions (which the majority of smaller accounts usually are), the insurance is not applicable.

We know of a good number of ex-patriates who have sizable deposits down here.  Many did so because they were attracted by the very high interest rates paid down here.  Rates above 10% on CD's are very common, particularly in the credit unions.    My question has always been:  If these institutions are paying interest rates up to three and four times what is being paid by over 80% of world's financial institutions, what is the risk factor that causes them to have to do that?  Invariably, my friends respond, there may be more risk, but I 'm OK because I'm insured.  I fear most have failed to fully investigate what safety that insurance really offers.  Many may be finding out with these recent closures.

As of the date of posting this blog, it appears that the Coopera depositors of $10,000 or less will be OK because their accounts are being transferred to other institutions.  Depositors of larger accounts will likely not see all of their funds and those they do will be returned over a extended period of time and without interest.

Ecuador has many, many financial advantages for the ex-patriate seeking a retirement haven.  It also has many potential financial pitfalls.  Do your homework, do your due diligence, be cautious and you can enjoy a great life here but understand that you have some homework cut out for you.

An important note of caution to readers:

 Most of the information cited in this blog was presented as I was able to discern it at the time of this posting.  Being marginally conversant with the language and with the difficulty in reading Ecuadorian legal and technical reports, this may have resulted in inaccuracies in some select specific details. Knowing that blogs such as this tend to have very long term readership, I also caution readers that all things DO change with time in Ecuador and many things may have changed by the time you read this.  What was important to me was to give you, the reader,  a reasonable representative overview of the subject as it exists today. This should will allow you to gain some perspective and then be prepared to go forth and do your own due diligence and research if this perspective causes you to have reason to do so!

Ecuadorian economics and its impact on prospective new residents! (Part I)

The recent closure of the financial offices of the Coopera Ltda, the third financial institution to be forcibly closed within the past year (two credit unions and one bank), caused a number of inquiries and questions from readers and friends in the states.  I thought it might be appropriate to give some economic background on this country many of you are interested in.  It may help put the closure of this popular financial institution into a better understood perspective.  It will also help many newcomers to understand that, even though the official Ecuador currency is the U.S. dollar, the economy and financial realities of life are much different here than in the US.

You do need to understand the Ecuadorian economy because it impacts almost everything you'll be examining in considering a move here:  Why is medical care so affordable and the cost of fine wine and electronics so high?   A used car costs what???   Why is there there so much petty crime?  Why is long term rent cheap in comparison to the cost of purchasing a house.  Why are my credit cards almost worthless?  We all looked at Ecuador because of its affordability and the opportunity to enjoy a retirement lifestyle much more accommodating than we could have in the US.  It should not be surprising to us that there are some economic trade offs for that kind of reward.  Many come as a surprise to newcomers but mostly because they haven't done enough background checking and homework on the economic realities of life here.

Anyway, here we go.  Please do recognize that if what I  write generates a lot of questions, that's a strong indication you need to be prepared to do some of your own due diligence and research!

When you arrive at one of its international airports, visit its resorts and its three largest cities and focus on the vibrancy, the amenities,  and the colonial beauty at such affordable prices, it is sometimes difficult to equate Ecuador with a lot of the rest of Latin American.   You certainly don't get the impression of a country struggling to climb out of a third world economic abyss. But not so long ago, that was very much the case.   Consider this:  Just about 12 years ago, the minimum wage in this country was $53 per month and 69% of the entire population lived below the poverty line. The two biggest sources of foreign income was Ecuadorians living in North America sending money home and Ecuadorians living in Europe sending money home.  Just a year prior, every financial institutional in the country except one FAILED (that's correct, only one survived, just barely) .

Financial institution closures still occur on an average of about two a year and financial institutions here probably would love to have the public confidence rating numbers of the US Congress!  Government hasn't fared much better in its stability.   During the past two decades, the majority of men elected to the presidency of this country failed to complete their first term, only one (the current President) won his first term outright without a run-off, and only one (yep, same guy) successfully ran for reelection. We don't have the rate of kidnappings and murders and outright civil war that exists in Mexico, but be aware, random burglary, robbery, extortion and fraud do occur in higher frequency here than what you are accustomed to in the US and the reasons are largely economic.

That's the reality but there are also some silver linings amongst these clouds:  Ecuador does have one of the fastest improving economies in Latin America:  Effective this year, the minimum wage for Ecuadorians has increased six fold over what it was twelve years ago.  At the end of last year, the percentage of the population living below the poverty level was down substantially to 27.3%.  There is an average of 10,000 new residents a year due to Ecuadorians returning home to live!  While our government still has pockets of bureaucratic problems and corruption, they are being addressed.  While the government does still seems to behave strangely to outsiders, it has become more stabilized and institutionalized.  For the first time in modern Ecuadorian history, it has the confidence of a majority of the population.  For the first time there has been major reform in police and bureaucratic corruption, there's even a new community police force in major cities.  The country's improvement in infrastructure is slowly bringing some of the benefits of prosperity formerly enjoyed almost exclusively by major urban areas to the rest of the country.  There has, truly, been remarkable progress in recent years!

Is this a country on the move?...yes, yes, yes!  Has it solved all its former problems?...no, no, no!

While the middle class is growing at a great rate, there is still a huge level of poverty and a large disparity between have and have-nots.  In some respects, the rapidly growing economy and the appearance of a large prosperous middle class along with an influx of affluent ex-patriates from abroad has accentuated the disparity.  Ecuador still has many of the social and civil issues that that disparity fosters and festers.  Distrust, deflection and deception became, in Ecuador's darkest economic hours,  essential skills of survival for most residents.  Despite their being in conflict with traditional Ecuadorian social and family values, those skills are still all too commonly in use today.   In fact, many of the challenges and frustrations of living everyday life in Ecuador today can be traced to this turbulent economic history.  It will impact you and will be a factor you will have to deal with if you become an expatriate resident.

This subject will be continued in our next blog to be labeled: " Ecuadorian economics and its impact on prospective new residents!  (Part II)"   It will deal specifically with financial institutions today and will touch more specifically on concerns to have in utilizing those entities.

An important note of caution to readers:

 Most of the information cited in this blog was presented as I was able to discern it at the time of this posting.  Being marginally conversant with the language and with the difficulty in reading Ecuadorian legal and technical reports, this may have resulted in inaccuracies in some select specific details.  Knowing that blogs such as this tend to have a very long term readership, I also caution readers that all things DO change with time in Ecuador and many things may have changed by the time you read this.  What was important to me was to give you, the reader,  a reasonable representative overview of the subject as it exists today. This should will allow you to gain some perspective and then be prepared to go forth and do your own due diligence and research if this perspective causes you to have reason to do so!