A two-cycle internal combustion engine for a watercraft that includes a cylinder block having a cylinder bore, a piston reciprocating in the cylinder bore and an exhaust port formed in the cylinder block. An exhaust path extends from the cylinder bore for exhausting combustion products from the cylinder bore. An exhaust control valve cooperates with the exhaust port and is movable between at least a first position for advancing the closing of the exhaust port so as to increase the compression ratio in the engine and a second position for delaying the closing of the exhaust port so as to decrease the compression ratio in the engine. Means for controlling the exhaust control valve between the first and second position are provided and are controlled in response to a watercraft condition.