17 years ago Ecuador initiated adoption of U.S. currency

andes.info.ec / On January 9, 2000, on radio and television, then President Jamil Mahuad announced the implementation of dollarization. It was the corollary of the worst crisis in the country, triggered by the bankruptcy of a part of the private financial system that resulted in a seizure of deposits and an economy that was on the way to hyperinflation.

With the bankruptcy of banks, largely due to a neoliberal policy that reduced the state’s ability to control the financial system and gave way to linked credits, more than two million Ecuadorians emigrated to the United States, Spain and Italy.

According to official data of the time, 52.18% of the population was in poverty and 20.10% in indigence. Families destroyed, suicides, hunger and the accelerated depreciation of the official currency, Sucre, was the daily drama of a country on the verge of social outburst.

Analysts have agreed that Ecuadorian dollarization, implemented at an exchange rate of 25,000 sucres for every dollar, favored large bank debtors and hurt the working class and retired. To the former, their debts in Sucres almost disappeared in dollars, while the second their monthly retirement was reduced to 4 dollars, which precarizó their standard of living.

The popular pressure was such that twelve days after taking the measure, President Mahuad, of ranks of Popular Democracy, was overthrown in the midst of a popular revolt that took to the streets of the main cities of the country.

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Gustavo Noboa, who assumed the presidency, was the legal basis for dollarization. The president sent the draft Law for Economic Transformation of Ecuador on February 11, 2000 to the then National Congress that processed it and became law when published in the Official Registry No. 34 of March 13 of that year.

Since then, the leaders who have been in power have maintained this monetary system. Although President Rafael Correa has expressed his doubts about this mechanism, he has also been clear in pointing out that he will maintain it because leaving the dollarization would imply chaos for the national economy.

“For a developing country, the bottleneck, the crucial factor, is its external sector. And the main instrument for controlling this external factor is called the exchange rate. And there, naively, absurdly, Ecuador resigned. He committed a monetary suicide, “Correa said in an interview last August.

However, in that same conversation the president said that leaving the dollarization “would cause economic, social and political chaos. So we have only to sustain dollarization but being very aware of the restrictions. It’s like fighting in the ring of globalization with a straitjacket. ”

Since the third quarter of 2014, the US currency strengthened against the euro, yen and other currencies, which affected Ecuadorian exports, as local products became more expensive and competitiveness lost in the front markets To other products from neighboring countries like Colombia and Peru that rather devalued their currency.

The president himself has identified the appreciation of the dollar and the collapse of oil prices as two of the main external factors that have caused a slowdown in the Ecuadorian economy.

The economic analyst Juan Jaramillo, quoted by the public daily El Telégrafo, believes that although this scheme has kept inflation low in recent years, it is not a sufficient condition to generate competitiveness and employment. And he cited the case of neighboring countries that have been able to maintain control of the economy with proper handling of their currency.

Given this scenario, all the candidates who aspire to capture the presidency of the Republic in the general elections of February next have been in favor of maintaining the dollarization.

The official candidate Lenin Moreno ratified his position to maintain this monetary system in denying to its opponents, the social-Christian Cynthia Viteri and to the banker Guillermo Lasso (the latter that participated like minister of Economy of the government of Jamil Mahuad), that recently removed of context some Statements on the subject. Read Article