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By Paul Beckerman, Andres Solimano
Early in 2000, Ecuador, faced with a major monetary and governance crises, followed the U.S. buck as its nationwide foreign money. the commercial state of affairs used to be dire with excessive inflation, executive intervention within the banking procedure together with freezing of deposits to avoid additional flight from the rustic, and massive monetary deficits. Politically, then President Mahaud was once being challenged by means of a congressional loss of help for measures to stabilize the industrial state of affairs, a radicalized indigenous move, and a restive militia. during this setting, and as a coverage of final hotel, the govt. made up our minds to undertake the U.S. greenback as its currency.
This booklet completely examines the stipulations within which this selection used to be made. It appears to be like traditionally at Ecuador's financial and social constitution and assesses the impression felt as a result determination.
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Extra info for Crisis and Dollarization in Ecuador
Ecuador’s Economic Structure Going into the Predollarization Crisis As it went into the predollarization crisis in 1998, Ecuador still had a large pending structural-reform agenda. Oil dependence, the large size of the public sector, and heavy external debt made the public finances particularly vulnerable. But the most immediately dangerous structural problem turned out to be that, because the authorities had relied so heavily on exchange-rate depreciation to maintain the export surplus and externaldebt surplus, the economy’s spontaneous dollarization was advancing inexorably.
14 Real growth slowed in 1995. No further disbursements were provided by the IMF under its 1994 program after the first, and disbursements of the World Bank and IDB structural-adjustment loans were postponed on account of the failure to meet the conditionality. Ecuador relapsed into political instability after the Durán Ballén Government left office in mid-1996. The government elected that year, under President Abdalá Bucaram, was forced from office by the Congress after only six months because growing alarm over corruption, the President’s unusual personal style, and, finally, in January 1997, sharp increases in gasoline prices following relatively high exchange-rate depreciation led to widespread protests.
The vice president, Osvaldo Hurtado, immediately assumed the presidency and began steering the economy into adjustment to the new macroeconomic realities. 5 percent of GDP. In May of that year, as part of an IMF-supported program, the government devalued the exchange rate, which had been fixed at 25 sucres per dollar since 1970, by 25 percent against the dollar. It also raised the (controlled) banking-system interest rates and raised the prices of a broad range of public-sector goods and services.