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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. greenback as its nationwide foreign money. the commercial scenario 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 big economic deficits. Politically, then President Mahaud was once being challenged by way of a congressional loss of help for measures to stabilize the industrial scenario, a radicalized indigenous circulation, and a restive militia. during this setting, and as a coverage of final hotel, the govt. determined to undertake the U.S. buck as its currency.

This booklet completely examines the stipulations within which this selection used to be made. It seems to be traditionally at Ecuador's financial and social constitution and assesses the impression felt a result of determination.

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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.

S. Federal Reserve’s monetary tightening and the onset of world recession, rising interest rates and diminished oil and other commodity prices thrust Ecuador, like most other South American economies, into debt crisis. Higher interest rates on floating-rate debt led to a sharp deterioration in both private- and public-sector financial positions. President Roldós’ death in a May 1981 air disaster further complicated the government’s problems. The vice president, Osvaldo Hurtado, immediately assumed the presidency and began steering the economy into adjustment to the new macroeconomic realities.

3. 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.

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