Dolarizacion En Ecuador

STUDY OF THE DOLLARIZATION PROCESS IN ECUADOR

INTRODUCTION
The Ecuadorian economy has had a large growth in the past 60 years, coming from an almost entirely agriculture dependent one, into amostly industrial and oil based economy. The latter, started after 1967 when oil fields were found in the country, and this brought large amounts of revenue since 1972. This, coupled with the increase inglobal prices for oil, contributed to a significant growth for the Ecuadorian economy. This was not entirely positive, as it brought inflation that eroded income and the increase in the country’sexternal debt. (Flores, 1989)
BACKGROUND
As it was mentioned before, the Ecuadorian economy became highly dependent of oil exports. When in the 1980’s the oil prices collapsed, Ecuadorian’s economy wassent into inflation, which also led to an increase in public debt and also the loss of competitiveness of national industries. (Jacome H., 2004)
Additionally to this, the El Niño weather phenomenonseverely damaged the country’s infrastructure and had a profound impact in other key exports such as cacao, bananas and shrimp. “It was during this time that the national government began to devaluatethe national currency, to inflate the national debt and make Ecuadorian products cheaper and more competitive in the foreign market” (Gray, 2007).
CAUSES
Therefore, the causes of the Ecuadoriandollarization can be summarized into the following
• The collapse of the oil prices, in the late 1980s and after the financial crisis in the Southeastern Asian economies.
• The hyperinflation that theSucre was having as a result of the increase in real GDP growth and imports
• The crunch of the financial system of the country and the lack of liquidity of the national banks
• The large amounts offoreign debt the country government had acquired
CONSEQUENCES
Dollarization main goal was to help control inflation and it specifically worked at a first instance as interest rates decreased,...