Dolarizacion En El Ecuador

 The effect of dollarization in Ecuador
It’s been about six years since the Ecuadorian government, in an attempt to restore stability to its shattered economy, officially made the decision to abandon the hyper-inflated sucre and adopt the US dollar as the nation’s official currency. What have the results of this interesting (some would even say drastic) experiment been so far?
BackgroundEcuador’s economy has historically depended on the production and export of raw products such as bananas, cocao, coffee and shrimp. In the early 1970s, oil was discovered and quickly became Ecuador’s primary export. This new oil wealth actually allowed Ecuador to finance new public services, infrastructure and the like, and in order to leverage this newfound wealth as much as possible the government(which, after 1972, was under military control) also began to borrow heavily. The 70s were good for Ecuador as the small Andean nation rapidly modernized, and in 1979 the country returned to democratic rule.
The problem with depending on oil, however, is that it left the nation at the mercy of fluctuations in world market prices. And, as everybody who lived in Houston during this time painfullyremembers, the oil market crashed in the early 1980s. The collapse of oil prices sent Ecuador’s economy into a crisis characterized by inflation, mounting debt service and uncompetitive industries. This crisis was exacerbated by the El Niño weather phenomenon, which wrecked the country's infrastructure and had a profoundly negative effect on other key exports such as shrimp and bananas. It was duringthis time that the Ecuadorian government began a policy of currency devaluation, which was designed to “inflate away” the country’s internal debt as well as make Ecuadorian products cheaper (and therefore, more competitive) on the foreign market.
Ecuador ambled on, through the presidencies of Leon Febres-Cordero (84-88), Rodrigo Borja (88-92) and Sixto Duran (92-96), all the while facing budgetcrises, currency devaluations, wildly-fluctuating export prices, earthquakes, volcanic eruptions, disruptive weather phenomena and, in early 1995, even a brief border war with Peru. It wasn’t until the late 1990s, however, that things began to really deteriorate.
In many countries, political instability and economic stability go hand in hand; Ecuador is no exception. Its 17-year period ofrelative political stability ended in February 1997 when Guayaquil populist Abdala Bucaram, who was elected to the presidency only a year earlier and who ironically chose the nickname “El Loco,” was deposed by Congress on grounds of mental incompetence. An interim president was appointed until new elections were held in May of 1998. Former Quito major Jamil Mahuad was elected president and faced evenmore hardship, as the particularly destructive 1997 - 1998 El Niño ravaged Ecuador’s agricultural economy and damaged parts of its infrastructure and the Asian economic meltdown of that year sent oil prices to new lows. Collapses in other South American economies such as Brazil took their toll as well. Ecuador’s economy was sent into a tailspin; the sucre fell into hyperinflation, the countrydefaulted on its foreign debt, and Ecuador’s entire banking sector collapsed as Ecuadorians rushed to put their accounts into a more stable currency, such as the US dollar. This impromptu wave of “semi-dollarization” in turn prompted the Mahuad administration to propose officially replacing the country’s currency with the dollar.
This proposal, however, proved be unpopular and widespread dissatisfactionwith the Mahuad administration bubbled over in January 2000. An uprising led by indigenous and labor leaders as well as junior military officers occurred, as tens of thousands of protesters from around the nation descended onto Quito and demanded Mahuad’s resignation. On January 21st demonstrators entered the National Assembly building and declared a three-person junta in charge of the country....