Ecuador crisis

INTRODUCTION

The economic situation that Ecuador was living on the 90`s decade, due to some factor such as macroeconomic instability, low development of the financial markets, low credibility onthe stabilization programs, the world globalization, high inflation history and some institutional factors; the government said the 9 of January of the year 2000 that “the dollarization” was the onlyway to get the economy back in track.

In the year 1884 the SUCRE was born because due to the need of having a standard currency in the hole country, in that time the Ecuador economy was weak andfragile and that was why the SUCRE was created and for that same reason was retired from the market in the year 2000, the SUCRE name was given in honor to the lieder Antonio Jose de Sucre.

Why did theCrisis Begin?

Historically the economy of Ecuador was based on the production and export of raw products like shrimp, banana, cocoa and coffee but in the early 1970`s they discovered the oil andbased most of their economy in this product, becoming the oil its principal source of income. Thanks to this income, they started to finance infrastructure and public services, as they seek toleverage this new resource as much as possible.

This dependence on the oil left the country vulnerable to the fluctuations in the international market price, if the price in the market increased theexports would be significantly beneficiated, but on the contrary if the price decreases the economy of the country would be affected.

The oil market crashed in the 1980`s, with this crashed the price ofthe oil decreased and this affected dramatically the economy of Ecuador increasing the country`s inflation (see the table attached) also mounting debt service and uncompetitive industries.

Addingto this the El Niño weather phenomenon started making the crisis worst, because it affected the infrastructure, and also the rest of the exports. As a respond the Ecuatorian government began a...