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By Paul Beckerman, Andres Solimano

Early in 2000, Ecuador, faced with a significant fiscal 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 economic deficits. Politically, then President Mahaud was once being challenged via a congressional loss of aid for measures to stabilize the commercial scenario, a radicalized indigenous flow, and a restive military. during this atmosphere, and as a coverage of final inn, the govt. made up our minds to undertake the U.S. greenback as its currency.

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

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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. In March 1983 the authorities devalued again and then commenced mini-devaluations to keep the exchange rate from slipping behind the price level. 8 percent, largely because of that year’s severe El Niño episode.

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. Partial dollarization left the financial system singularly vulnerable to the exchange-rate depreciation.

8 shows the evolution of the central government’s expenditure over the 1990s. Expenditure is divided here into five functional categories: (1) education, health, and social services; (2) transport and communications; (3) agricultural development; (4) all other noninterest expenditure, and (5) interest on the public debt. S. S. 0 1990 1991 1992 1993 1994 Education and health Agricultural development Interest due Source: Central Bank of Ecuador. 1995 1996 1997 1998 1999 Transport and communications Other-non interest expenditure 2000 40 CRISIS AND DOLLARIZATION IN ECUADOR est bill increased sharply.

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Crisis and Dollarization in Ecuador by Paul Beckerman, Andres Solimano


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