Global Policy Forum

By Jane Bussey

Quito, Ecuador -- As Ecuador becomes the economic guinea pig of Latin America with its radical dollarization proposal, many are asking how authorities can impose austerity on a country already buckling under years of belt-tightening. Ecuador's economy shrank by 7 percent last year, while inflation rose 60 percent, the highest in the hemisphere. The rapid devaluation of the Ecuadorean sucre -- 20 percent alone since the start of this year -- and the proposal to dollarize the country has placed the worsening poverty in Ecuador in a dramatic light. While inflation and devaluation have pushed the cost of living for basic foodstuffs for a family to $200 a month, the monthly minimum wage ranges from $45 to $50.

President Jamil Mahuad's proposal to dollarize the economy -- substitute the weak sucre with the stable dollar -- has garnered support among Ecuador's business groups and middle class, anxious for a return to economic stability. Representatives of the International Monetary Fund, the Inter-American Development Bank and private financial experts assembled in Ecuador on Sunday to try to help the government draw up a detailed proposal on how to dollarize. Economists have talked about dollarization in the region for more than a year, but Ecuador was never the first choice for the experiment because it does not have plentiful dollar reserves.

Opposition Stirred

Mahuad's dollar proposal has sparked opposition from the Confederation of Indigenous Nationalities of Ecuador, the Conaie, and other social movements, which liken the move to putting a thin person on a diet. ``I have told my children that now we will eat once a day and it won't be much,'' Lastenia Mora, a resident of the coastal city of Guayaquil, told Ecuador's TeleAmazonas.

Three months ago, 40-year-old Luis Ortega was credit and billing manager at a Quito importing firm, where he had worked for 18 years. But since the company went out of business and Ortega lost his job, he drives a taxi cab. ``Super difficult,'' Ortega said of the economic situation. ``When my wife goes to the market, before she could buy a chicken, now she can buy half a chicken. She used to buy four pounds of meat, now she buys only three,'' Ortega said.

To make matters worse, one of the government's proposals is that Ecuadoreans, whose bank deposits were frozen in March 1999 in an attempt to ward off bank failures, would have their funds returned in seven to 10 years. This measure would hit low-income Ecuadoreans and particularly retirees the hardest since they were the most likely to keep their money in domestic banks instead of banks in Miami or the Caribbean.

Retirees' Stories

The media is full of stories of retirees who note that they could be dead before their own savings are returned a decade from now. Most of the private sector agrees that something must be done about the worsening economic situation of the average Ecuadorean.

``It is inconceivable that a family can live on $50 a month,'' said Patricio Baus, the manager of BankWatchRatings, S.A., Ecuador. ``Before the country can enter a dollarization [plan], there must be a wage increase.''

Indigenous groups and students have staged scattered protests and road blocks in isolated regions for more than a week. But Conaie's threat to shut down Quito with a massive indigenous march has yet to materialize, even though new protests are slated for today.

But, in a dial-in poll carried out by the Quito newspaper Hoy, 79 percent of those who called the newspaper said they supported Conaie's protests. The term ``dollarize'' has captured most of the public attention. But dollarization is just the catchall word for an economic restructuring, known as ``shock'' treatment in Latin America, which Mahuad wants to implement.

One Step Further

The program, backed by Washington and the IMF, fixes the currency's parity against the dollar as an anchor to hold down inflation, privatizes state-run companies and eventually raises prices for gasoline, telephones, electricity and other utilities closer to international levels. Mahuad's proposal goes one step further, calling for the elimination of the sucre in all but minor transactions.

Whether the plan can be implemented is still in question, although many economists think Ecuador has little choice but to go ahead. But even analysts who are not enthusiastic about IMF programs agree that Ecuador needs to re-order its economy. Political analyst Simon Pachano said that economic and political uncertainty and the lack of economic direction have been especially damaging to the country's anti-poverty programs and the poor. Social spending on areas such as health and education has fallen from 12 percent of the country's gross national product in 1980 to 7 percent in 1990 to just 3.3 percent last year. ``If there has been no economic policy, there has been even less of a social policy and there also was no serious war on poverty,'' Pachano said.

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