El Dolar Wins Fans in Latin America ; from El Salvador to Some Mexico-US Border States, the Greenback Is Increasingly Accepted as Legal Tender

Article excerpt

As Salvadorans bustle around the capital doing holiday shopping, many know this will be the last Christmas they will be paying with the colorful bills of the colon, their national currency.

In a controversial move, the Salvadoran government made the announcement in late November that beginning Jan. 1, the nation will start using dollars alongside the colon. The measure is aimed at the eventual total replacement of the national currency.

Greenbacks already circulate widely in this tiny Central American nation, which receives $1.5 billion a year in remittances from family members residing in the US.

With this move, El Salvador has taken a clear position in the growing international debate as to whether emerging markets, like those in Latin America, should dollarize. Analysts here maintain that the US and multinational lending intuitions are increasingly pressing for dollarization, and that El Salvador's experience could influence whether other nations follow suit.

"El Salvador is the test for the thesis that some maintain, that the countries in Latin America should adopt the dollar. The rest of the nations are going to watch carefully what happens here," says Hector Dada Hirezi, director of the El Salvador program of the Latin American Faculty for Social Sciences (FLACSO).

El Salvador is the second country, behind Ecuador, to dollarize in the past year. Panama has used the dollar since the early 1900s. Since 1991, Argentina's peso has been fixed at a one-to-one rate with the dollar and is convertible on demand. The country has since debated dollarizing.

Since El Salvador's decision, Guatemala's Congress has been considering legalizing bank accounts and the payment of checks in dollars. Meanwhile, Vicente Fox, Mexico's newly inaugurated president, already has vowed not to dollarize. The dollar is widely used in many countries in Latin America, such as Peru, some states in Mexico, and Nicaragua, which have not officially dollarized.

The Salvadoran government says its move will legalize the already prevalent use of the dollar and prevent devaluation of its currency. The colon's value will be fixed at 8.75 to the dollar. "Now there will be no risk of fluctuating exchange rates and this will give international and national investors more confidence in El Salvador," says Jose Mauricio Quinteros, a congressman with ARENA, the right-wing ruling party.

In past weeks, the government has flooded the airways with propaganda extolling the benefits of dollarization. According to the government, Salvadorans will enjoy more access to loans, and interest rates will fall since loans will be given in a stable currency.

The FMLN, the left-leaning party of the former guerrilla movement of the same name, firmly opposes the measure. "The nation's economy has been in decline since 1995 and the government took this measure to try and save its failing economic plan. But this is not going to change the economic situation," says Schafik Handal, a prominent FMLN congressman. …