Ecuador: President Gustavo Noboa Begins Final Year in Office with Mixed Review of Dollarization
As Ecuadoran President Gustavo Noboa began his last year in office, he gave a report to the nation extolling the successes of his administration. Two years after Ecuador dollarized its economy, Noboa faces growing public discontent and a shaky economy. Presidential elections are scheduled for October, and the new president will take over in January 2003.
Then President Jamil Mahuad (1998-2000) announced the decision to dollarize the economy on Jan. 9, 2000, and began the process two days later, setting off widespread protests that forced him from office within a week (see NotiSur, 2000- 01-14, 2000-01-28).
When Noboa took office, Ecuador was in the worst economic crisis in the country's history. Noboa continued the dollarization process in an effort to halt the rapid devaluation of the sucre currency and stem rampant inflation. The results, say experts, have been mixed. Noboa has been able to reduce inflation and put the economy on the path to recovery, although his successes have not been felt by the poor, whose discontent is growing.
On Jan. 9, Economy and Finance Minister Carlos Julio Emanuel said, "Dollarization is here to stay." He said dollarization has given Ecuador stability, improved the buying power of people's salaries, increased the wealth of individuals and businesses, and stimulated private investment. The minister said dollarization had also improved the nation's image abroad, increasing the value of Ecuador's global bonds on international financial markets.
Noboa reports to the nation
In his report to the nation Jan. 15, Noboa said his administration had brought stability to the economy through dollarization and the reduction of the nation's foreign debt. He said inflation had dropped from 91% in 2000 to 22.5% in 2001, and unemployment had gone from 16.8% when he took office to 9.5% now. He said the foreign debt had been reduced from US$14.3 million in March 2000 to US$11.3 million now, thanks to the restructuring of the country's Brady bonds, which were exchanged for 20- and 30-year global bonds.
"Ecuador has a future," said Noboa. "Inflation is the worst tax...the worse enemy of the people." He vowed to reduce inflation to a single-digit before he leaves office.
Noboa said GDP grew 2.5% in 2000 and 5.4% in 2001, despite a worldwide economic downturn. It was the highest growth rate in Latin America, where overall growth barely reached 0.4%. The president said he would create a Fondo de Estabilizacion Petrolero, to be set up with money from the sale of crude. The fund would devote 20% of its resources to social development and 80% would be held in reserve to offset periods of international economic downturn that bring volatility in the price of oil.
Noboa did not mention the latest round of protests set off by a 13.9% increase in the price of gasoline, nor did he discuss the allegations of corruption that have tainted the highest levels of the armed forces and the police.
Critics challenge Noboa's assessment of dollarization
Most of the Ecuadoran business class rate dollarization positively, saying it has provided a favorable climate for investment. And supporters say the drop in inflation is a direct consequence of dollarization.
Mauricio Pozo, writing in the economic magazine Gestion, said the absence of a devaluation, plus the Central Bank's inability to print money, helped tame inflation. But he said that dollarization, the currency-board system, fixed exchange rates, flexible exchange rates, or bands in which currencies are allowed to float are neither good nor bad, but simply useful depending on what is done in the overall management of economic policy.
"If public finances are not sorted out, if the financial crisis is not resolved, if the foreign reserves fall short, if productivity does not improve, if we fail to keep economic decisions independent from political ones, no exchange regimen will last," he said. …