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In the following account (via marxism-thaxis) of the economic (and
political) crisis in Ecuador, note the respective roles that the (US)
dollar and gold are playing.
It would seem that in a crisis the dollar has usurped the role
traditionally played by gold as money of last resort.
In solidarity, Jerry
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Date: Tue, 18 Jan 2000 10:16:22 -0800
From: Michael Pugliese <debsian@pacbell.net>
Subject: M-TH: Economic crisis forces Ecuador to abandon its own
currency./ICFI -WSWS story
Economic crisis forces Ecuador to abandon its own currencyEconomic crisis
forces Ecuador to abandon its own currency
By Our Correspondent
13 January 2000
Use this version to print
The small South American nation of Ecuador will abandon its own currency,
the sucre, and dollarize its economy, President Jamil Mahuad announced
Sunday in a nationally televised address. Mahuad declared a state of
emergency January 6, the fourth since he took office 18 months ago, and
ordered his 15-member cabinet to resign.
Mahuad appealed to trade union and indigenous organizations to abandon plans
for a general strike set to begin on January 15. Oil workers at the
state-owned Petroecuador have announced an indefinite strike starting
January 17, and other public sector workers, including bus drivers and
teachers, have already begun strike action.
The dollarization of the Ecuadorian economy means that the sucre will no
longer be accepted as a means of payment except for coinage. All bills will
be withdrawn from circulation and only US dollars will be permitted as
currency. The US Treasury, not the Ecuadorian government, would then have
effective control of the money supply, interest rates and other economic
policies. Ecuador would become the second Latin American country to suffer
such a total collapse of economic sovereignty, joining Panama as a colony in
all but name.
Mahuad's action came only three days after Central Bank President Pablo
Better rejected dollarization, saying that he would not be party to any
"rushed, crazy measures." After Mahuad's speech, Better resigned, and the
four remaining directors of the Central Bank were compelled to ratify the
dollarization plan.
The exchange rate announced by Mahuad, 25,000 sucres to the dollar,
testifies to the rapid impoverishment of the Ecuadorian masses over the past
year, during which the sucre's value has fallen by 82 percent. At this
exchange rate the minimum wage in Ecuador would be only $30 a month, half
its value only six months ago.
Ecuador has been bankrupted by the collapse of oil prices in 1998 and early
1999 and by the effects of the El Nino and La Nina weather conditions on
agricultural production. Oil is the country's main export and largest source
of foreign exchange, and Ecuador's export earnings have plunged over the
past two years. At the same time, storms caused by the unusual weather
patterns in the Pacific Ocean have damaged much of the country's crop of
bananas-another key export-and prices of food staples have skyrocketed.
Mahuad, who took office in August 1998, has faced one financial crisis after
another. Last March he imposed a one-week bank holiday, then in April he
ordered all savings and checking accounts frozen for a year. In September
the government defaulted on part of its $20 billion in foreign debt, and by
December ten of the country's largest banks had failed.
The dollarization plan is a desperate expedient to save Mahuad's government
from the combination of financial catastrophe and social upheaval. The
regime is seeking $250 million in new IMF loans and an additional $1 billion
from other lenders conditional on the IMF action.
US officials have been cautious about the move. Before Mahuad's Sunday night
speech, President Clinton telephoned him to express his support and Treasury
Secretary Lawrence Summers issued a statement reiterating US interest in a
stable Ecuadorian government and economy. But no high-level pronouncement
was issued after the dollarization plan was made public.
IMF Managing Director Michel Camdessus, however, indicated full cooperation
with Mahuad, issuing a statement Monday: "In light of the announcement
yesterday by the government of Ecuador of its intention to move the economy
to full dollarization, the IMF is prepared to send a fact-finding mission to
Quito to provide technical assistance in adapting their fiscal and banking
strategies to dollarization."
The Ecuadorian ruling class has been deeply shaken by the financial collapse
and the mounting opposition to the Mahuad government, reflected in strikes,
demonstrations and rioting in both Quito and Guayaquil, the two major
cities, and in the countryside. Their demoralization was expressed by Jorge
Rodriguez, an economist and former adviser to Mahuad, who declared, "We're
now on the edge of economic collapse. We have just started to fall and are
in the first phase of total collapse. If something dramatic is not done
immediately, then I would predict total economic collapse within this year."
There have been rumblings of a military coup, although the military brass is
not anxious to assume power under conditions of economic catastrophe. The
day before he announced the dollarization plan, Mahuad met for seven hours
with the top generals and admirals. These officers then issued a statement,
published as a full-page advertisement in the country's major newspaper El
Mercurio, declaring they would uphold "the constitutional process," but
significantly making no mention of Mahuad or his government.
A particularly dangerous role is being played by the leaders of the trade
unions and the former Stalinists of the Ecuadorian Communist Party, who are
openly appealing for the military to intervene against the Mahuad
government. They have established an alliance, the Patriotic Front, which
includes student, peasant and indigenous groups. Luis Villacis, president of
the Patriotic Front, called for continued protests until Mahuad resigns and
for his replacement by a "Patriotic Government of National Unity," with
representatives of the Catholic Church, the armed forces and "honest
business leaders."
See Also:
Ecuador default, Colombia devaluation: renewed debt and currency jitters in
Latin America
[1 October 1999]
Five days in Ecuador general strike
[20 July 1999]
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