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By Paul Ely Beckerman, Andrès Solimano

Early in 2000, Ecuador, faced with a significant fiscal and governance crises, followed the U.S. buck as its nationwide forex. the commercial state of affairs used to be dire with excessive inflation, executive intervention within the banking approach together with freezing of deposits to avoid extra flight from the rustic, and big economic deficits. Politically, then President Mahaud was once being challenged by means of a congressional loss of help for measures to stabilize the industrial scenario, a radicalized indigenous move, and a restive militia. during this surroundings, and as a coverage of final lodge, the govt. determined to undertake the U.S. greenback as its foreign money. This e-book completely examines the stipulations during which this determination was once made. It seems traditionally at Ecuador's monetary and social constitution and assesses the influence felt as a result of selection.

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2 Rivalry between the “Sierra” (mountain highlands), centered on the capital, Quito, and the “Costa” (coastal lowlands), centered on the port city of Guayaquil, has been a standing theme of Ecuador’s history. The two regions have always been culturally and economically distinct. The balancing of regional interests has imparted a marked style to political and administrative structures and decisionmaking. One consequence of the regional rivalry is that the central government’s political and administrative powers and capacities have been limited.

B. Ecuador’s Vulnerability to Economic Shocks and Natural Contingences Just as its deeper political history helps explain its political fragmentation and administrative weakness, geography and topography are fundamental to explain the “contingency” to which Ecuador is subject. Ecuador has always depended heavily on volatile commodity export earnings and has always been especially vulnerable to seismic and climatic disasters. This section reviews the historical processes leading up to the oil boom of the 1970s, discusses Ecuador’s exposure to natural contingencies and shocks, and briefly discusses the more recent instability of external financial flows, which has become an additional dimension of vulnerability.

It then carried out mini-devaluations consistent with anticipated inflation of 30 percent. 3 percent in 1989. Over the next three years, real growth recovered to between 3 and 5 percent. Inflation persisted in the range of 50 to 60 percent, and the nonfinancial public-sector deficit remained around 6 to 7 percent of GDP, despite higher oil prices at the time of the Persian Gulf War. Building on the Cordero Government’s reforms, the Borja Government undertook several 30 CRISIS AND DOLLARIZATION IN ECUADOR significant structural-adjustment initiatives, including a partial tax reform, trade liberalization, and progress toward financial-sector liberalization.

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