'Don't do it': the opinion of the Argentines behind the Ecuadorian dollarization

23 years ago, on January 9, 2000, Ecuador applied de facto dollarization in the midst of a bank run and a huge economic crisis.

Faced with this, the then president Jamil Mahuad announced the substitution of the sucre (until then the official currency) by the dollar.

to fight inflation and eliminate the monetary issue to finance the chronic deficit.

The Ecuadorian dollarization had the technical advice of the Argentines Jorge Vasconcelos and Guillermo Mondino, two researchers from Ieral and the Mediterranean Foundation.

Today, from a distance,

.

"Technically, in Ecuador there were other options and dollarization was not the best," Vasconcelos acknowledges.

The adoption of the dollar in that country was traumatic.

After the announcement, the currency price

That year, Ecuadorian inflation rose to 95.5%, but then it dropped and today "

," says ÁngelMaridueña, Ecuadorian economist and tenured professor at the University of Milagro.

According to Mondino, now a professor at Columbia University and external adviser to countries and investment funds, dollarization was decided "between roosters and midnight" and served "to stabilize prices."

However, he clarifies that in an economy dependent on its oil exports,

Ecuador depends on its foreign trade for the income of foreign currency. In 2022, it exported a total of US$32,658 million.

Measured by volume,

.

The rest came from “non-traditional” products (bananas, flowers, shrimp, among others), which totaled 22.5%.

, which have been growing year after year.

From 2018 to 2022, they jumped from US$3.031 million to US$4.744 million.

The Ecuadorian level of activity is closely associated with the price of oil.

The one who best took advantage of the commodity boom was Rafael Correa, who ruled from 2007 to 2017, with oil trading for a large part of his mandate at US$100.

,” says Maridueña.

As in Argentina, Ecuador has been debating for years the possibility of dollarizing to stop the constant rise in prices.

“In December 1999, a month before, a seminar was held to analyze different alternatives:

.

The Government had a broader menu and

, ”Vasconcelos recalls.

"Ecuador had a much broader menu to stabilize its economy," says Jorge Vasconcelos.

Even the father of convertibility, Domingo Cavallo, advised the then candidate for president of Ecuador, Abdalá Bucaram, on an eventual dollarization.

," Bucaram himself acknowledged some time ago.

“It is a long story, but it is reached in an extreme situation, with the Central without reserves, some banks without funds and

”, explains Mondino.

Vasconcelos completes that to dollarize in Ecuador and apply convertibility (1 peso for 1 dollar) in Argentina there was the same pattern: demonetization (liquefaction) due to

The expert says that the main risk of replicating the recipe in the country is "not having the instruments to stop a run or face a debt problem."

In other words,

, such as the Central Bank.

For Mondino, the scheme in Ecuador worked to "provide a price horizon" and also to "grant greater fiscal discipline in the face of the impossibility of issuing."

But in return, he insists that in addition to this anchoring of the economy "no other reform was implemented" and that this

."

In the 1990s, Guillermo Mondino (left) was part of Domingo Cavallo's economic team.

The currency exchange was left at that.

There were no structural reforms involved and for this reason, says Maridueña, "when the price of oil began to fall, it generated production problems and public debt went from 30 to 60% of GDP."

Vasconcelos adds that the case of Ecuador proves that dollarization “earned the sympathy of the people and proved to be solid and lasting.

But it's not a magic pass.

, ”he opined.

Maridueña recalls that

who reconverted their income into sucre (70% of currency) at a very high conversion rate due to devaluation.

The population also faced the postponement of the payment of their bank deposits to 5 years (mostly in dollars).

Those who lost the most were those who liquidated those bonds in need of liquidity.

However, if one looks at the Ecuadorian statistics, the real basic salary in dollars has been growing since the implementation of the new system.

From 2000 to date, it has gone from US$223.5 per capita to US$454.6, that is, almost double. But in the same period,

: in 2000 it averaged US$234 and last year it was positioned at US$744.62.

In addition to Ecuador,

Panama and El Salvador.

There are others that applied currency conversion boards, such as Argentine convertibility: Hong Kong, Bahamas, Bermuda, Latvia, Lithuania and Singapore.

Most economists, including many "liberals" like Milei, argue that doing so in Argentina is very complex.

Ecuadorian dollarization coincided with the exacerbation of convertibility problems in Argentina, whose economy had gone into recession.

Vasconcelos believes that “

, which exports US$15,000 per capita.

In Argentina and Ecuador, they are around US$2,000”.

According to the economist, the best model is one that implements structural reforms and encourages growth and exports.

"You cannot discuss a monetary and exchange regime without that," he concluded.

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