Ecuador’s Dollarization:

A Retrospective, Twelve Years After.

In the year 2000, Ecuador was going through one of the most difficult and tough economic crisis in the country’s history. In that year, the country was run by President Jamil Mahuad, a man who was elected based on his relatively good management campaign as major of the country’s capitol city of Quito, which meant huge popularity rates for him among all Ecuadorians.

Nevertheless, a country’s needs aren’t the same as a city. The scale is way much larger, the number of people he had under his responsibility was huge, and the problems of the Ecuadorian society as a whole were much bigger.

By the time Ecuador entered into the year 2000, the country had already suffered some serious changes in its economy. The national currency (Sucre) had devaluated totally, as a consequence of the Asian and Brazilian economic crisis, and as a result, 8 banks closed their services, being the most notable cases Banco del Progreso (which tried to be savataged through a capitalization process) and Filanbanco. Plus, the whole bank savings of thousands of Ecuadorians were frozen.

The decline of Ecuadorian’s currency was a gradual process, which accentuated by the end of the year 1999. In December 1998, One Dollar was valued in 6.770,42 Sucres, revealing a 53% increase of 1997’s conversion value (4.437,44 Sucres). However, by the end of 1999, One Dollar was valued in 19.917,14 Sucres (A 194% increase of the previous conversion value), and in January 2000 One Dollar was valued in 25.000,00 (A 26% increase of the previous conversion value).

Month YearSucres' Value Per

Dollar % Growth Rate December 1990 899,5 -December 1991 1.301,50 45%December 1992 1.846,94 42%December 1993 2.043,78 11%December 1994 2.279,69 12%December 1995 2.926,05 28%December 1996 3.633,85 24%December 1997 4.437,44 22%December 1998 6.770,42 53%December 1999 19.917,14 194%

January 2000 25.000,00 26%

Table 1: One Dollar Value In Sucres, from 1990 to 2000.Data Provided by the CBE (Central Bank of Ecuador)

In January 21, as a consequence of the social turmoil unchained by the unstable and fragile economic system, Jamil Mahuad was forced to cease his functions as Ecuador’s President, and Vice-President Gustavo Noboa assumed the role of President, carrying on the idea of Mahuad to dollarize Ecuador’s economy to prevent the ultimate fall of Ecuadorian Economy.

By the time Gustavo Noboa was declared President, the International Monetary Fund launches a plan called “Economic Transformation Law” which leads to a series of reforms of the then-current Ecuadorian Constitution. The Dollarization Bill was completely approved by the country’s congress, and this bill included 85 articles and 31 clauses. In March 9 2000, the dollarization process begins in the country, being completely settled in the whole country in September 13 of the same year. It was the end of Ecuador’s local currency and monetary sovereignty.

In the Year 2000, (Year Zero of the Dollarization Process), the Exportation Rates were as it follows (In Millions of Dollars):

Oil Exportations: $ 2.442,40

Non-Related Oil Exportations: $ 2.484,20

Traditional Exportations: $ 1.302,00

Non-Traditional Exportations: $ 1.182,30

Total Amount of Exportations: $ 7.410,90

Oil Exportations Non Related Traditional Non - Traditional Total Amount % Growth Rate

Year Oil Exportations Exportations Exportations of Exportations

2000 $ 2.442,40 $ 2.484,20 $ 1.302,00 $ 1.182,30 $ 7.410,90

2001 $ 1.899,90 $ 2.778,40 $ 1.363,90 $ 1.414,50 $ 7.456,70 1%2002 $ 2.055,00 $ 2.981,10 $ 1.480,80 $ 1.500,40 $ 8.017,30 8%2003 $ 2.606,90 $ 3.615,90 $ 1.737,40 $ 1.878,50 $ 9.838,70 23%2004 $ 4.234,00 $ 3.518,90 $ 1.673,90 $ 1.845,00 $ 11.271,80 15%2005 $ 5.869,80 $ 4.230,20 $ 1.925,30 $ 2.304,90 $ 14.330,20 27%2006 $ 7.544,50 $ 5.183,70 $ 2.200,20 $ 2.983,60 $ 17.912,00 25%2007 $ 8.328,60 $ 5.992,80 $ 2.447,10 $ 3.545,70 $ 20.314,20 13%2008 $ 11.672,80 $ 6.837,80 $ 2.891,70 $ 3.946,00 $ 25.348,30 25%2009 $ 6.964,60 $ 6.797,70 $ 3.397,10 $ 3.400,40 $ 20.559,80 -19%

Table 2: The Evolution of Ecuadorian Exportation Activity

Data Provided by the CBE (Central Bank of Ecuador)

Monthly Statistic Report, No. 1896, 1811

After 9 Years (Year 2009), the dollarization had proven to be a great choice. The Total Amount of Exportations by the end of the year 2009 showed an increase of 177%, and it’s reflected on the relatively stable rates of exportations in that same year, which were way much higher than those of the year zero in the dollarization process, but nevertheless, were a 19% lower than year 2008 Total Amount of Exportations (Which was $ 25.348,30, the highest rate up to that point).

Oil Exportations: $ 6.964,60

Non-Related Oil Exportations: $ 6.797,70

Traditional Exportations: $ 3.397,10

Non-Traditional Exportations: $ 3.400,40

Total Amount of Exportations: $ 20.559,80

Likewise, there were positive results on the importations side. In the beginning, the importation rate was quite modest, because of the beginning of the use of dollars as currency, but 2008 proved to be the greatest year economically speaking and over all, because it had also the hugest rate of importations, creating a good balance between the income generated by the exportations, and the outcome that derived from the bigger volume of importations made through that period (2000-2009). It seems that 2009 was lower in contrast to 2008 because of the world-wide financial crisis.

Consumer Goods Raw Material Capital Goods Fuel Lubricants Total Amount % Growth Rate

Year Importation Importation Importation Importation Importations

2000 $ 762,40 $ 1.491,10 $ 889,80 - $ 3.143,30

2001 $ 1.321,70 $ 1.795,20 $ 1.566,90 - $ 4.683,80 49%2002 $ 1.686,90 $ 2.112,60 $ 1.919,80 $ 232,40 $ 5.951,70 27%2003 $ 1.764,70 $ 2.027,70 $ 1.702,50 $ 732,80 $ 6.227,70 5%2004 $ 2.048,30 $ 2.565,80 $ 1.944,30 $ 995,10 $ 7.553,50 21%2005 $ 2.337,30 $ 2.934,90 $ 2.557,10 $ 1.715,00 $ 9.544,30 26%2006 $ 2.585,00 $ 3.469,30 $ 3.469,30 $ 2.380,90 $ 11.904,50 25%2007 $ 2.901,30 $ 4.093,50 $ 3.319,30 $ 2.578,30 $ 12.892,40 8%2008 $ 3.852,00 $ 5.831,40 $ 4.501,50 $ 3.217,50 $ 17.402,40 35%2009 $ 3.070,30 $ 4.674,90 $ 3.926,70 $ 2.333,80 $ 14.005,70 -20%

Table 3: The Evolution of Ecuadorian Importation Activity

Data Provided by the CBE (Central Bank of Ecuador)

Monthly Statistic Report, No. 1896, 1811

Dollarization also brought to the table a new social phenomenon: Massive Migration. A year after the Dollarization Bill was approved by the Ecuadorian Congress, and settled in September of 2000, people started to move out to other countries in order to live there and work. The countries that received the highest number of Ecuadorian Migrants were Spain and United States, and by the end of each year, revenues generated by income were bigger compared to the previous year’s rate.

Graphic 1: Revenues Generated by Migration. From 1998 to 2008Source: Diario Hoy, January 8, 2010.

From the Article “Dolarización Cambia Reglas de Migración”.

The side effects of a completely dollarized economy were also felt by people who actually migrated down here to Ecuador. By the end of year 2001, thousands of people from Colombia and Peru started to come to the country in order to work.The problem, however, was that since they had a “cheaper” cost as working elements, they were hired instead of their Ecuadorian counterparts, creating a somehow state of xenophobia which has been developing all over the years. By the end of the year 2006, there were 570221 people from Colombia and 312100 from Peru living in the country permanently.

The 2008 Economic Recesion of the United States made people (economists especially) think that the dollarization process was going to meet a dead end, because the main income (as we saw in the previous tables) was generated by the Oil Exportations, and with the fall of the most powerful economy of the world, it would also fall the income generated by the exportations of Oil-related products to other countries. Nevertheless, the country still holds the US Dollars as its currency.