By Paul Beckerman, Andres Solimano
Early in 2000, Ecuador, faced with a major fiscal and governance crises, followed the U.S. greenback as its nationwide forex. the industrial state of affairs was once dire with excessive inflation, govt intervention within the banking procedure together with freezing of deposits to avoid additional flight from the rustic, and big financial deficits. Politically, then President Mahaud was once being challenged by way of a congressional loss of aid for measures to stabilize the commercial scenario, a radicalized indigenous flow, and a restive militia. during this setting, and as a coverage of final inn, the govt. determined to undertake the U.S. buck as its currency.
This booklet completely examines the stipulations during which this determination used to be made. It appears to be like traditionally at Ecuador's fiscal and social constitution and assesses the influence felt as a result of determination.
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Extra resources for Crisis and Dollarization in Ecuador
8 shows the evolution of the central government’s expenditure over the 1990s. Expenditure is divided here into five functional categories: (1) education, health, and social services; (2) transport and communications; (3) agricultural development; (4) all other noninterest expenditure, and (5) interest on the public debt. S. S. 0 1990 1991 1992 1993 1994 Education and health Agricultural development Interest due Source: Central Bank of Ecuador. 1995 1996 1997 1998 1999 Transport and communications Other-non interest expenditure 2000 40 CRISIS AND DOLLARIZATION IN ECUADOR est bill increased sharply.
On the basis of the surge in oil revenue, the military government increased public-sector employment and capital formation rapidly, raising overall government expenditure by about two-thirds between 1972 and 1975. 4 percent. The government applied part of the oil earnings to subsidize domestic electricity and oil derivatives. From 1970 to 1977 annual real GDP growth exceeded 9 percent11 (compared with just below 6 percent in the 1960s). As the economy grew, Ecuador’s private sector—mainly commercial banks—began borrowing from foreign banks engaged in “recycling” OPEC surpluses.
In 1998, however, the Alarcón Government carried out a thorough reform of tax administration, establishing a new agency and replacing a large proportion of the staff. This new agency has proved more successful than the one it replaced, largely because the transactions tax that went into effect in January 1999 provided vital information relevant for collection of other taxes. Customs administration gave rise to so many complaints of corruption that in the mid-1990s the authorities turned it over to a foreign company.
Crisis and Dollarization in Ecuador by Paul Beckerman, Andres Solimano