The dollarization established 24 years ago in Ecuador preserved purchasing power, brought economic stability and confidence, fundamentally because it reduced inflation to single digits, eliminated the risk of devaluation and promoted credit growth to small and medium-sized enterprises, individuals and companies (Gross portfolio private financial sector moved from 19.5% of GDP in January 2001 to 49% in November 2023), who were able to project their investment horizons.

On credit, banks and politicians

Recently, the Minister of Economy and Finance technically stated that the country is in a “serious economic situation”, characterized by a slow economic growth of 1.5% as of December 2023; the fiscal deficit for several years ending in 2023 at $5.789 million; the total debt of the unsustainable non-financial public sector in the amount of 74,869 million dollars, which represents 62.7% of GDP; and subsidies that are not necessarily targeted in the amount of $3.9 billion. He indicated that they “inherited… outstanding payments for… $2.872 million from IESS, local authorities and other public and private sector institutions.”

What Minister Vega mentioned confirms what several analysts have pointed out, “dollarization would be in danger”, among other things, because no consistent public policies to strengthen it have been adopted in the last two decades.

Then the national priority appears, to promote the advantages of the dollarized economy…

Then the national priority is to promote the advantages of the dollarized economy, together with the fight against organized crime, by promoting structural and institutional conditions, related to:

(I) Since there is no possibility of monetary financing of fiscal deficits through the ECB, the possibility of public debt remains open (using treasury deposits in the central bank, contracting external/internal debt), a mechanism from which governments have eliminated in creating conditions of fiscal indiscipline. It is necessary to organize the public sector, achieve a surplus, stop competing for resources with the private sector, whose role is to multiply investments and create jobs. The Treasury must play a counter-cyclical role, maximizing savings to prevent a shock (e.g. reduction in oil prices), respecting the fiscal rules established in the Law.

Is dollarization in danger?

(II) Strengthen the competitiveness and structural productivity of the external sector, developing new export sectors, improving workforce training, physical infrastructure, technological innovation, market opening and labor market changes.

(III) Legal stability that attracts domestic and foreign investments, with clear rules of the game.

These tasks are not easy, but they must be performed and the Law respected, despite the fact that inflation is still in single digits, wages in dollars are rising (increasing production costs for MSMEs and exporters), international reserves are reduced, exports of non-traditional, credit, deposit and the matured portfolio is growing, indicators that are not visible on a daily basis, but when they explode it will be too late. The Government spokesman indicated that it is not clear whether they will be able to cover all salaries in the public sector. Dollarization would already be in danger. (OR)