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The meteoric rise of the dollar worries in Ecuador, dollarized since 2000

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Ecuador, with a dollarized economy since 2000, reports concern about the meteoric rise of the dollar, as exports become more expensive, while imports, although they benefit from the appreciation of the currency, depend on purchasing power, in a country in recurrent economic crisis.

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Although in recent days a parity between the dollar and the euro was recorded in the international market, this Tuesday the euro soared after the publication of data on the US economy and rumors that the European Central Bank (ECB) will raise interest rates by half a percentage point on Thursday.

The dollar has been the standard of exchange in Ecuador for more than two decades, when it replaced the sucre and, although at first glance its appreciation would suggest a strength, the current circumstances make us fear the opposite.

Dollarization implied a lot of fiscal discipline, an economic opening through trade agreements and working hard on competitiveness, which has not been fully fulfilled”, said the president of the Ecuadorian Federation of Exports (Fedexpor), Felipe Ribadeneira.

“Very worried”

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If we had done our homework, right now we could take great advantage of the strengthening of the dollar, as the United States will surely do”, he indicated.

We are very concerned because we are experiencing moments that have not been seen in the last two decades”, with an appreciation of the dollar “as strong as the one that is happening”, he added, recalling that the United States and Europe are among Ecuador’s main markets.

The strengthening of the dollar implies that Ecuadorian exports lose competitiveness in the destination whose currency depreciates.

But not only does the Ecuadorian product become more expensive at the final destination, but it also becomes more expensive compared to the products of its competitors, given that these economies also find themselves with depreciated currencies against the dollar in the last month, says Fedexpor.

And although a strong dollar means that imports of inputs, raw materials and capital goods become less expensive, this drop in costs does not compensate for the loss of competitiveness of Ecuadorian products at destination.

Regarding imports in general, Ribadeneira believes that the problem is the level of currency in an economy in crisis like the Ecuadorian and “where investment has somehow been scared away” for the 18 days of indigenous protests against the cost of living, which left millions of economic losses.

Alternatives?

For Ribadeneira, Ecuador must seek alternatives for competitiveness and apply mechanisms contemplated in the legislation, such as the issuance of tax credit certificates for the sectors most affected by the rise in the dollar and by the protests such as floriculture, frozen fruits and vegetables, among others. .

Likewise, the president of Fedexpor advocated accelerating the commercial agenda, since “Ecuador is the only country on the Pacific coast that does not have preferential access to the North American market.“, he pointed.

It is necessary, he said, to improve internal competitiveness, avoid “cost overruns in unnecessary paperwork”, and do the export “easier and less expensive”, with agile and safe customs.

In his opinion, it is necessary to find mechanisms to access cheap sources of financing that allow the recovery of the productive capacity lost during the recent protests, which left six dead and which included roadblocks, damage to private property, effects on production and the trade.

If we had trade agreements with Central America, with the United States, and if we were much more competitive and did not have so much internal tax burden… right now we could get a great advantage”, he reiterated.

The appreciation of the dollartakes us at an inopportune moment, at the worst moment of the last three years and after having suffered” a social protest that affected the productive capacity, ended.

Source: Gestion

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