Dollarization
causes and consequences www.fiepymes.com www.joyceginatta.com www.dolarizacionecuador.com
Joyce H. de Ginatta Madrid – Spain, May 2011
CHANGE CRONOLOGY JANUARY 1996
SEPTEMBER 1998
FEDERACION INTERAMERICANA EMPRESARIAL - FIE
FIRST MACROECONOMIC PLAN IS PRESENTED DOLLARIZATION IS PROPOSED AS A METHOD TO ELIMINATE DISCRETION IN MONETARY POLICIES, WHICH HAD IMPOVERISH 2 THE COUNTRY.
FEDERACION INTERAMERICANA EMPRESARIAL - FIE
CHANGE CRONOLOGY March 8, 1999: The Ecuadorian goverment announces a bank holiday of 48 hours, which was extended indefinitely, freezing bank deposits April 6,1999: A press conference is given by the Production Chamber’s executives in order to present the new change proposal.
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
CHANGE CRONOLOGY April
8, 1999: MARCHA
DEL
CRESPÓN NEGRO, and the Governor’s Guillermo Lasso formal presentation of a proposal of an AGENDA FOR THE DEEP MEANINGFULL IMMEDIATE CHANGE THAT THE COUNTRY REQUIRES.
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
CHANGE CRONOLOGY
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CHANGE CRONOLOGY
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
CHANGE CRONOLOGY JUNE 28, 1999
BY THIS TIME, THE SUCRE HAD LOST A LOT OF VALUE AND THE ECONOMIC SITUATION WAS GETTING WORSE. HYPERINFLATION WAS NEAR
I PRESENT THE GOVERNMENT AND THE COUNTRY AN ECONOMIC PLAN THAT INCLUDES A SET OF PUBLIC POLICIES THAT WOULD DRIVE ECUADOR TO BECOME A FIRST WORLD COUNTRY IN A FEW YEARS. 7
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THE LOST DECADES: CURRENCY EXCHANGE RATE (sucres in dollars)
CURRENCY EXCHANGE RATE
1980
1990
SEP 1999
JAN 2000
27,41
821,14
12.004
25.000
Fuente: Banco Central del Ecuador (BCE). Elaboraci贸n: Federaci贸n Interamericana Empresarial (FIE)
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VICIOUS CIRCLE: CLOSE TO HYPERINFLATION
On March 8, 1999 The Government decided to freeze bank deposits, 70% of the Ecuadorians resources were frozen. Nov-Dec 1999, the monetary base increased approximately 40%, most of it was currency in circulation. during the five first days of January 2000, the Central Bank devalued the sucre a 25.89% In just one year, most of the liquid value of ecuadorians patrimony was "stolen." 10
Inflation in Sucres increased dramatically Inflación Anual 120,0 En diciembre de 1999 la inflación superó el 60% y en julio de 2000 superó el 100%.
100,0 80,0
%
60,0 40,0 20,0
Fuente: Banco Central del Ecuador (BCE). Elaboración: Federación Interamericana Empresarial (FIE)
Jul-00
May-00
Mar-00
Ene-00
Nov-99
Sep-99
Jul-99
May-99
Mar-99
Ene-99
Nov-98
Sep-98
Jul-98
May-98
Mar-98
Ene-98
0,0
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Dollarization was Ecuadorians choice
Money have three main functions: means of exchange, a unit of measurement, and value reserve. Sucre did not fulfilled the functions of money. Economic agents started demanding a save currency (DOLLAR) and avoid bad money (Sucre).
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Dollarization was Ecuadorians choice
Salary of a secretary before dollarization: 1997: $3.542.400 sucres = US$800 DEC 1999: $4.000.000 sucres = US$160 13
January 9, 2000: dollarization is official to the Ecuadorian economy 14
DOLLARIZATION: A SHIELD FOR THE POLITICAL CRISIS Presidents have been removed, The Supreme Justice Court has been avoided, and there have been many other political crises in Ecuador, but the economy kept moving forward because of the security dollarization provided. * Portada de revista MiPYMES, Marzo – Abril 2005.
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
DOLLARIZATION HAS PROVIDED PRICE STABILITY
DOLLARITAZION HELPED THE COUNTRY TO KEEP THE LOWEST RATES OF INFLATION OF ITS HISTORY
INFLATION
DEC/99
MAR/05
AUG/06
APR/11
60,7 %
1,6 %
3,36%
3,88%
Fuente: Instituto Nacional de Estadísticas y Censos (INEC).
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
OPPOSITORS ALLEGED THAT DOLLARIZATION WOULD PREJUDICE THE LOWER CLASSES !FALSE! яБо
DOLLARIZATION HAS RETURN THE PURCHASING POWER TO THE LOWEST SALARIES.
(US$) INCOME PER PERSON*
2000
2007
2010
US$53,5
US$198,2
US$279,9
* MINIMUM WAGE+ COMPLEMENTARY PAYMENTS .
Fuente: Banco Central del Ecuador (BCE).
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
OPPOSITORS ALLEGED THAT DOLLARIZATION WOULD RISE UNEMPLOYMENT !FALSE!
DOLLARIZATION IS ONE OF THE BASES FOR CREATE PRODUCTIVE EMPLOYEMENT.
UNEMPLOYEMENT
JAN. 2000
AUG 2007
MAR 2011
17%
9,8%
7,0%
Fuente: Instituto Nacional de Estadísticas y Censos (INEC)
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
OPPOSITORS ALLEGED THAT DOLLARIZATION WOULD LIMIT ECONOMIC GROWTH : !FALSE! (Mill US$) PIB
(Var %) PIB
1999
2003
2010
16.674
28.636
57.978
1999
2003
2010
-6,3%
3,58%
3,58%
Fuente: Banco Central del Ecuador (BCE).
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
OPPOSITORS ALLEGED THAT DOLLARIZATION WOULD END EXPORTS: !FALSO! Exports by group of products Million dollars FOB TOTAL Exports
Total Oil
Total no Oil
Total Traditional
Total No Traditional
2003
4.451 6.223
1.480 2.607
2.971 3.616
1.156 1.737
1.815 1.879
2010
17.490
9.673
7.817
3.706
4.111
1999
Total Exports (Mill US$)
Sucre devaluation
1990 - 1999
38.757
97%
2000 - 2009
98.447
0%
Fuente: Banco Central del Ecuador (BCE).
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
OPPOSITORS ALLEGED THAT WITH DOLLARIZATION INTEREST RATES WILL NOT FALL : !FALSE! яБо
DOLLARIZATION HAS LOWER THE INTEREST RATES DEC 1999
INTEREST
69,94%
Fuente: Banco Central del Ecuador (BCE).
AUG 2006 MAY 2011 8,50%
8,34%
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
DOLLARIZATIONS HAS STRENGTHENED THE FINANCIAL SYSTEM яБо
PRIVATE BANK DEPOSIST HAVE INCREASED, AS WELL AS CREDITS
(Mill US$)
DEC 1999
DEC 2006
APR 2011
DEPOSITS
US$2.847
US$8.756
US$16.631
Fuente: BCE.
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FEDERACION INTERAMERICANA EMPRESARIAL - FIE
DOLLARIZATION WILL IMPOVERISH PEOPLE !FALSE! яБо
HOUSEHOLD INTAKES HAVE INCREASED.
(Mill US$)
INTAKES
Fuente: BCE.
2000 US$10.357
2006
2010
US$26.805 US$39.281
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DOLLARIZATION Benefits: Monetary Stability Lower inflation rates Lower interest rates Removal of currency exchange risk (no risk of devaluation) Elimination of discretionary monetary policy
Threats
Loss of inflation tax Monetary policy elimination (e.g. unable to devaluate for “promoting” exports) No las chance 24 lender.
CONCLUSIONS:
Dollarization is only a monetary regimen that solves the inflationary issue. Dollarization is not enough to achieve sustainable economic growth It is necessary to restraint the fiscal policy. Institutional reforms are basic for opening new markets and eliminate of monopolies 25
CURRENT PROBLEMS: PUBLIC EXPENDITURE YEAR
Total Public Expenditure Millios US$
2000 2001 2007 2008
3.889 4.947 12.554 22.094
2010
22.000 23.950
2011 Fuente: OPF
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SOLUTIONS: яБо FIRST -
WORLD TOOLS
INVESTMENT ATTRACTION - LEGAL SECURITY - COMPETITIVENESS - RED TAPE ELIMINATION
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SOLUTIONS: яБо FIRST -
WORLD TOOLS
FISCAL AND FINANCIAL SECTOR - STATE BUDGET - TAX SYSTEM - INTERNAL AND EXTERNAL DEBT - FRESH CAPITAL
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SOLUTIONS: ELIMINATION
MONOPOLIES -
OF
OIL SECTOR ELECTRICITY SECTOR TELECOMMUNICATIONS SECTOR
FREE
TRADE
- TLC s. 29
CHILE: 10 DEVELOPMENT VIRTUES 1. COUNTRY OPEN TO THE WORLD 2. WORKING INSTITUTIONS 3. PRESIDENTIAL CONSTITUTION 4. HIGH SOCIAL-ECONOMICAL CLASS CARES FOR THE FUTURE OF THE COUNTRY (THE MOST IMPORTANT) 5. COMMON COUNTRY PROYECT. STATE POLICIES. 6. EVERYONE CLEARLY UNDERSTANDS THE IMPORTANCE OF ECONOMIC GROWTH 30
CHILE: 10 DEVELOPMENT VIRTUES 7. NO CHANCE FOR POPULISM, DEMAGOGY OR TERRORISM.
8. SMALL, MODERN AND EFFICIENT STATE 9. PUBLIC - PRIVATE PARTNERSHIP
10. POLITICIANS ALLOW THE PRIVATE SECTOR TO WORK
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“MEN WHO ARE INDIFFERENT TO THE UNFORTUNATE OF THE NATION, EVEN THOUGH THEY ARE PRIVATELYLABORIOUS, ARE UNCONSCIOUS ASSISTANTS OF CALAMITY AND CORRUPTION OF THE PEOPLE
Eloy Alfaro President of Ecuador Addressed to the Nation in 1895 32
Thank You
www.fiepymes.com www.joyceginatta.com www.dolarizacionecuador.com
Joyce H. de Ginatta Madrid – España, Mayo de 2011