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Effects of Dollarization in Ecuador

Eight years have approved since Ecuador left out its national money to take over a foreign one; an effort to solve the worst economic crisis that the country had ever experienced. Since January 11th 2000, the "Sucre" was substituted with the U. S. dollars as Ecuador's national money. But why would a country jeopardized the increased loss of its own monetary independence? Some economic experts have much to state about the subject, and have merged views about the results that dollarization have had in the united states.

Like many other countries in Latin America, Ecuador's fresh products and exportations are fundamental for the health of the country's market. Ecuador's main raw materials and exports include: bananas, cacao, espresso, shrimp, blooms and petrol (learned in the 1970s). The 1998-1999 economic crisis had a tremendous effect on the country's economy. It acquired two primary factors: low prices in the essential oil market and El Ni±o weather occurrence that severely ruined the majority of the country's agriculture and development of export materials.

As an outcome, Ecuador's economy fell into hyperinflation, leading to the country's currency to well worth even less on earth market. Many people rushed to finance institutions to be able to bare out their accounts and exchange them for a safer money. (At that time 1$ U. S. = 25. 000 Sucres). The economical problems grew when banking companies began to travel bankrupt because of the sum of money that people from coast to coast were withdrawing. The federal government, led by previous Leader Jamil Mahuad launched numerous activities in attempts to save the economy. The federal government overran the bankers and froze accounts; so that it is impossible for people to withdraw their own money.

In a final attempt to save the current economic climate, the Mahuad supervision proposed officially swapping the country's money with the U. S. buck. This decision had not been supported by the majority of individuals in the united states. It led to a big amount of protests throughout the entire country. In the end, the chief executive was forced out of office ten times after proposal of changing the nationwide currency. The Vice-President Gustavo Noboa took over the presidency, but he backed Mahuad's decision to change the national currency.

Present-day no Ecuadorian chief executive has been able to complete a complete 4-year term in office. Current Chief executive Rafael Correa has confirmed that he will maintain dollarization in the country. It is because Ecuador's new constitution grants the Presidnet increasing absolute powers. Leader Correa has mentioned that ending dollarization at this point will have chaotic results in the country's recovering overall economy, but seeks to move back to a national currency.

Pablo Lucio Paredes, an monetary analyst, will abide by the theory that dollarization has aided the restoration of Ecuador's economy. ""The bank was shut down and was a rsulting consequence the '99 crisis. Without a doubt, dollarization restrained the deterioration of the self-confidence in the machine, and the considerable recovery of the bankers has been an important element in the stabilization of the overall economy. " Paredes identifies the crisis in 1999 that resulted in several banks getting into individual bankruptcy. Since dollarization came to the united states, people and businesses started reinvesting in banking institutions, which helped to restore steadiness to the current economic climate.

There are other analysts who carry oppositions to Paredes. Analyst Eduardo Valencia, Director, Institute of Economic Investment, Catholic University of Ecuador retains a nationalist approach to the subject of dollarization. He thinks that the nation's stability in the money caused the crisis to begin with. The key to repairing the country's economy is based on its production and exports. "In a very globalized world, it is important to gather the main contributions of the economists of most history. And most of them have said that production should be produced stronger. We should return to a model where development profits to be the protagonist. That's obtained by radically changing the development modelFirst, time for an own currency, and, second, recovering the importance of the Central Loan provider. Printing a currency with one-to-one parity. "

In my opinion, Pablo Paredes' id of dollarization as the lead factor in stabilizing Ecuador's market is most suitable. The dollar offered a new route to the country; it switched the country's financial emphasis from depending in its recycleables and exports, to an economy where the spending power of Ecuadorians was transferred to imported goods and services. Even corporations and businesses were more prepared to invest in Ecuador following its utilization of U. S. us dollars; they created more jobs and enticed emigration from neighboring countries.

I feel as if Eduardo Valencia's ideology of returning to a national currency, distinct from dollarization, would be devastating. If Ecuador returns to its dependence of raw materials and exports, it could become susceptible again to all or any the factors that launched the country into the turmoil of 1999.

It is true that by the country going this changeover, there will be some of business that wont benefit and will oppose dollarization. The agricultural sector and small sectors are unable compete on the market, since they made their revenue in exporting the recycleables to under countries. "In only 3 years, the contribution of the agricultural, cattle, forestry and sportfishing sectors of interior production dropped from 10. 6 percent to 8. 8 percent. "

Based on the ideas devote this newspaper, it is clear that dollarization Ecuador has had diverse effects in several parts of Ecuador economy. It includes strengthened the country's business and greatly stabilized a hyper inflating market. The cost of doing so, it decreased the development of the producing sector and transitioning the emphasis of exports and recycleables directed economy to one where the investment of companies and large business leads the united states to an market that depends on imports; which results in only few people profiting from the change, while some continue to have the same problems as before the dollarization came along.

Ecuador's dollarization is just another example how globalization has damaged the 21th century. When a country's own currency is becoming overwhelmingly inflated scheduled to problems with its current economic climate, a radical solution is always to switch to a foreign currency that has more value on the planet market at the time. Showing that the whole is interconnected whatever currency a region uses. Furthermore the fact that eight years have passed since dollarization became legalized in Ecuador and the united states economy has only recovered a small ratio, it is confirmation that there is no fast solution for a overall economy that has being having problems throughout the years. I think that long term solution must be created to improve the country's economy, which plan must be along with the creation of more energetic markets between the importers and exporters sectors of the united states and an insurance of political stability in the country.

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