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Tuesday, 11 January, 2000, 11:32 GMT
Bank approves Ecuador dollar plan

The crisis sparked rumours of a military coup

The government of Ecuador has got official backing for its plan to introduce the US dollar as the country's currency in an effort to end the economic chaos.

The board of the Central Bank approved the plan late on Monday. The International Monetary Fund had earlier said it would help set up the plan.

Mr Mahuad will present his bill later this week

The board was under threat of dismissal if it opposed dollarisation and board president, Pablo Better, resigned before the unanimous vote was taken.

But President Jamil Mahuad is facing nationwide protests and strikes demanding his resignation.

The sucre lost 67% of its value in 1999 and 17% in the first week of 2000. President Mahuad plans to peg the currency at the rate of 25,000 sucre per dollar.

The medicine is worse than the illness
Union leader Augusto Aguirre
Production Minister Juan Falconi has explained how the plan would work: Sucres currently in circulation would be gradually bought back over the next year, leaving only small denomination coins.

Meanwhile Finance Minister Alfredo Arizaga said there would be "no problem" swapping currency as there were $400m worth of sucres in circulation while the country held $900 in foreign currency reserves.

President Mahuad was reported to have spent Monday ironing out the dollarisation bill which would be sent to Congress later in the week.

Strikes and protests

President Mahuad
50 year-old lawyer and former Quito mayor
Centre-right Popular Democratic party leader
Presidential term August 1998 to January 2003
Born in Ecuador and educated at Harvard
Family emigrated from Lebanon
Ecuadoreans took to the streets last week to demand a new government and drastic action to remedy the economic crisis.

Mr Mahuad replied by declaring a state of national emergency, calling the army onto the streets, and obtaining the resignation of his entire cabinet to allow him greater freedom to push through economic measures.

Trade unions, oil workers and indigenous groups have planned a further series of nationwide strikes calling for the president's resignation.

Thousands of members of the Guayas Transport Workers Federation blocked streets in the second city of Guayaguil in protest at high inflation and unemployment.

Children wait outside a Quito foreign currency exchange

Union leader Augusto Aguirre said of dollarisation that "the medicine is worse than the illness".

Oil workers have declared an indefinite strike from 17 January, while the president of the Confederation of Indigenous Nationalities, Antonio Vargas, threatened to "paralyse all of Ecuador".

Hit by crises

Many analysts are lukewarm about the possibility of dollarisation curing the country's economic troubles.

Ecuador was one of the hardest hit in Latin America by the Asian crisis, which began in May 1997, and economic problems were compounded by El Nino storms in 1998.

Weak prices for oil and bananas, two of its principal exports, exacerbated the situation.

Last year, gross domestic product is thought to have contracted 7% - the worst performance since central bank records began in 1927. Inflation reached 60.7%.

Other Latin American countries have found dollarisation provided stability but has been costly in terms of growth and jobs.

A private poll taken on Monday showed an increase in the president's popularity - to 22% from a low in December of 9%. The poll also indicated that a sizeable majority of Ecuadoreans supported the dollarisation plan

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See also:
10 Jan 00 |  Business
Ecuador adopts the dollar
10 Jan 00 |  Americas
Ecuadorean cabinet out
01 Sep 99 |  The Economy
Ecuador default triggers change
24 Sep 99 |  The Economy
The IMF vs. the private sector
25 Aug 99 |  The Economy
Why we should worry about oil
29 Oct 99 |  The Economy
Ecuador threatens EU banana sanctions

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