No ghosts: what sets off in Ecuador is dollarization

The causes that he used are the need to contain an unsustainable budget deficit for a country without its own currency and therefore unable to finance this amount with emissions, an increase at an unsustainable rate of 10% of the rate of interest. interest that the markets lend to it. countries and insufficient oil prices for foreign trade to be in surplus. And if, beyond, the problem was the dollarization of the economy, which is fixed almost all sectors of society, as was the case in Argentina until 2001?

Jaime Gallegos, PhD in Economics, Professor and University Researcher and member of the Heterodoxa Forum on the Alternative Economy, told Ámbito Financiero (Ecuador) that "since the country was dollarized in 2000, the dollar has been devalued ( in the world) until 2014 and in parallel. the price of oil rose, which was a very favorable international scenario. Today, we observe the opposite effect: the revaluation of the currency and the fall in the price of crude oil, with which the dollarization does not go with the destiny of yesteryear ".

"The situation is aggravated by the net flight of private capital of almost 20% of GDP per year," he said.

The specialist refuted the official speech and explained that "the debt is not a big problem, because it reaches 55% of the GDP. The budget deficit results from the fact that the current government has allocated $ 4.5 billion to the most powerful economic groups. "

"The agreement with the IMF aims to privatize state-owned companies, which are very lucrative," added Mr. Gallegos, for whom "a tax adjustment can be made without eliminating subsidies; it would be enough to charge what should be " in tax matters he has completed.

The economic crisis before dollarization, accompanied by galloping inflation, was parallel to politics, which left a shocking succession of seven presidents among the eccentric Abdullah Bucaram – who ruled only six months between August 1996 and February 1997 – and Correa, who assumed office in 2007. In the middle, Jamil Mahuad ruled only between August 1998 and August January 2000, although he had ample time to fully dollarize the economy. With the technical support of men linked to the former Argentine Minister Domingo Cavallo and, of course, the United States.

As the economist Gallegos said, oil, the main export product, rose from just over $ 10 a barrel in 1998 to over $ 100 between 2012 and 2014 This has helped to increase domestic revenues and give Correa the opportunity to distribute the large income, which in turn has generated a series of responsibilities for the state that he had never previously assumed on the side. expenses, which went from 25% to around 45% of the Product.

The evolution of international conditions, including the price of oil, has left a significant fiscal imbalance to Ecuador, the difficulty of continuing to finance it through debt and an unsatisfactory trade balance have been mastered .

Today, when the dollar is revalued against the euro and the currencies of the countries in the region with which Ecuador maintains intense trade relations, such as Peru and Colombia, the situation becomes difficult to maintain, as Where the restoration of the lost competitiveness of the nominal wage reduction, the elimination of subsidies on which depends the fact that poverty is not triggered at the old levels and the labor reform projects to reduce the costs of workforce.

For Jaime GallegosOn the other hand, the exit goes through "the revision of the monetary scheme, the introduction of an alternative currency, the increase of the tax on capital outflows and the rising prices of imports of luxury. Otherwise, the diet falls completely, "he said. Financial field.

What we see today is the result of a well-known history of Argentina since 2001, when the adventure lasted less than half of what lasted in Ecuador. Perhaps it is not necessary to think of large plots to explain that the street explodes as seen in these unhappy days.