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Volume 61 / Social Sciences

ECONOMICS: ECUADOR


DAVID W. SCHODT, Professor of Economics, St. Olaf College


THREE TYPES OF ORGANIZATIONS—universities, private research institutes, and the public sector—account for most of the economic research and publication in Ecuador. This chapter includes notable works from all three sectors. As a result of Ecuador's sagging economy in the late 1990s, funding for economic research and publication has decreased, thus severely limiting both the quantity and quality of publications on the economy. Illustrating the effect of the country's deteriorating economic performance, public expenditures on higher education fell from a high of 1.3 percent of GDP in 1982 to 0.2 percent in 1992.

THE SINGLE MOST SALIENT ECONOMIC EVENT in Ecuador in recent years was President Jamil Mahuad's decision in January 2000 to adopt the US dollar as the country's official currency. As with many countries throughout Latin America, the US dollar had been widely used as a parallel currency to the national currency, the sucre. Indeed, estimates suggest that by March 2000, slightly more than 90 percent of all bank loans were in US dollars. The decision to dollarize officially, however, effectively replaced the sucre with the dollar, a policy decision that heretofore had only been done in Panama at its independence in 1904.

Ecuador's decision to dollarize was undertaken, in part, in response to a growing economic crisis, one for which Nader Nazmi provides a nice overview in his article, "Failed Reforms and Economic Collapse in Ecuador" (item #bi2005000134#). In late 1999, the inflation rate had increased to approximately 30 percent per month, causing justifiable concern that this rate would escalate into hyperinflation. The exchange rate appeared to be in free fall, having lost 25 percent of its US dollar value in the first week of January 2000 alone. Nevertheless, the adoption of the dollar was as much an institutional crisis as it was an economic one. While not focusing specifically on economic issues, Allen Gerlach's book Indians, Oil, and Politics provides good institutional detail important for understanding the political aspect of the move to dollarization (item #bi2003002553#).

Most published research on dollarization generally has been either journalistic in approach, or highly technical and narrowly focused. Of those books and articles annotated in this chapter, the most useful approach combining both institutional and economic analysis is Beckerman and Solimano's book Crisis and Dollarization in Ecuador (item #bi2005000132#). Marco Naranjo's "La dolarización de la economía del Ecuador: tres años después" provides a useful analysis of dollarization from the perspective of a Central Bank economist (item #bi2005000139#). Nonetheless, this topic is rich ground for more research and deserves further exploration.


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