Ecuador: Dollar Spoken Here Sort Of
Mariana Simba is leery of the greenback. "I know that George Washington's portrait is on the one-dollar bill, but that's about all," says the 38-year-old owner of a candy store in Quito. She confesses that she probably wouldn't be able to tell a fake from the real thing. "I still prefer to receive sucres, just to be on the safe side," she says.
Simba is not alone. Although the U.S. dollar became Ecuador's official currency on Apr. 1, most Ecuadorans are finding it hard to make the transition. Of course, street-corner money changers in Quito can tell a Washington from a Jackson. But Ecuador is largely rural and poor, and its people have little exposure to international currencies. A recent straw poll showed that only 19% of the population had ever handled the green stuff, and only 4% would be able to spot a counterfeit bill. That lack of experience could be dangerous. Although the Ecuadoran government figures that dollarization can save the economy, it could end up triggering more waves of unrest.
To acquaint the public with the greenback, Ecuador's central bank on Apr. 10 kicked off a six-month education campaign, complete with posters, leaflets, and TV broadcasts in both Spanish and Quechua, the mother tongue of 25% of the population.
Former President Jamil Mahuad seized on dollarization in January as a way to salvage a sinking economy and his own popularity. Instead, it helped to precipitate an army-backed coup. But Mahuad's successor, Gustavo Noboa, has pressed ahead with the plan, which requires the central bank to remove all sucres from circulation over a 12-month period and replace them with dollars at a rate of 25,000 to one. Policymakers figure that trading in a crumbling currency for a solid one will help bring down interest rates and inflation, now running at an annualized 80%. That could lift economic growth to 1% this year, after a painful 7.3% contraction in 1999.
Yet according to the latest polls, only 38% of Ecuadorans believe that better times lie ahead. Large and midsize companies are already dollarizing their accounts, while training their personnel to distinguish real dollars from fakes. But small businesses, such as Simba's shop, are still struggling to make heads or tails of the new money. They're just getting to know dollar bills, and soon they'll have to start dealing with coins, too. A $10 million coin shipment recently arrived in Quito from the U.S.
Such confusion could provide fertile ground for the counterfeit trade. "We haven't seen that many false dollar bills so far, but when the economy is completely dollarized there will be more of a problem, I'm sure," says Jaime Sanchez, manager of a Supermaxi supermarket in Quito, where prices now are displayed in both dollars and sucres. The chain is planning to invest in ultraviolet authentication systems, which retail for about $50 each.
SWEEPING REFORMS. With prices of all goods, domestic and imported, still rising, Ecuadorans are already starting to sour on dollarization. Those feelings could intensify on July 1 when a year-long freeze on fuel prices expires. Indeed, if the issue is not handled delicately, there could be a repeat of the paralyzing protests that followed fuel-price hikes last year, or worse yet, another popular uprising. "Every time the government takes measures, our income is reduced," complains Francisco Rangel, a 33-year-old taxi driver who supports his family on $150 a month.
It's up to Noboa to win over the skeptics--in particular, the indigenous groups who played a leading role in Mahuad's ouster. To his credit, the 62-year-old former vice-president has managed to push a package of sweeping economic reforms through a recalcitrant congress. Now it looks as if Ecuador may finally clinch a long-awaited deal with the International Monetary Fund, which will release $2 billion in multilateral aid over the next three years. That in turn might restart negotiations with foreign creditors to reduce the country's crushing debt.
There is a good chance dollarization could help Ecuador recover from its worst economic crisis ever. But it could also become the glue that binds together a fractious political opposition. "Dollarization is the common enemy for many sectors," says anthropologist Diego Iturralde. In this scenario, though, getting rid of another President wouldn't do Ecuador much good. It would just be passing the buck.
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