“To put it in perhaps much more graphic terms, it seems to me that it is like a patient who used a hard drug for a while, look, the convertibilityand that you did not do so well, and that you found it difficult to overcome that drug, you are now thinking of moving on to an even harder drug, the dollarization”, exemplified the economist in this regard.
And, on the other hand, he pointed out that Ecuador has an economy that is “trapped by the rigidity of official dollarization that was adopted more than four decades ago”. He said that this process was carried out without any preparation and that, at that moment, society was convinced that there was no other way out and that “it was a mechanism to prevent hyperinflation”.
Dollarization in Ecuador: a case with many problems
Thus, Acosta warned that, today, he sees that the same message is being given to Argentine society, but he warned that what this step does is that the Argentine State loses monetary control and would pass to the control of another State.
“That is what happened with Ecuador when the sucre was lost as legal tender, and the external monetary state influence did not disappear, in this specific case, through the North American State”, he warned.
Consequently, he said that the Federal Reserve of the United States (Fed) will be the one that influences monetary management and exchange rate of a country that dollarizes and that is not even going to consult with the country, as happens with Ecuador: “You have never been asked whether or not a monetary policy measure is convenient in the USA”, he commented.
In the case of the Ecuadorian experienceAcosta mentioned that “there are people who defend it tooth and nail, it is the great objective of economic policy”, but he pointed out that, “if we do a more careful analysis, we will find a series of weaknesses and a series of extremely complicated problems”.
At first, it seemed good to dollarize
He recognized that, although, at its inception, the dollarization He did give a sense of stability, because the problem of devaluations no longer exists and that allows for a longer-term scenario, but he considered that “inflation that is managed around one digit cannot excite us in an exaggerated way, since Much of the time, Ecuadorian inflation has been above United States inflation, which has revalued the real exchange rate.
He warned, in this sense, that it is an issue that is already much more complicated and difficult because it is revaluing the real exchange rate and “our exports are getting more and more expensive.”
He also commented that dollarization has not been reflected in a substantial drop in interest rates. The lending rate is higher than the dollar yields prevailing in several neighboring countries that have not dollarized, for example, Colombia, Bolivia, Peru, and Costa Rica. “We have a very serious problem and an oligopolistic bank and dollarization did not serve to reduce interest rates as was offered at the beginning of the year 2000,” he said.
On the other hand, he mentioned that the replacement of the local currency by the US nor has it guaranteed fiscal balance, as was often offered. “On the contrary, exchange rigidity puts pressure on a growing external indebtedness and, thus, the Ecuadorian economy, especially during the Correa government, had a dizzying increase in its debt, trying to sustain the functioning of the economy and later with Moreno and with Lasso that pressure continues, now simply to pay the same external debt”, he described.
So, he assured that the reality is that The Ecuadorian economy depends on the existence of dollars and that it doesn’t work simply because it has exchange rate rigidity. “It is not recovered simply because of dollarization, but because of the income of dollars that come from abroad,” Acosta stated.
Migration, oil and drug trafficking, the feeders
He said that remittances from the migration, high oil prices, access to foreign credit and drug dollars they are supporting dollarization. And he pointed out that “this makes it evident, both convertibility and dollarization, that a state does not have the plasticity or flexibility to react to external shocks or to measures that simply have to do with a government’s strategy to promote a certain situation.” economy in your country.
And he exemplified the problem by saying that “it’s like remove the shock absorber from a car, to a vehicle, when one has a shock absorber in a vehicle and falls into a hole, into a hole, the shock absorber cushions and the same is the monetary policy: in moments of crisis it can intervene and that affects an economy via prices ”. Thus, he concluded that, when there is no buffer, the impact is much harder and that is reflected in economic terms via quantities: a greater impact on employment and a disappearance of companies.
“I am very concerned that in the midst of such a dynamic international economyso changeable, you opt for one exchange rate rigidity. Ecuador, which has been a product country, continues to be a product country, does not achieve any effective policy to industrialize the productive apparatus. and i’m afraid Argentina, with dollarization, will continue to be a product country and the doors for reindustrialization will be closed more and more of that country”, warned the economist.
and commented that Ecuador is the only economy in the region that has not yet reached pre-pandemic levels, among other things also due to exchange rate rigidity. “We had to face the serious crisis unleashed by the pandemic with an economic policy in which we did not have monetary and exchange rate tools that would have allowed us to alleviate the impacts of this reality,” he assured.
Why is dollarization popular?
Finally, he said that what makes the dollarization is the price stability. “So, we have the middle sectors, for example, who can access more consumer goods, even trips with very low contribution rates for each purchase they make. Now, for the popular sectors, it also has that advantage. The serious thing, the tremendously serious thing, is that many times this type of purchase through credits is not really reflected in a logic that understands that the prices they are paying are excessively high”, he detailed.
Source: Ambito
