Sunday, March 1, 2009

Ecuador and the Dollar

As the Tsunami of world economic collapse moves steadily toward Ecuador, the government appears about to abandon the dollar.

Here's an article from Bloomberg:

By Lester Pimentel

Feb. 27 (Bloomberg) -- Ecuador is increasingly likely to drop the U.S. dollar as its currency this year after the government’s debt default, according to Bulltick Securities Inc.

The likelihood of Ecuador abandoning the dollar has risen to more than 70 percent from less than 10 to 20 percent a year ago, Alberto Bernal, head of fixed-income research at Bulltick Securities in Miami, said in a report.

President Rafael Correa’s decision to default on international bonds in December and a plunge in crude oil, Ecuador’s biggest export, have spurred capital flight, Bernal said. Ecuador adopted the dollar in 2000 to help curb inflation after the sucre tumbled 73 percent against the dollar and the government defaulted on $6.5 billion of foreign debt.

“The bottom line here is that if Ecuador is forced to leave dollarization at some point in the next few months, the likely collapse on economic activity in the country could become very significant,” Bernal said. “We continue to think that the days of the dollar in Ecuador are numbered.”

Read the rest here.