Ecuadorean President Rafael Correa said his country committed “monetary suicide” when it decided to adopt the U.S. dollar in 2000, but that giving it up now would “cause an economic, social and political chaos.”
“Very few countries in the world have committed a monetary suicide like Ecuador, adopting a foreign currency that behaves exactly in the opposite way we want it to,” Correa said during a press conference in the presidential palace. “But this is how absurd our elites' irresponsible (decisions) have harmed so much of the country.”
“Colombia devalued, Peru devalued, but we could not respond anything,” Correa continued. Latin American countries have been going through a economic crisis in recent years as the market value of commodities crashed, with many—but not Ecuador—revaluing their currency to adjust.
According to Correa, an economist first elected in 2007, Ecuador lost about US$7.4 billion in export revenue in 2015 alone—corresponding to 7.4 percent of the country's gross domestic product—because of its dollarized economy, in addition with US$2 billion lost in 2016 first semester.
Ecuador adopted the U.S. dollar after a severe financial crisis, giving up its own currency in the wake of hyperinflation.
Nevertheless, giving up the U.S. currency now would have dramatic consequences, Correa said. “We can't do anything but maintain the dollarization, being very aware of the restrictions: it's like fighting in the ring of globalization with a straitjacket.”
“It would be much easier to be able to devalue a little the currency in order to foment exports, limit imports and correct the external imbalance,” he added. “Provinces at the borders have lost a lot of economic dynamism because we could not respond and address the imbalances in the external sector, like the drop in oil prices. We have had to constantly juggle.”
For instance, the Colombian peso has declined in value by more than 60 percent in the past year, hurting the economies of Ecuador's northern provinces, which rely heavily on cross-border commerce with its neighbor.
The collapse in world oil prices and the steady rise in the value of the dollar has placed the Ecuadorean economy under strain, as the market exchange rate for the country’s exports are contingent upon the performance of the dollar.
Ecuador abandoned its former national currency, the sucre, and adopted the dollar in the wake of the country’s 1999 financial crisis, which forced Ecuador to forfeit its ability to manage the exchange rates and its control over monetary policy.
Nearly 15 years later, the move remains popular, with 85 percent of Ecuadoreans supporting the continued dollarization of the economy.