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Volume 63 / Social Sciences

ECONOMICS: ECUADOR

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

THE IMPLEMENTATION OF DOLLARIZATION IN 2000 continues to cast a long shadow over the Ecuadorian economy. Most recent work on the economy, however, has shifted its focus from an analysis of the crisis of the 1990s and the implementation of dollarization policy to efforts to understand the longer-term consequences of this policy for sustainable growth. Dollarization leaves the Ecuadorian economy more vulnerable to external shocks, and effectively removes monetary policy from the policymakers' toolkit. Fiscal policy, therefore, assumes much greater importance, both as the primary instrument of macroeconomic policy and as the means to reduce poverty and to achieve the Millennium Development Goals (see, for example, items #bi2007004020# and #bi2006000723#). On the one hand, high petroleum prices allow the government the resources with which to conduct an expansive fiscal policy; on the other hand, those high prices also reduce pressure on the government to address continuing structural problems.

From 2002 to 2006, the rate of growth of real GDP averaged approximately 5 percent per year. Inflation, which had persisted at a high level immediately following dollarization, had dropped to 3.3 percent by 2006 and was forecast to remain well below 4 percent through the end of the decade. Nevertheless, while macroeconomic performance improved, social indicators such as the national poverty rate, which had increased to 45 percent by 2001, remained stubbornly high. Dollarization also exposed the lack of competitiveness of many areas of the Ecuadorian economy (item #bi2006000724#), and highlighted the renewed importance of the country's agricultural sector. Dolarización, dinámica de exportaciones y equidad provides a valuable analysis of both of these issues (item #bi2006000722#). Remittances from Ecuadorians working outside the country have been an important source of foreign exchange earnings and have helped to offset the lack of jobs and income for many in the labor force. This important topic receives welcome attention in the study, La migración en el Ecuador: oportunidades y amenazas (item #bi2007004022#).

While most of the recent research on the Ecuadorian economy notes the loss of the country's ability to conduct independent monetary policy following dollarization, there is less mention of the diminished importance of the Central Bank as a source of economic analysis. This institution produces the country's national accounts, and it has been the source of a large share of published technical economic research (see HLAS 59, Ecuador: Economy, p. 270–271). Following dollarization, the Central Bank saw a number of its economists leave for positions elsewhere, and the resources available for high-quality research have diminished, both of which raise concern about the continued contributions of this institution.


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