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Paradise it certainly ain't. Last year, inflation was 22.5 percent. Minimum wage is only $117.64 a month. Few families earn enough to cover the basic basket of goods for a family of four, estimated by the state at $310 a month.
But just two years after Ecuador abruptly dollarized the economy to halt creeping hyperinflation and devalued the local currency, unemployment is falling, foreign investment is rising and inflation is slowing to what the government hopes will be a single-digit figure in 2002.
If Ecuador grows the 5.5 percent forecast by the government this year-which might be the highest growth rate in Latin America in 2002-it will put the economy back where it was in 1998, before El Niņo storms ravaged crops and a crisis ripped through the banking system in 1998 and 1999. This was also the year Ecuador defaulted on its foreign debt and, a few months later, it toppled its president in an Indian uprising-turned-military coup.
The comparison with Argentina is inescapable. The main difference is that while Argentina delayed its economic woes and its recent default on its debt by appealing to international financing, Ecuador has lacked access to credit markets since defaulting on its foreign debt in 1999. Billions of dollars of international bailout funds have not been enough to keep Argentina's economy, the second-largest in South America, from eventually defaulting on its bonds.
Ecuador's surprise move to replace the sucre with the dollar was a little like pulling a rabbit out of a hat. Wracked by a vicious cycle of inflation, unemployment and political gridlock, economic prospects were spiraling downward. Convinced that only the confidence inspired by the dollar could break the cycle, almost single-handedly Joyce de Ginatta, a young grandmother of 12, a successful entrepreneur who is now known in Ecuador as the "mother of dollarization", from outside the government persuaded the nation that making the dollar the country's legal tender was the only way out of its predicament.
Her view, now shared by a growing number on Wall Street, is that Argentina band of world-renowned economists, led by Economy Minister Domingo Cavallo, flirted with dollarization but never went all the way to discard the country's peso and the presses that print it. Argentina remained wedded to Cavallo's "convertibility, which pegged each Argentine peso to one U.S. dollar.
But because Argentines still had pesos in their pockets, they were not convinced the dollar peg would last forever. In time of economic uncertainty, many rushed to banks to pull out their savings-as has happened now. Their mattress stuffing of choice, however, isn't the peso; it's the dollar. Convertibility means that Argentina's central bank has to provide local banks with enough dollars to cover all those withdrawals, quickly eroding the stash of dollars the government needs to back its currency.
Right now, Argentina is going through the worst economic crisis ever in almost two centuries as an independent nation, with five presidents in 13 days as a testimony to the political upheaval it has caused, and having defaulted on its debt it is struggling to get the International Monetary Fund to disburse the $1.3 billion lifeline which it cut off last month after Argentina failed to meet budget targets. Meanwhile, the IMF recently approved disbursement of $95 million to Ecuador, the final installment of a $300 million stand-by credit agreement signed with the Andean nation in April 2000, three weeks after it dollarized its economy.
In announcing the disbursement, the IMF hailed Ecuador for complying with terms of the economic program, including implementation of reforms to strengthen its banking sector.
"Although much remains to be done to secure the gains achieved this year [2001], the authorities are to be commended for having implemented a number of bold measures in very difficult circumstances," IMF Acting Chairman Eduardo Aninat said in a statement.
Aninat noted that Ecuador's economic situation stabilized over the course of the year; its fiscal position has strengthened and that pressures on most private banks eased.
This is the first time Ecuador has completed an IMF stand-by arrangement since 1986, having failed to complete five agreements in the last 15 years, according to IMF statistics.
"Steps taken recently to strengthen banks have had a stabilizing effect," Aninat said. "It is important that the authorities maintain this momentum by moving forward rapidly with additional measures that strengthen prudential and supervisory regulations."
Certainly, it is no time for Ecuador to rest on its laurels. It needs to quickly learn from Argentina's mistakes and control fiscal spending if it is to avoid a cash crunch and crisis like that plaguing Latin America's No. 3 economy.
The Andean country, which plans for oil exports to generate around 20 percent of its 2002 budget and is now barred from international capital markets, must curb public spending and push private sector competitiveness if it wants to sustain exports and avoid plunging into an Argentina-like recession.
Ecuador's government budget for 2002 forecasts an average price for oil-the country's biggest export-at $19 per barrel, while analysts expect the price to reach as low as $17 per barrel. According to private estimates, each dollar drop in the average crude oil price could mean a loss of $65 million in fiscal revenue, which could catapult the country into a crisis even more quickly than in Argentina, should Quito's government fail to control fiscal accounts.
If Ecuador fails to keep a lid on public spending, it could suffer an economic crisis similar to the one that exploded into violent protests in the last weeks in Argentina, that caused a deep political crisis and led to the suspension of payments on its $132 billion foreign debt.
Claudio Campuzano (claudio-campuzano@hotmail.com) is U.S, correspondent for the Latin American newsweekly Tiempos del Mundo and editorial page editor of the New York daily Noticias del Mundo. He writes weekly for World Tribune.com