Tue Jan 18 02:04:07 PST 2000

>>a mad dollarisation plan

>So what are your objections to dollarization?


Mainly in the nature of "it's mad". It's a modern version of the Gold Standard, with all that implies. It will help to destroy what's left of the domestic banking system, as the domestic non-oil sector hasn't a hope in hell of getting enough hard currency to pay its debts. It will expose Ecuador to an excessive degree of monetary austerity -- they need to do something about 65% inflation, but this is a sledgehammer to crack a nut. And it sets in store problems for the future when the economy is stabilised, as these arrangements are a kind of Faustian bargain -- Ecuador can hardly de-dollarise when it's out of trouble.

Meanwhile, the dollarised economy gives any investors dozy enough to still have portfolio capital in Ecuador a free windfall, while maintaining open capital markets which aren't generating inflows. Even the IMF aren't recommending this one. (Although their regional director is now basically sanguine about it, so long as he gets his beloved fiscal program). It seems to be the result of an Argentine thinktank called Fundacion Mediterranea -- anyone know the form? I have a bit of knowledge of the Argentine currency board, and happen to know that the old chief economist there, Andrew Powell thought that the absolute key to such a system was constant and guaranteed access to foreign capital, which Ecuador definitely doesn't have.

My policy prescription for Ecuador would be something along the lines of the Malaysian solution -- capital controls, a fixed exchange rate and somewhat looser monetary policy. I might be tempted to suggest a dual currency regime a la South Africa.

Early news reports suggest that the protests didn't have the effect of immobilising Quito this time -- there were a few scuffles and some teargas fired, but nothing on a NorthWest American scale :-).

___________________________________________________________________________ _____


This email is confidential to the ordinary user of the

e-mail address to which it was addressed. If you are not

the intended recipient, please notify the sender

immediately on (44) 171 638 5858 and delete the message

from all locations in your computer. You should not copy

this email or use it for any purpose, or disclose its

contents to any person : to do so may be unlawful.

Email is an informal method of communication and is

subject to possible data corruption, either accidentally

or on purpose. Flemings is unable to exercise control

over the content of information contained in

transmissions made via the Internet. For these reasons

it will normally be inappropriate to rely on information

contained on email without obtaining written confirmation

of it.


More information about the lbo-talk mailing list