Ingles 2011 May Charla Joyce de Ginatta

Dollarization causes and consequences

Madrid – Spain, May 2011

Joyce H. de Ginatta www.fiepymes.com www.joyceginatta.com www.dolarizacionecuador.com

http://www.fiepymes.com/

http://www.joyceginatta.com/

http://www.dolarizacionecuador.com/

CHANGE CRONOLOGY

JANUARY 1996

FIRST MACROECONOMIC PLAN IS PRESENTED

SEPTEMBER 1998 DOLLARIZATION IS

PROPOSED AS A METHOD TO ELIMINATE DISCRETION IN MONETARY POLICIES, WHICH HAD IMPOVERISH THE COUNTRY. FEDERACION INTERAMERICANA EMPRESARIAL - FIE

2

CHANGE CRONOLOGY

FEDERACION INTERAMERICANA EMPRESARIAL - FIE

March 8, 1999: The Ecuadorian

goverment announces a bank holiday

of 48 hours, which was extended

indefinitely, freezing bank deposits

April 6,1999: A press conference is

given by the Production Chamber’s

executives in order to present the new

change proposal. 3

CHANGE CRONOLOGY


April 8, 1999: MARCHA DEL

CRESPÓN NEGRO, and the Governor’s

Guillermo Lasso formal presentation of a

proposal of an AGENDA FOR THE DEEP

MEANINGFULL IMMEDIATE CHANGE THAT

THE COUNTRY REQUIRES.

4

CHANGE CRONOLOGY


5

CHANGE CRONOLOGY

6

CHANGE CRONOLOGY

I PRESENT THE GOVERNMENT AND THE COUNTRY AN ECONOMIC PLAN THAT INCLUDES A SET OF PUBLIC POLICIES THAT WOULD DRIVE ECUADOR TO BECOME A FIRST WORLD COUNTRY IN A FEW YEARS.

JUNE 28, 1999


BY THIS TIME, THE SUCRE HAD

LOST A LOT OF VALUE AND THE

ECONOMIC SITUATION WAS

GETTING WORSE. HYPERINFLATION WAS NEAR

7

8

THE LOST DECADES: CURRENCY EXCHANGE RATE

(sucres in dollars)

Fuente: Banco Central del Ecuador (BCE). Elaboración: Federación Interamericana Empresarial (FIE)

1980 1990 SEP

1999 JAN

2000

CURRENCY EXCHANGE

RATE 27,41 821,14 12.004 25.000

9

VICIOUS CIRCLE: CLOSE TO HYPERINFLATION

On March 8, 1999 The Government decided to freeze bank deposits, 70% of the Ecuadorians resources were frozen.

Nov-Dec 1999, the monetary base increased approximately 40%, most of it was currency in circulation.

during the five first days of January 2000, the Central Bank devalued the sucre a 25.89%

In just one year, most of the liquid value of ecuadorians patrimony was "stolen."

10

Inflation in Sucres increased dramatically

Inflación Anual

0,0

20,0

40,0

60,0

80,0

100,0

120,0

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%

Fuente: Banco Central del Ecuador (BCE). Elaboración: Federación Interamericana Empresarial (FIE)

En diciembre de 1999 la inflación superó el 60% y en julio de 2000 superó el 100%.

11

Dollarization was Ecuadorians choice

Money have three main functions: means of exchange, a unit of measurement, and value reserve.

Sucre did not fulfilled the functions of money.

Economic agents started demanding a save currency (DOLLAR) and avoid bad money (Sucre).

12

Salary of a secretary before dollarization:

1997: $3.542.400 sucres = US$800

DEC 1999: $4.000.000 sucres = US$160

Dollarization was Ecuadorians choice

13

January 9, 2000: dollarization is official to the Ecuadorian economy

14

DOLLARIZATION: A SHIELD FOR THE POLITICAL CRISIS

Presidents have been removed, The Supreme Justice Court has been avoided, and there have been many other political crises in Ecuador, but the economy kept moving forward because of the security dollarization provided.

* Portada de revista MiPYMES, Marzo – Abril 2005.

15

DOLLARIZATION HAS PROVIDED PRICE STABILITY

DOLLARITAZION HELPED THE COUNTRY TO KEEP THE LOWEST RATES OF INFLATION OF ITS HISTORY


Fuente: Instituto Nacional de Estadísticas y Censos (INEC).

DEC/99 MAR/05 AUG/06 APR/11

INFLATION 60,7 % 1,6 % 3,36% 3,88%

16

OPPOSITORS ALLEGED THAT DOLLARIZATION WOULD PREJUDICE THE LOWER CLASSES !FALSE!

DOLLARIZATION HAS RETURN THE PURCHASING POWER TO THE LOWEST SALARIES.


(US$) 2000 2007 2010

INCOME PER PERSON*

US$53,5 US$198,2 US$279,9

* MINIMUM WAGE+ COMPLEMENTARY PAYMENTS .

Fuente: Banco Central del Ecuador (BCE). 17

OPPOSITORS ALLEGED THAT DOLLARIZATION WOULD RISE UNEMPLOYMENT !FALSE!

DOLLARIZATION IS ONE OF THE BASES FOR CREATE PRODUCTIVE EMPLOYEMENT.


JAN. 2000 AUG 2007 MAR 2011

UNEMPLOYEMENT 17% 9,8% 7,0%

Fuente: Instituto Nacional de Estadísticas y Censos (INEC) 18

Fuente: Banco Central del Ecuador (BCE).


OPPOSITORS ALLEGED THAT DOLLARIZATION WOULD LIMIT ECONOMIC GROWTH : !FALSE!

(Mill US$) 1999 2003 2010

PIB 16.674 28.636 57.978

(Var %) 1999 2003 2010

PIB -6,3% 3,58% 3,58%

19

OPPOSITORS ALLEGED THAT DOLLARIZATION WOULD END EXPORTS: !FALSO!


Fuente: Banco Central del Ecuador (BCE).

Exports by group of products Million dollars FOB

TOTAL Exports Total Oil Total no Oil Total Traditional

Total No Traditional

1999 4.451 1.480 2.971 1.156 1.815

2003 6.223 2.607 3.616 1.737 1.879

2010 17.490 9.673 7.817 3.706 4.111

20

Total Exports (Mill US$)

Sucre devaluation

1990 - 1999 38.757 97%

2000 - 2009 98.447 0%

OPPOSITORS ALLEGED THAT WITH DOLLARIZATION INTEREST RATES WILL NOT FALL : !FALSE!

DOLLARIZATION HAS LOWER THE INTEREST RATES

DEC 1999

AUG 2006 MAY 2011

INTEREST 69,94% 8,50% 8,34%


Fuente: Banco Central del Ecuador (BCE). 21

(Mill US$) DEC 1999 DEC 2006 APR 2011

DEPOSITS US$2.847 US$8.756 US$16.631


Fuente: BCE.

DOLLARIZATIONS HAS STRENGTHENED THE FINANCIAL SYSTEM

PRIVATE BANK DEPOSIST HAVE INCREASED, AS WELL AS CREDITS

22

HOUSEHOLD INTAKES HAVE INCREASED.

(Mill US$) 2000 2006 2010

INTAKES US$10.357 US$26.805 US$39.281


Fuente: BCE.

DOLLARIZATION WILL IMPOVERISH

PEOPLE !FALSE!

23

DOLLARIZATION

Benefits:

Monetary Stability

Lower inflation rates

Lower interest rates

Removal of currency exchange risk (no risk of devaluation)

Elimination of discretionary monetary policy

Threats Loss of inflation

tax

Monetary policy elimination (e.g. unable to devaluate for “promoting” exports)

No las chance lender. 24

CONCLUSIONS:

Dollarization is only a monetary regimen that solves the inflationary issue.

Dollarization is not enough to achieve sustainable economic growth

It is necessary to restraint the fiscal policy.

Institutional reforms are basic for opening new markets and eliminate of monopolies

25

CURRENT PROBLEMS: PUBLIC EXPENDITURE

Fuente: OPF

26

YEAR Total Public Expenditure

Millios US$

2000 3.889 2001 4.947 2007 12.554 2008 22.094

2010 22.000 2011 23.950

SOLUTIONS:

27

FIRST WORLD TOOLS

- INVESTMENT ATTRACTION

- LEGAL SECURITY

- COMPETITIVENESS

- RED TAPE ELIMINATION

SOLUTIONS:

28

FIRST WORLD TOOLS

- FISCAL AND FINANCIAL SECTOR

- STATE BUDGET

- TAX SYSTEM

- INTERNAL AND EXTERNAL DEBT

- FRESH CAPITAL

SOLUTIONS:

29

ELIMINATION OF MONOPOLIES

- OIL SECTOR

- ELECTRICITY SECTOR

- TELECOMMUNICATIONS SECTOR

FREE TRADE

- TLC s.

CHILE: 10 DEVELOPMENT VIRTUES

1. COUNTRY OPEN TO THE WORLD

2. WORKING INSTITUTIONS

3. PRESIDENTIAL CONSTITUTION

4. HIGH SOCIAL-ECONOMICAL CLASS CARES FOR THE FUTURE OF THE COUNTRY (THE MOST IMPORTANT)

5. COMMON COUNTRY PROYECT. STATE POLICIES.

6. EVERYONE CLEARLY UNDERSTANDS THE IMPORTANCE OF ECONOMIC GROWTH

30

CHILE: 10 DEVELOPMENT VIRTUES

7. NO CHANCE FOR POPULISM, DEMAGOGY OR TERRORISM.

8. SMALL, MODERN AND EFFICIENT STATE

9. PUBLIC - PRIVATE PARTNERSHIP

10. POLITICIANS ALLOW THE PRIVATE SECTOR TO WORK

31

“MEN WHO ARE INDIFFERENT TO THE

UNFORTUNATE OF THE NATION, EVEN

THOUGH THEY ARE

PRIVATELYLABORIOUS, ARE

UNCONSCIOUS ASSISTANTS OF

CALAMITY AND CORRUPTION OF THE

PEOPLE

Eloy Alfaro President of Ecuador

Addressed to the Nation in 1895 32

Madrid – España, Mayo de 2011

Joyce H. de Ginatta www.fiepymes.com www.joyceginatta.com www.dolarizacionecuador.com

Thank You

http://www.fiepymes.com/

http://www.joyceginatta.com/

http://www.dolarizacionecuador.com/

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