March 20 Ecuador could be forced to scrap the
U.S. dollar as its currency in the short-term if President
Rafael Correa fails to curb spending and the state quickly runs
out of greenbacks in the global economic crisis.
Here are some possible consequences of an abrupt exit from
the dollarized system in Ecuador:
* UNCONTROLLABLE INFLATION: Ecuadoreans would likely lack
confidence in the new currency, slashing the money's value and
raising prices to near hyperinflation levels, experts say.
* BANKING SECTOR COLLAPSE: Mistrust of the new currency
could spark a massive run on deposits that would leave banks
short of capital and trigger the collapse of the already
* SEVERE RECESSION: Teetering banks would dry up credit to
companies and commodity exporters, sparking a chain of
bankruptcies that would cause unemployment to skyrocket and
constrain consumption. As output dwindles, Ecuador would plunge
into a deep recession even when the government uses some of the
new currency -- heavily devalued-- to bail out companies.
* RETURN OF INSTABILITY: A crisis and banking collapse
would unleash angry street protests similar to the public
upheaval in the last economic bust in 1999 that led to the
ousting of the ruler at that time.
Even when Correa enjoys record-high popularity, the specter
of thousands of Ecuadoreans losing their life savings in
failing banks could put his presidency at risk.
Correa's last three predecessors were toppled by street
demonstrations and congressional turmoil that in some cases
have been linked to economic crisis.
(Reporting by Alonso Soto; editing by Kenneth Barry)