This Selected Issues paper analyzes economic performance of Ecuador under dollarization. The paper reviews the principal trade-offs normally associated with official dollarization, and their specific relevance to Ecuador. It discusses Ecuador’s performance under the dollarization regime, highlighting the country’s main achievements and challenges in the macroeconomic and structural areas. The paper draws some conclusions and discusses what dollarization implies for Ecuador’s reform agenda in the future. The paper also assesses sustainability of Ecuador’s fiscal policy and explores criteria that could guide the setting of fiscal policy in the future.
converging to international levels), but the question about the longer-term implications remains open to debate.
3. Although 6 years is not long enough to judge whether Ecuador’s decision to adopt dollarization was right, it provides an adequate time to assess how well or poorly this regime is serving Ecuador . The next section reviews the principal tradeoffs normally associated with official dollarization, and their specific relevance to Ecuador. Section C discusses Ecuador’s performance under the dollarizationregime, highlighting the country’s main achievements and
International Monetary Fund. Western Hemisphere Dept.
This paper discusses Ecuador’s Second and Third Reviews Under the Extended Fund Facility Arrangement and Request for a Waiver of NonObservance and Modifications of Performance Criteria. The Ecuadorian authorities have continued to make progress in strengthening the country’s fiscal and external positions and have appropriately recalibrated their economic program to include a more moderate fiscal consolidation and international reserves’ paths in response to recent developments and to protect pro-poor growth and social spending. Public financial management reforms are paramount to secure fiscal sustainability in the longer term. The reform of the central bank aimed at strengthening central bank autonomy, accountability, and governance will be instrumental in supporting the dollarization regime, boosting reserves, and ensuring their prudent management. Efforts to raise competitiveness should continue to focus on improving transparency, strengthening governance, increasing efficiency of the public sector, and creating conditions in the labor market to facilitate hiring and female participation.
This paper discusses whether adopting the U.S. dollar as the sole legal tender could help Liberia, a postconflict economy, to boost growth and strengthen fiscal discipline. In view of the performance of exchange rate regimes in many countries and Liberia's own experience with dollarization, we conclude that Liberia should not adopt full dollarization for the following reasons: (i) the alleged benefits voiced by the proponents of dollarization, in terms of enhanced fiscal discipline and faster economic growth, are not supported by the empirical evidence; (ii) dollarization would increase the Liberian economy's vulnerability to external shocks and Liberia's social fragility; (iii) banks in fully dollarized economies face additional capitalization requirements that Liberian banks cannot meet at present; and (iv) dollarization would be costly in terms of real resources because of the loss of seigniorage.
fiscal discipline. As explanatory variables, dummy variables representing each exchange rate regime (full dollarization, fixed exchange rate regime, currency board, and currency union) are used, as well as various control variables, including the changes in terms of trade, GDP per capita, inflation rate, level of external debt (in terms of exports), and a dummy variable for IMF program. 4
The results of this test indicate that the coefficient for the dummy for full dollarizationregime is not statistically significant at conventional levels ( Appendix I ). This