Journal of Commerce / September 25, 1998
By Larry Luxner
WASHINGTON -- Ecuadorean President Jamil Mahuad has instituted an emergency adjustment package that devalues the national currency, the sucre, by 15% and ends subsidies on gasoline, electricity and diesel fuel -- a move certain to hike everything from trucking costs to municipal bus fares.
Mr. Mahuad will unveil his economic program during an Oct. 3 visit to Washington, where he's scheduled to meet with World Bank and IMF officials. In a speech Monday to delegates at the Americas Conference in Miami, the newly inaugurated president said the Asian financial crisis was "a huge blow" to his country -- particularly following a series of natural disasters resulting from El Niņo and depressed prices for oil, Ecuador's most important source of foreign exchange.
As of Sep. 22, the sucre was trading at 6,123 to the dollar, down from around 5,350 before the devaluation. The decision, taken just two weeks after a similar devaluation in Colombia and one month after Mr. Mahuad's inauguration, means the sucre has lost 39% of its value so far this year -- the most rapid decline of any currency in Latin America.
Despite angry protests from labor unions and opposition parties, top economists welcome the move.
"I think it's a positive step," said Walter Spurrier, who edits the Guayaquil-based magazine Analisis Semanal.
Mr. Spurrier said in a phone interview last week that the president's elimination of fuel subsidies will boost government revenues by an expected $313 million(430 words)o delegates " she sug. But his proposal also creates a $172 million-a-year direct subsidiary for the poorest sectors of society, which encompass around four million of Ecuador's 12 million inhabitants.
"That's going to have a bigger impact on prices than devaluation," said Mr. Spurrier, adding that "these moves go a long way to improving Ecuador's fiscal situation and reducing anxiety regarding the external sector."
At the moment, Ecuador has a foreign debt of $15 billion, making it one of the most heavily indebted countries in Latin America on a per-capita basis. The United States is the top source of foreign investment, but in 1997, U.S. investment fell to $75 million from $99 million the year before.
Maria Teresa Perez, executive director of the 750-member Ecuadorean-American Chamber of Commerce, isn't sure what kind of impact Mr. Mahuad's policies will have, though she said the economic situation can only get better at this point.
"Probably this will make us restructure our mentality," she suggested in a phone interview from Guayaquil. "We'll have to learn how to save money instead of spend.