Monday, April 25, 2005

All that, and no bank run

Ecuador's president sacked the supreme court, then took it back, and then congress sacked the president. The constitution says the vice president must serve out the rest of the term, but the public is demanding new elections. Talk about a constitutional crisis.

Oh, and the new minister of finance has pulled the country out of trade negotiations and wants to restructure the country's external debt. It seems clear that spending on everything but debt service is the priority of this interim administration, intent on making itself as popular as possible before it has to exit.

...but no devaluation, and no bank run. Perhaps dollarization wasn't such a bad idea. If this had happened six years ago, the private sector and the government would have liabilities in hard currency and earnings in sucres, and the public would be rushing to get their savings into dollars. The banks, no different, would have currency exposure that would cripple them, and in anticipation the public would rush to get their money out.

It's too early to tell whether or not Ecuador will avoid financial armageddon this time. Things look dire, and the new government's policy initiatives are a nightmare, but at least there are no currency mismatches to worry about...

BBC NEWS | Americas | Ecuador president defends sacking
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