Ecuador's Mahuad Faces Protests Over Dollar Plan

Reuters Photo

By Carlos A. DeJuana

QUITO (Reuters) - Ecuador deployed police and military forces throughout its capital on Wednesday to prepare for protests against President Jamil Mahuad and his proposal to revive the Andean nation's chaotic economy by adopting the U.S. dollar as its legal tender.

Union officials said they expected between 4,000 and 5,000 demonstrators to march on the government palace to protest the ''dollarization'' plan, which would make the U.S. currency legal tender for all but the smallest transactions.

Police used to tear gas to disperse a much smaller protest by about 200 people carrying banners and effigies of Mahuad through the streets of colonial Quito. No injuries were reported.

``The presence of Jamil Mahuad in the government is harmful,'' Luis Villacis, president of the leftist Popular Front confederation of unions, told Reuters.

``We are also rejecting his call to dollarize the economy. It will only cause more hunger and suffering for Ecuadoreans,'' he said, adding that he feared dollarization would mean higher prices for basic goods and that salaries won't keep pace.

Mahuad, whose popularity ratings have plunged in his 17 months in office, announced Sunday he would push though the dollarization of Ecuador's impoverished economy, virtually abandoning the beleaguered sucre currency for the more stable greenback.

The currency plan would establish the U.S. dollar as legal tender in Ecuador and make it the currency of choice for large transactions. Small purchases could still be made in sucres -- which are currently 25,000 to the dollar after falling 67 percent in value last year and 17 percent in the first week of this year.

Ecuador would not be the first Latin American country to opt for the greenback. Panama has long used it as its currency and Argentina pegged its peso to the dollar in 1991.

In Guayaquil, the country's main business center, transport workers on strike since Monday kept movement at a minimum and state health care workers in Pichincha province said they would strike for 12 hours on Wednesday to protest the measure.

Indigenous organizations plan a march on Saturday and workers for state oil firm Petroecuador, the nation's largest source of income, plan to start an indefinite strike Jan. 17.

Mahuad, 50, has spent the past two days defending the move from criticism that it was a last-minute attempt to save his presidency or unworkable in a country immersed in its worst economic crisis in decades.

Analysts have also questioned whether the Harvard-educated lawyer has enough political power to push the radical plan through Congress and have warned it will not be a cure-all.

Ecuador, which is about the size of Italy but has an economic output of less than $14 billion, had inflation of 60.7 percent last year -- the region's worst for two years running -- and faces high poverty and unemployment.

Finance Minister Alfredo Arizaga told members of Congress the plan would not cause prices to increase as many fear and that the cost of living would improve as interest rates fell.

``The costs of a country are reflected by the country's reality,'' he said.

A poll of 612 people in Quito and Guayaquil showed 32 percent thought dollarization was good for the country but only 37 percent really understood what it meant. Only 8 percent of those surveyed by Cedatos pollsters approved of Mahuad.

``I have never even touched a dollar note, so how do I know how it will affect me?'' said Maria Pancracia, one of the nearly 5 million Indians who make up 40 percent of Ecuador's population.

Mahuad declared a state of emergency last week, giving him special powers to deploy police and military amid clashes which have already left up to 10 people injured.

Earlier Stories

• Ecuador Braces for Protests Over Dollar Plan (January 12)
• Ecuador Defends Dollarization (January 11)
• Ecuador Dollar Plan Meets Support, Resistance (January 11)
• Ecuador Defends Dollar Plan, Doubts Remain (January 10)
• Ecuador Defends Dollar Plan But Doubts Remain (January 10)
• Protest Pressure Piles Up on Ecuador's Mahuad (January 7)