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Ecuador's Mahuad confident as dollar plan advances

By Alistair Scrutton

QUITO, Ecuador, Jan 13 Reuters) - President Jamil Mahuad, presiding over Ecuador's worst economic crisis in decades, showed signs of taking the political initiative away from his detractors on Thursday with a plan to use the U.S. dollar to stabilize the impoverished nation's economy.

The unpopular leader dismissed a march planned for Saturday by indigenous groups, representing nearly half Ecuador's 12.4 million inhabitants, who plan to take to the streets and block key highways to protest the government's economic policies.

``I think the protests are overestimated,'' presidential spokesman Carlos Larreategui said. ``We will use all the legal, judicial tools and public force to guarantee peace.''

The confident declaration came during a quiet day on the streets following smaller-than-expected protests on Wednesday.

Only about 500 protesting students and workers, about a tenth of what organizers had expected, marched on Wednesday against the center right Mahuad, whom they accuse of exacerbating poverty in this nation the size of Italy, which has a gross domestic product of just $13.6 billion.

Ecuador, languishing in recession with a squabbling Congress unwilling to pass economic reforms, is a reluctant odd man out in Latin America, where other nations have approved painful reforms and managed to escape endless cycles of rising inflation and stagnant growth.

After 17 months of street protests, a falling currency and growing inflation, Mahuad surprised politicians, markets and nearly all Ecuadoreans by announcing a plan to virtually abandon the beleaguered currency for the 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, currently worth 25,000 to the dollar after falling 67 percent in value last year and 17 percent in the first week of 2000.

The plan was a political watershed for Mahuad.

``Dollarization saved him as president,'' said political analyst Simon Pachano. ... The fundamental issue has ceased to be the resignation of the president."

Mahuad, who lacks a majority in Congress, has secured the support of two main opposition parties needed to pass the dollarization plan. Opinion polls show a slight rise in support for the 50-year-old leader while pressure to resign has eased.

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.

Indigenous groups were still defiant, buoyed on by memories of protests last July when they paralyzed Ecuador for two weeks. Mahuad also faces a strike on Monday of workers at state oil firm, Petroecuador, the nation's largest source of income.