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FOCUS-IMF says Ecuador's dollar plan no magic cure

By Luke Baker

LIBREVILLE, Jan 17 (Reuters) - International Monetary Fund Deputy Managing Director Eduardo Aninat said on Monday Ecuador's plan to dollarize its economy was not a magic recipe and would have to be implemented with a dose of fiscal discipline.

The former Chilean finance minister said the plan would have to go hand in hand with tighter fiscal controls, tax reform and a fortification of the banking system.

``Dollarization is not a simple sort of universal jacket, it is a complex issue. Not that I oppose dollarization per se, but it is not a magic recipe,'' he told Reuters on the sidelines of an IMF summit in Gabon.

``It is only one instrument among many policies that have to be implemented...what is done on the fiscal side will be very important.''

Ecuadorean President Jamil Mahuad, hoping to turn back soaring inflation and rescue the collapsing sucre currency, announced a plan on January 9 to swap the sucre for dollars, except for the smallest transactions.

The news took Washington by surprise -- IMF officials said just a week before that they were close to a deal on a new loan package to help the Andean country out of its economic mire.

The sucre lost more than 65 percent of its value against the dollar in 1999 and a further 17 percent in the first week of the new year, prompting mass strikes and public demonstrations against the beleaguered government.

On Monday, Ecuadorean police forces tear gassed about 700 oil workers and students protesting against Mahuad's reforms.

Some 30,000 government forces have been guarding Ecuador's highways, city streets and key government buildings since Friday for fear of protests by the oil workers and indigenous groups demanding Mahuad's resignation.

IMF Managing Director Michel Camdessus told Reuters earlier on Monday he thought dollarization was not the best way for Ecuador to handle its crisis, but said the global lender would do all it could to make workable whatever plan the Ecuadoreans came up with.

``Work is already in progress (on helping Ecuador). The decision, in that sense, is a truly country-owned one and we have to respect that,'' said Aninat, who joined the IMF last December.

Last year, Ecaudor became the first country in history to default on its Brady bond payments, a move which savaged investor confidence and topped a disasterous 12 months which saw the economy shrink seven percent and inflation hit 60 percent.