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FOCUS-U.S. backs Ecuador's dollarization

By Gustavo Oviedo

QUITO, Ecuador, Feb 28 (Reuters) - The United States on Monday said it would help Ecuador obtain credit after the South American nation adopts the dollar as its main currency in a move to stabilize its economy -- one of the most volatile in the world.

While Washington promised its support, Ecuador's Congress prepared to restart debate on a dollarization law that could be approved late on Monday or early Tuesday.

``We have every intention to support this plan through international financial organizations,'' Assistant U.S. Treasury Secretary for International Affairs Edwin Truman told reporters after meeting President Gustavo Noboa to discuss the bill to dollarize the economy currently in Congress. ``We can offer all our support for this economic program once it is installed.''

Ecuador is not the first Latin American nation to adopt the dollar as its currency. Panama has used it and Argentina tied its peso currency to the dollar in 1991, ending decades of devaluations and hyperinflation.

Washington hopes Ecuador's adoption of the dollar will be the ``base by which stability'' returns to the Andean nation and facilitates its recovery, including lifting the moratorium on its public foreign debt. The bill is expected to go to a vote in the country's Congress Monday night.

Truman said the United States was ``very optimistic'' about Quito's economic reforms, which it says are crucial if dollarization is to work.

The moves to cut the deficit, reduce public spending would also curry more support with the International Monetary Fund, with which Ecuador is in prolonged talks to secure a credit facility, Truman said.

Ecuador is struggling through its worst socio-economic crisis in five decades. Its public foreign debt of more than $13 billion was equal to gross domestic product last year and inflation reached 60.7 percent while its currency, the sucre, shed two-thirds of its value.

The World Bank on Friday forecast growth of 1 percent in Ecuador this year after the Andean nation saw gross domestic product contract 7.5 percent last year.

Ecuador had $1.26 billion in foreign reserves in its Central Bank on Friday. The oil, banana, shrimp and flower exporter posted a trade surplus of $1.57 billion last year versus a 1998 deficit of $995 million.