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FOCUS-Ecuador adopts dollar despite public outcry

    (updates with president quote graf 4, possible veto grafs
13-14)
    By Gustavo Oviedo
    QUITO, Ecuador, March 1 (Reuters) - Ecuador was of two

Ecuador's Congress approved on Tuesday night a bill to adopt the U.S. dollar as its main currency as part of a controversial government plan to stabilize and spur the South American nation mired in its worst economic crisis in five decades.

``This could be the start of a new country,'' Finance Minister Jorge Guzman said. President Gustavo Noboa is to sign the dollarization bill into law in coming days which would substitute the U.S. currency for the Ecuadorean sucre for all but small transactions.

``I'm happy because this is an important start to modernizing the Ecuadorean state,'' Noboa told reporters.

But Sofia Galarza, a street vendor and single mother of three was concerned.

``Everything's going to cost even more now. Dollarization is Noboa's pipe dream and it's going to make us even poorer,'' she told Reuters.

Ecuador's consumer price index rose 10 percent in February, taking inflation in the 12 months to February 2000 to 90.8 percent, the highest in Latin America, compared to 39.7 percent annual inflation in the 12 months to February 1999.

The labor umbrella group Popular Front -- which represents 370,000 farmers, students and laborers -- plans to mount a protest march in the coming days, its president Luis Villacis said.

``This law benefits bankers and is against the interests of the people,'' Villacis said.

The Andean country shocked world markets last year by defaulting on part of its $6.5 billion in Eurobond and Brady bond debt, the latter backed by U.S. Treasury bonds.

With Ecuador's total foreign debt at more than $13 billion, about equal to its gross domestic product, the country realized it needed to do something to restore investor confidence.

The government decided it had to adopt the dollar to rescue the country after Ecuador's economy shrank 7.5 percent in 1999 and the sucre shed two-thirds of its value last year.

Administration Secretary Marcelo Santos said Noboa could sign the dollarization bill into law as passed by Congress Tuesday night or veto some of its articles.

``The president has to read the bill with his economic advisors. While he recognizes the efficiency of the legislators he needs to focus special attention on some technical details,'' Santos said.

Dollarization was first proposed Jan. 9 by President Jamil Mahuad, who was ousted in a bloodless coup. His vice president, Noboa, succeeded him Jan. 22 and vowed to press on with the reforms, to the dismay of the majority of Ecuadoreans.

Public opinion polls found 74 percent of Ecuadorean opposed dollarization out of fear the measure would make them even poorer than they are now.

But consumers can already pay in sucres or dollars for goods bought in stores. A pack of 20 cigarettes costs 64 cents in Ecuador, where the legal minimum monthly wage is $53, while a movie ticket costs $1.56 and a music CD sells for $10.

Ecuador would not be the first Latin American nation to adopt the greenback as its currency. Panama did so almost a century ago and Argentina passed a convertibility law in 1991 that guarantees one dollar for every peso in circulation.

U.S. government officials have pledged to help Ecuador obtain credit from organizations such as the International Monetary Fund after it adopts the dollar.

Talks on setting a credit facility between the IMF and the Andean nation the size of Italy with 12.4 million citizens have dragged on for months as Ecuador struggled to cut its deficit and slash public spending.

Ecuador, where 62.5 percent of people live in poverty and the unemployment rate is 17 percent, will exchange $1 for 25,000 sucres over the next 180 days. The process will not exhaust the nation's $1.26 billion in foreign reserves in its Central Bank, officials said.

``We won't fall into the void, we have $936 million in liquid reserves that will sustain the scheme,'' Finance Minister Guzman said.

The sucre will continue to be used but only for minor transactions such as corner store purchases, for example.

Congress also passed an ``Economic Transformation Law'' package Tuesday night which included bills creating greater job flexibility and opening up the oil, electricity and telecommunications sectors to more foreign investment.

The changes to the labor code included a base salary of 50 cents per hour.

The World Bank on Friday forecast economic growth to reach 1 percent in the Andean nation in 2000. The oil, banana, shrimp and flower exporter posted a trade surplus of $1.57 billion last year versus a 1998 trade deficit of $995 million.