Ecuador Plots Course Out of Economic Storm

By Mario Naranjo

QUITO, Ecuador (Reuters) - Ecuador charted a course out of economic chaos as it passed a law to make the US dollar its main currency, secured a promise of $2 billion of loans from big lenders and vowed to repay crippling debt.

President Gustavo Noboa, appointed late in January after a brief bloodless coup, said the plans to adopt the U.S. dollar, repay anxious lenders and get multilateral lending agency's cash would help end Ecuador's worst financial crisis in decades.

But highland Indians and trade unionists who helped overthrow his predecessor said Thursday that the moves would only boost poverty, now at 62 percent, and they vowed to strike against dollarization.

``I have signed the (dollarization) law to transform the Ecuadorean economy... this will allow us to modernize the nation,'' said President Gustavo Noboa before travelling to Chile for President-elect Ricardo Lagos' inauguration.

Noboa, 62, a university professor and lawyer, said on Monday he would present some minor reforms to the dollarization plan which economists see as the Andean nation's best hope to end a financial crisis that began in 1998 after big tropical storms and a slump in key commodity prices.

Ecuador's Congress last week voted in favor of the scheme to dollarize the economy at a fixed exchange rate of 25,000 Ecuadorean sucres to the U.S. dollar.

Noboa has made it and accompanying cost-cuts and fiscal reforms top economic tools to rescue Ecuador's 12.4 million people from a currency devaluation, 17 percent unemployment and the highest inflation rate in Latin America.

Former President Jamil Mahuad began the dollarization drive which led to his downfall after outraged Indians and soldiers took over Congress and Noboa was named president on January 22 in a move to end the uprising.

Noboa, Mahuad's vice-president, pushed on with Mahuad's fiscal discipline -- a move that on Thursday won Ecuador the promise of $2 billion in emergency funding from the International Monetary Fund and other multilateral lending agencies.

Ecuador badly needs the cash to begin dollarization, raise public spending and pay back its huge debt load of $13.75 billion debt -- roughly equal to its 1999 gross domestic product.

The moves would restore shattered investor confidence after Ecuador last year became the first nation to default on Brady debt payment -- securities named after former U.S. Treasury Secretary Nicholas Brady and created in 1989 to give Latin American countries a way out of their debt crisis.

Ecuadorean Finance Minister Jorge Guzman said his nation would present a plan to repay its debt at a March 28 meeting of the InterAmerican Development Bank.

Economists say rescheduling Ecuador's debt and a switch to the dollar will bring greater price stability and lower interest rates significantly.

Unions and Indians say dollarization would cause massive price hikes and cut wages.

They have vowed to strike against it on March 15 and 21.

Noboa's opponents see the roots of Ecuador's problems less in macroeconomics than years of corruption and chronic mismanagement by his and Mahuad's People's Democracy party.

They have given him six months to improve conditions for ordinary Ecuadoreans or face a fresh rebellion.