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QUITO, April 2 (Reuters) - Ecuador this weekend began using U.S. dollars as legal tender as part of its plan to dollarize the economy resolve a deep economic and social crisis.
Ecuadoreans who went to cash machines Saturday morning found they could only get dollar bills instead of the existing multicolored sucre currency notes.
Stores began accepting payment for goods in either dollars or sucres as part of moves to take the sucre out of circulation for everything but small transactions.
Under a law passed in early March, the nation's Central Bank will withdraw $400 million worth of sucres from the economy and replace them with greenbacks.
President Gustavo Noboa, appointed in January after a brief bloodless coup, hopes the move will rebuild consumer and investor confidence shattered by the Andean nation's worst economic crisis in decades brought on in 1998 by tropical storms and a fall in the price of oil, the country's top export.
Economic problems deepened in 1999 as the nation defaulted on debt payments and unemployment hit 17 percent while poverty stood at 62.5 percent.
Noboa's government has set a rate of $1 to 25,000 sucres, currently sufficient to purchase five Sunday newspapers, a cinema ticket, 5 liters of milk or 8 liters of gasoline.
Ecuador's Central Bank is expected to present a plan next week to issue new coins which will be equivalent to fractions of a dollar. Storekeepers are currently using sucres as change when shoppers use dollars to pay for goods.
Economists say cuts in public spending and economic reforms must accompany dollarization if Ecuador is to recover from a 7.5 percent economic contraction last year as the sucre lost 67 percent of its value.
Highland Indians and unionists, who helped spark the January coup, blame economic problems on corruption and mismanagement by Noboa and his predecessor's People's Democracy party.
Indian groups say dollarization will only raise prices and have appealed to Ecuadoreans to keep using sucres.