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QUITO, Ecuador, April 6 (Reuters) - Ecuador has sent a draft letter of intent to the International Monetary Fund for a $300 million loan to help the country emerge from a deep recession and make the dollar its main currency.
Government officials said Thursday that the proposed letter of intent maintains economic targets agreed to last month with the IMF when the $300 million deal received preliminary approval.
The letter forecasts that the economically battered Andean country of 12 million people will grow by 0.9 percent in 2000 and that consumer prices will rise by less than 55 percent.
Ecuador vows in the letter to keep its budget deficit to less than 4 percent of gross domestic product in 2000 -- roughly the same level as last year. The deficit must not exceed 2.5 percent of GDP in 2001, a Finance Ministry official said.
The IMF announced the $300 million loan, part of a $2 billion package of multilateral funds, early in March after extensive discussions with Ecuadorean officials to draw up the targets contained in the draft letter of intent.
The funds should help Ecuador continue to implement its adoption of the U.S. dollar as official currency, replacing the sucre -- which lost two-thirds of its value last year, feeding rampant inflation, rising to around 70 percent, the highest rate in Latin America. The dollar became legal tender in the country on April 1.
``The letter of intent signed by Ecuador is just the culmination of the all the reforms we have carried out in the economy and in the banking system,'' said an Economy Ministry official, who asked not to be named.
The IMF board will meet in the middle of April to complete the $300 million loan deal, a senior IMF official said last week.
Ecuador's GDP shrunk 7 percent in 1999 as the economy reeled from the ravages of severe storms in 1998, spawned by the freak El Nino weather phenomenon, which tore up roads and bridges and ruined crops.
Compounding Ecuador's economic woes was a period of low prices for its key export, oil, while the country staggered under an unsustainable public debt burden of $13 billion -- roughly equal to its entire annual economic output.
The country partly defaulted on this debt late last year, and earned the dubious distinction of becoming the first country to default on Brady bonds, some of which are partly backed by zero-coupon U.S. Treasury bonds.
The problems have been deepened by chronic political chaos, and democratically-elected President Jamil Mahuad was overthrown in a brief military coup that followed massive protests by native Indians in January.
His successor, President Gustavo Noboa, was named by Congress and has pushed on with the plan to adopt the dollar in a bid to stabilize the economy.
Bank cash machines stopped doling out sucres at the beginning of April, although opinion polls show most people in this overwhelmingly poor country divided between Andean mountains and tropical coastland are deeply suspicious of the dollar.
Ecuador will gain access to $120 million within eight days of signing a final accord with the IMF, said Finance Minister Jorge Guzman.
Some analysts, encouraged by the spread of the euro in Europe, believe that other Latin American countries should take on the dollar. But few think this is likely to happen soon.
Argentina, South America's second-largest economy, pegged its peso one-to-one to the dollar in 1991. Panama adopted the dollar in 1904, one year after it gained independence from Colombia with the support of the United States.
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