Theory

Bank holiday

Ecuador 1999, year of financial crisis, deposit freeze and bank bailout: the robbery of the century.

The financial crisis originated in the government of Sixto Durán Ballén and Alberto Dahik, the promoters of neoliberalism in Ecuador. In 1994, they created the Law on Financial Institutions, which liberalized interest rates and allowed the free circulation of capital and the increase in linked loans, which proliferated without control. That generated speculation, capital flight and bank failure. To which were added other factors: the El Niño phenomenon, the international financial crisis and the collapse of the oil price (US $ 6.30 per barrel). However, Mahuad's policies further sharpened the crisis.

In 1998, financial power became evident. Bankers like Fernando Aspiazu financed the campaign of Jamil Mahuad and others were part of his cabinet. "Bank bailout" policies were established that allowed the delivery of millionaire loans to banks, through public institutions. In the National Congress, the famous "steamroller", made up of the Social Christian Party and Popular Democracy, created laws and institutions (such as the AGD) for the State to take over the debts of private banks.

On March 8, 1999, a "bank holiday" of 24 hours was declared, which finally lasted 5 days. All financial operations were suspended. Meanwhile, Mahuad decreed a << freezing of deposits >> for 1 year, from accounts of more than 2 million sucres. That injustice had disastrous consequences. Even so, the banks "went bankrupt" and the State assumed the costs, transmitting them to the population through various mechanisms, among them, the reduction of social spending and the rise in the cost of services.

The consequences were terrible: inflation, devaluation, recession, bankruptcy, unemployment, greater poverty and indigence, deaths, suicides and the largest wave of migration in the history of the country. The economic losses amounted to 8000 million dollars and the social losses were greater.

Dollarization in Ecuador

On January 9, 2000, former President of the Republic Jamil Mahuad imposed dollarization, to prevent the exchange rate of the dollar with the dollar continue to rise without government control and cause a negative inflationary effect for the country's economy, increasing the rate of interest and the prices of goods, products and services, turning investors into speculators of the market, since the risk of speculation was less than that of investing with a currency as devalued as the sucre. Monetary instability and the lack of credibility in the sucre reverberated in the solvency of the country's financial system, as was the deterioration of salaries, wages, pensions. etcetera, which affected the lower middle class socially. The Ecuadorian dollarization (Creole), implemented at an exchange rate of 25,000 sucres for every dollar, directly favored the major debtors of banking in the country, and hurt the working class and retired; to the former, their debts in sucres almost disappeared in dollars, while in the latter their monthly retirement was reduced to 4 dollars, which impoverished their standard of living. Our (mixed) dollarization is not totally with North American currency, and is not supported by the Constitution of the Republic. The notes are North American, but the fractional currency -in part- is Ecuadorian; and despite being dollarized, the country's economy suffers devaluations similar to those of the sucre. That is, the devaluation of the sucre against the dollar disappeared, but the dollar -although it is a hard and strong currency- is devalued in the market of goods, products and services, because there is no adequate and efficient control of production or price levels, which allows the State to regulate the levels of production and prices of the private and public sectors. Therefore, to avoid further deterioration of the country's economy, due to the weaknesses and shortcomings of the Ecuadorian dollarization, it must be strengthened by the State with the creation of an organic law of production and prices, which contains rules and control policies on the production, quality, quantity, weight and prices of goods and products, as well as the corresponding penalty for non-compliance with said rules and policies, indicating competences and functions of the agencies that will apply the aforementioned law. In addition, the inorganic emission of the Ecuadorian fractional currency must be controlled, which must be supported by the production of goods and products in the market of our country, otherwise, the inflationary effect would not have any control by the State. Likewise, we must control the entry and exit of the dollar for the financial stability of our economy.