Devalued and
derided, this country’s former currency, the sucre, has been out
of circulation for so long that when shopkeeper Raúl Jumbo was shown an old
20-sucre coin he didn’t recognize it.
Ecuadoreans have
grown accustomed to U.S. dollars, which their government adopted in
2000 to overcome soaring inflation and the sucre’s collapse. A similar action
is now being proposed for Venezuela by Henri Falcón, an opposition candidate in
the inflation-racked country’s May 20 presidential election. Dollarization is the course Mr. Falcon, in his long-shot bid
to unseat President Nicolás Maduro, says will extract Venezuela from its worst
economic crisis in modern history.
Mr. Falcón, a former state governor who broke years ago with the
country’s long-ruling Socialist Party, says using the U.S. dollar would end
hyperinflation by stopping the overprinting of bolivars, the
national currency, which has lost 99.9% of its value since Mr. Maduro
took office in 2013.
For Venezuela’s
government, which routinely attacks U.S. capitalism, abandoning a currency
named after independence hero Simón Bolívar for the U.S. dollar is too painful
a comeuppance to contemplate. “We are not going to be a colony of the dollar,”
Mr. Maduro declared Thursday as he unveiled plans to erase three zeros off
the bolivar, a measure economists say will have little impact on
Venezuelans’ daily struggle to pay for increasingly scarce food.
De
facto dollarization is already under way in the state-dominated economy, Mr.
Falcón says. Ignoring price controls, merchants often sell goods at prices that
reflect their free-market value. That is often too much for most Venezuelans,
who earn the equivalent of a few dollars a month.
“The biggest enemy of our people is
hyperinflation,” Mr. Falcón said in a recent interview. “Why are we so scared
to dollarize? Others have done it.” The process involves a government
introducing enough dollar-denominated cash to keep commerce moving and allowing
its own currency to wither away. Mr. Falcón last week proposed getting the
process under way by issuing $25 monthly stipends to adults and $10 for
children.
Latin
American nations that use the greenback include Panama, El Salvador and
Ecuador, an OPEC member that grappled in the late 1990s with some of the same
problems now ravaging oil-rich Venezuela. Although Ecuador’s currency
transition was traumatic, analysts say the dollar eventually helped the
nation’s economy recover.
“People
here have no faith in politicians,” Ecuadorean Congressman Paco Moncayo said,
“but they do have faith in the dollar.”
That
faith was born from disaster. A severe banking and economic crisis in 1999
prompted the Ecuadorean government to go on a sucre-printing spree, causing the
currency to fall from 3,000 to 25,000 to the dollar in the four years ending at
the beginning of 2000. In a desperate move to save his government,
then-President Jamil Mahuad announced on Jan. 9, 2000, that Ecuador would adopt
the U.S. dollar. Twelve days later Mr. Mahuad was ousted in a military-backed
revolt, but his successor endorsed dollarization.
The
introduction of the greenback jolted Ecuador’s economy. Salaries initially fell
by 40%, Quito economist John Cajas said, and peoples’ savings accounts and
pensions were ravaged. Some Ecuadoreans committed suicide. But prices and wages
eventually stabilized. Helped along by a rise in oil prices and remittances
from some of the 1 million Ecuadoreans who had fled the country, the
country’s export-based economy recovered.
There
is still some grumbling 18 years later. Dairy farmer Roberto Bourneo says the
dollar makes Ecuadorean goods, including the milk he produces, more expensive,
causing him and other farmers to losing domestic market share to imported
Colombian milk, which sells for half the price. But when he travels to
Colombia with dollars in his pocket, Mr. Bourneo says, “I can buy everything. I
feel like a king.”
Quito
investment banker Ramiro Crespo recommends dollarization for Venezuela,
comparing it to gun control. “When in the hands of crazy guys, like Maduro,
letting them print money is like giving an AR-15 to an irresponsible person,”
he said.
Detractors
say dollarization prevents governments from devaluing or taking other measures
during tough times. Rafael Correa, Ecuador’s president from 2007 to 2017, once
described it as “being in a boxing ring wearing a straitjacket.” But he never
pulled the trigger on abandoning the dollar, a move many believed would have
exposed his country to economic uncertainties.
For
all the stability the dollar brings, introducing it is expensive. Ricardo
Hausmann, a former Venezuelan planning minister who advised Ecuador on
dollarization, said Venezuela would need to spend $10 billion just to
import U.S. bills and coins—more than the country’s foreign-currency reserves
of $9.4 billion, held mostly in gold. Those funds would be better used to
resolve food and medicine shortages, he said, adding Venezuela’s problems are
so extensive—from a collapse in national production to a massive fiscal deficit
and debt load—that dollarizing would have limited impact.
“This is more a gimmick than a solution,” Mr.
Hausmann said. “It’s like saying you’re going to lose weight because you bought
pants four sizes smaller.”
But
other economists endorse the idea. “Dollarization may be the only answer”
in Venezuela, said Joseph Stiglitz, a Nobel Prize winner who has advised
several Latin American governments. Johns Hopkins University currency
expert Steve Hanke, writing last year in Forbes, called it “a proven
elixir.”
Few
Ecuadoreans mourn the loss of the sucre, and Mr. Crespo predicted a
similar result should Venezuela move to the dollar, however hurtful losing the
bolivar might seem to national pride.
“You
have more sovereignty when people are proud, healthy and free, not when they
are starving,” he said.
Click
here for the original article from Wall Street Journal.