Ecuador’s Correa Says He’ll Maintain U.S. Dollar

By Stephan Kueffner

Dec. 20 (Bloomberg) -- Ecuador’s President Rafael Correa said he’ll maintain the U.S. dollar as his country’s currency amid an “extremely grave” economic crisis sparked by the collapse of oil.

“It would be stupidity to drop the dollar under these circumstances,” Correa said in his weekly radio-and-television address.

Speculation has mounted that Correa, a critic of so-called dollarization who called the policy a “complete failure” in an April 2007 speech, would look to abandon the policy in coming years after defaulting on the country’s $3.9 billion of foreign bonds this week. Goldman Sachs Group Inc. forecasts Correa may scrap the dollar in as little as three years as the default prompts international banks to pull credit lines to the country, creating a cash crunch that drives up interest rates.

Correa said today he plans to restrict imports to help stem the outflow of dollars and offset the tumble in oil, the country’s biggest export. Correa withheld a $30.6 million interest payment due this week, saying the foreign bonds are “illegal” and “illegitimate.” The default is the country’s second in less than a decade. Correa said today that he’ll keep repaying debts owed to multilateral lenders and other countries.

Oil prices are now lower when adjusted for inflation than in 1999, Correa said. The low prices that year helped push the country into default, caused almost two dozen banks to fail and prompted Ecuador to drop its currency, the sucre, in favor of the dollar.

‘Protect the Weakest’

Ecuador will revise investment plans and trim spending on public-sector salaries and pension plans to help cope with the global economic slump, Correa said. He said he’ll raise the minimum wage and a monthly subsidy for the poor less than previously planned next year.

“We will try to protect the weakest,” said Correa, a 45- year-old economist. “It’s unavoidable that everyone contribute.”

Crude oil prices have fallen 77 percent from a record $147.27 a barrel reached on July 11 to $33.87 a barrel yesterday on the New York Mercantile Exchange. Ecuadorean crude trades at about $19 per barrel.