Correa Threatens Jail for Spreading Rumors on Ecuador Currency

By Stephan Kueffner

March 25 (Bloomberg) -- Ecuadorean President Rafael Correa said that people spreading rumors about the introduction of a new currency instead of the U.S. dollar will be jailed.

Rumors of a new currency threaten to destabilize the economy, Correa told reporters today at the presidential palace in Quito. In December, he denied rumors of a forced closure of banks.

“This president guarantees to you that there is no plan whatsoever to exit dollarization,” he said. “It’s another vile calumny by eternal opponents who hope to win a few votes in the next elections.”

Ecuador introduced the dollar as its currency a decade ago amid a financial crisis that caused almost two dozen banks to collapse. While he has criticized the way the dollar was introduced on several occasions, Correa, who stands for re- election on April 26, said there are signs Ecuador will be able to weather the global economic crisis without resorting to a change in the currency.

“Thanks to God, we have been able to manage this crisis adequately,” Correa said. “The price of oil has recovered markedly.”

Correa said that it was rumored that the government had ordered new currency minted in Iran and imported in 11 containers via Chile. “The government won’t allow these ill- intentioned rumors to continue,” Correa said.

Oil Rebounds

Ecuadorean oil, the country’s key export, is currently being sold at about $45 a barrel, above an initially budgeted $35 a barrel for the first quarter, he added.

Earlier today, Central Bank President Carlos Vallejo said Ecuador needs about $1.5 billion in loans from multilateral lenders to defend the use of the U.S. currency.

The money is required to maintain adequate dollar inflows, Vallejo said. He expects the Inter-American Development Bank, Caracas-based development lender Corporacion Andina de Fomento and the Latin American Reserve Fund to approve the loans.

Strains on the banking system and falling reserves could force Ecuador to introduce a new currency, Credit Suisse wrote in a research report on March 18.