The Late 1990's Financial Crisis in Ecuador : Institutional Weaknesses, Fiscal Rigidities, and Financial Dollarization At Work

Author/Editor: Luis Ignacio Jácome
Publication Date: January 01, 2004
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper stresses three factors that amplified the 1990s financial crisis in Ecuador, namely institutional weaknesses, rigidities in public finances, and high financial dollarization. Institutional factors restricted the government's ability to respond in a timely manner and efficiently enough to prevent the escalation of the banking crisis and spurred the adoption of suboptimal policy decisions. Public finance rigidities limited the government's capacity to correct existing imbalances and the deteriorating fiscal stance associated with the costs of the financial crisis. Financial dollarization increasingly reduced the effectiveness of financial safety nets, fostered foreign currency demand, and accelerated a currency crisis, thereby further worsening the solvency of banks. These three factors reinforced each other, exacerbating costs as the economy went through a triple banking, currency, and fiscal crisis.
Series: Working Paper No. 04/12
Subject(s): Blanket guarantee | Banking crisis | Dollarization | Ecuador | Fiscal policy | Financial crisis | Monetary policy

Author's Keyword(s): Banking crisis | institutions | fiscal policy | monetary policy | dollarization | blanket guarantee
Publication Date: January 01, 2004
ISBN/ISSN: 9781451842937/1018-5941 Format: Paper
Stock No: WPIEA0122004 Pages: 47
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