Cover IMF Working Papers
The Late 1990's Financial Crisis in Ecuador: Institutional Weaknesses, Fiscal Rigidities, and Financial Dollarization At Work
Author: Mr. Luis Ignacio Jácome
Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 012
Language:
English
Publication Date:
01 Jan 2004
DOI:
https://doi.org/10.5089/9781451842937.001
ISBN:
9781451842937
ISSN:
1018-5941
Pages:
47
Keywords:
WP; central bank; foreign currency; banking crisis; exchange rate; U.S. dollar; institutions; fiscal policy; monetary policy; dollarization; blanket guarantee; interest rate; public finance; banking system; banks equity; bank holiday; deposit withdrawal; Banco de Prestamos; illiquid bank; bank portfolio; bank assets; further bank closure; banking problem; Banking crises; Currencies; International reserves
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund