Ecuador Chooses Stimulus over Austerity

NEP’s William Black appeared on The Real News , February 17, 2013, discussing how Ecuador has been dealing with the recession, and some of the things we can learn from it. You can view the video below or if you wish to view the video as well as the transcript posted at TRNN, you can click this link.

 

7 responses to “Ecuador Chooses Stimulus over Austerity

  1. I have a lot of trouble mitigating Ecuador’s dollarization with the MMT principles Black supports.

    How exactly are loans created in Ecuador? What’s the deal with their banking system? I’ve browsed around ECB (ecuador central bank) website to figure things out — I know Citibank has a large presence there, but do Ecuadoran banks have charters with the Fed so that they can take on dollar deposits and endogenuously create loans?

    Granted, the US has engaged in QE and plenty of liquidity contracts internationally to ensure dollar supply worldwide, but isn’t this still much the same problem that MMTers are against? Ecuador is trapping itself into a dollar scheme, and they get price stability and confidence from it, but they lose flexibility as well.

    I don’t see Black discuss this angle of the Ecuador story much, and it’s hard to find a good resource on these details.

    To sum up, my main questions would be:

    1) How does the Ecuadoran banking system operate under dollarization?

    2)Do Ecuadoran banks create dollar deposits in a fractional reserve system?

    3) If Ecuadoran banks are creating new dollars to chase third world projects, how does this affect the American monetary system and the Federal Reserve? Do they have to police the loans created by developing nations that use the dollar?

    4) How do MMT’ers reconcile their Ecuadoran anti-austerity success story with their lack of a monetary sovereign policy?

    Any academic references or source of discussion of these issues would be greatly appreciated.

  2. Chris Engel

    You raise some interesting issues, but I see that no one can answer and quite frankly, neither can I 😉

    However, I do note that Ecuador sells its oil in US dollars and that China has loaned Ecuador $3.5 billion on favorable terms.

  3. He has renegotiated the contracts with the oil companies to collect an amount that actually reflects the value of the oil they extract, for starters. He’s also forcing the other former kleptocrats to pay for the damage they do with taxes, nationalizing the central bank, etc. etc.
    It would be helpful if he could also print money, of course, but there’s a reality out there that the money the kleptos have withheld from the global economy *does* actually exceed current production of pretty much anything–so getting it back from them is just as effective, with the pleasant side effect of also reducing their power. This is simply proof that there’s more than one way to fix an economy, and europe should take notes.

    • I believe that Ecuador still uses the US dollar as its internal and external currency, which limits what Correa can do to some extent. However, he is a Belgian and US trained economist with a Ph.D. in economics, so I would imagine that at some point in the future, he will have it in mind to remedy this situation.

      http://en.wikipedia.org/wiki/Rafael_Correa

  4. But operationally, doesn’t he need a banking entity that has Bank Holding Company status with the Federal Reserve? In order to take deposits and make loans?

    How does the Fed trust giving out such licenses to random Ecuadoran banks that could presumably just loan out as many dollars as they want and then just go bankrupt and say “woops, we’re Ecuadoran that’s how it is”.

    How is Correa getting away with “sticking it” to the US on many issues (Assange, debt restructuring, etc.) without getting “punished” in areas where they are vulnerable? Why isn’t he getting Chavez’d or something?

    I’m just curious on an operational level how all this is done.

  5. The major banks in Ecuador today are the Banco del Pichincha, Produbanco, Citibank and Banco de Guayaquil .

    http://en.wikipedia.org/wiki/Banking_in_Ecuador

    • I know. That much I could figure out on my own. I’m curious if Dr. Black can answer the question though about how the Bank licensing works.

      Clearly Citi (US bank holding company) can issue eurodollar loans without problem in Ecuador.

      But the other, raw Ecuadoran banks? Are there American shareholders of them that make them more trustworthy? What’s the deal.

      I’m afraid I need an insider like Dr. Black to answer this specifically, because i’ve done all the googling and public research that I can without the specifics being really answered.