To: TobagoJack who wrote (80588 ) 4/3/2007 11:58:36 AM From: elmatador Respond to of 110194 Ecuador to Reverse `Failure' of adopting USD Ecuador to Raise Spending to Reverse `Failure' From Dollar By Matthew Walter April 3 (Bloomberg) -- Ecuador's President Rafael Correa pledged to increase spending on oil production and low-interest business loans to repair damages he says stemmed from the country's adoption of the dollar as its official currency. Ecuador converted to the dollar a year after defaulting on $6.5 billion in debt in 1999. That sparked a surge in import demand and caused the trade deficit, excluding oil exports, to balloon to $4 billion last year from $730 million in 2000, Correa said last night during a presentation of his economic plan in the main port of Guayaquil, the country's largest city. ``The dollar has been a complete failure,'' Correa said ``Since we don't have monetary policy, we have to rely on a combination of other measures.'' The president said he will stick to an earlier promise to keep the dollar as the country's currency during his four-year term. Still, he said he won't make payments on any government debt he considers illegitimate, including loans from the central bank and certain debt with the World Bank, to free up spending on education and health care. Ecuador, South America's fifth-biggest oil producer, will invest $2.8 billion in oil exploration and production through 2010, Correa said. The country will cut sales taxes, increase lending to offer cheaper credit to small businesses and seek trade agreements to lower the trade deficit, he said. The government will also raise luxury taxes, among other measures announced. Not Desirable While the dollar helped slash inflation to 2.9 percent last year from 108 percent in 2000 and revived the banking system, it also widened the gap between rich and poor, Correa said. He was elected last year without the backing of any political party on promises to create a more equality through socialist policies. ``We have to come to agreement that it's going to be necessary to redistribute some income,'' he said. Correa is moving ahead with a political campaign designed to win support for a referendum this month on whether the country should hold a national constituent assembly to draft a new constitution. The president is trying to strike a balance between attracting investment dollars to boost oil production and keeping the economy growing, and implementing socialist policies designed to benefit the poor, Jorge Cherrez, president of Quito brokerage IB Corp said in a telephone interview. `Very Focused' Correa has alienated some foreign investors since taking office in January, threatening to default on the country's $10 billion in foreign debt and renegotiate contracts with foreign oil companies to help boost social spending. Ecuador's bonds have rallied since Finance Minister Ricardo Patino backed off from comments that he considered some of the country's debt illegitimate and didn't intend to pay it. ``Correa is very focused in maintaining his political capital, his popularity with the people to be able to implement the version of the constitution he wants,'' said Carola Sandy, an economist with Credit Suisse in New York. Ecuador's top electoral court in March suspended 57 lawmakers for voting to oust its chief justice after the court backed plans for Correa's referendum. Replacements were sworn in March 20, giving the legislature a new quorum to continue its session. To contact the reporter on this story: Matthew Walter at in Guayaquil at Mwalter4@bloomberg.net