1998-99 Ecuador banking crisis
Encyclopedia
The 1998–99 Ecuador banking crisis resulted in about 70% of the country's financial institutions closing. In 1999 economic activity
decreased by 7-8% and the currency depreciated
by 195%. Per-capita income
in US dollar terms plummeted by 32% during the year. Unemployment
increased from 9% to 17% and underemployment
increased from 49% to 55%. 1.6 billion dollars of Government of Ecuador funds were used to bailout banks that failed as a result of corrupt practices and mismanagement. The money supply increased at an annual rate of 170% to pay back depositors of failed banks. In March 1999, the Government froze bank deposits to avoid hyperinflation
. By the end of 1999, President Mahuad
's approval rating had dropped to 9%. Unresolved economic, financial and political problems led to massive protests that resulted in his departure from office on January 22, 2000.
Economy of Ecuador
The economy of Ecuador is based mostly on exports of bananas, oil, shrimp, gold, other primary agricultural products and money transfers from nearly a million Ecuadorian emigrants employed abroad. In 2002, oil accounted for about one-third of public sector revenue and 40% of export earnings...
decreased by 7-8% and the currency depreciated
Depreciation
Depreciation refers to two very different but related concepts:# the decrease in value of assets , and# the allocation of the cost of assets to periods in which the assets are used ....
by 195%. Per-capita income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
in US dollar terms plummeted by 32% during the year. Unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
increased from 9% to 17% and underemployment
Underemployment
Underemployment refers to an employment situation that is insufficient in some important way for the worker, relative to a standard. Examples include holding a part-time job despite desiring full-time work, and overqualification, where the employee has education, experience, or skills beyond the...
increased from 49% to 55%. 1.6 billion dollars of Government of Ecuador funds were used to bailout banks that failed as a result of corrupt practices and mismanagement. The money supply increased at an annual rate of 170% to pay back depositors of failed banks. In March 1999, the Government froze bank deposits to avoid hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...
. By the end of 1999, President Mahuad
Jamil Mahuad
Jorge Jamil Mahuad Witt is an Ecuadorian lawyer and politician and the 51st President of Ecuador from August 10, 1998 to January 21, 2000. There was a severe economic crisis in Ecuador , which had led to a 60% cut in the armed forces budget...
's approval rating had dropped to 9%. Unresolved economic, financial and political problems led to massive protests that resulted in his departure from office on January 22, 2000.
Further reading
- "Bank Crisis Leaves 4,360 Unemployed". Business News Americas (August 10, 1999).
- Central banks and financial crises: Lessons from recent Latin American history.
- The political economy of the Ecuadorian financial crisis.
- Managing systemic banking crises
- AGD drafts law to create new deposit insurance system.
- Official Dollarization and the Banking System in Ecuador and El Salvador
- The Late 1990s Financial Crisis in Ecuador: Institutional Weaknesses, Fiscal Rigidities, and Financial Dollarization at Work (PDF).