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The Late 1990's Financial Crisis in Ecuador

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  • Luis Ignacio Jácome

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/12.

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Length: 47
Date of creation: 01 Jan 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/12

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Keywords: Banking crisis; Dollarization; banking; banking crises; banking system; financial crisis; financial crises; contagion; deposit guarantee; bank deposits; financial liberalization; currency crisis; bank closures; systemic crisis; financial transaction; bank assets; financial safety net; foreign exchange; macroeconomic stability; reserve requirements; prudential supervision; bank liabilities; current expenditure; deposit insurance; closure of banks; fiscal crisis; closed banks; credit boom; banking authorities; crisis management; currency crises; banker; bank governors; connected lending; bank charter; macroeconomic policies; bank failures; bank bailouts; asian crisis; bank crisis; bank assistance; interbank market; bank depositors; problem bank; banking supervision; macroeconomic stabilization; bank board; consolidated supervision; bank restructuring; prudential regulation; banks ? assets; legal protection; bank problems; banking regulation; credit booms; preventing banking crises; economic crisis; insolvent banks; bank debtors; small bank; crisis episode; foreign exchange market; bank shareholders; currency depreciation; pre-crisis; bank distress; crisis prevention; bank portfolios; systemic banking crises; bank balance sheets; public finance crisis; confidence in bank; reserve requirement; financial sector crisis; bank policy; systemic financial crises; bank loans; banks ? liabilities; bankers association; bank policies; banking practices; debt crisis; bank operations; bank law; bank deposit; financial strength; bankers; disintermediation; asian financial crisis;

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References

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  1. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
  2. G. G. Garcia, 2000. "Deposit Insurance," IMF Occasional Papers 197, International Monetary Fund.
  3. Gianni De Nicoló & Patrick Honohan & Alain Ize, 2003. "Dollarization of the Banking System," IMF Working Papers 03/146, International Monetary Fund.
  4. Leslie Teo & Charles Enoch & Carl-Johan Lindgren & Tomás J. T. Baliño & Anne Marie Gulde & Marc Quintyn, 2000. "Financial Sector Crisis and Restructuring," IMF Occasional Papers 188, International Monetary Fund.
  5. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
  6. Richard Hemming & Axel Schimmelpfennig & Michael Kell, 2003. "Fiscal Vulnerability and Financial Crises in Emerging Market Economies," IMF Occasional Papers 218, International Monetary Fund.
  7. Udaibir S. Das & Marc Quintyn, 2002. "Crisis Prevention and Crisis Management," IMF Working Papers 02/163, International Monetary Fund.
  8. Alesina, Alberto & Devleeschauwer, Arnaud & Wacziarg, Romain & Kurlat, Sergio & Easterly, William, 2003. "Fractionalization," Scholarly Articles 4553003, Harvard University Department of Economics.
  9. G. Russell Kincaid & Charles Collyns, 2003. "Managing Financial Crises," IMF Occasional Papers 217, International Monetary Fund.
  10. De Nicolo, Gianni & Honohan, Patrick & Ize, Alain, 2003. "Dollarization of the banking system : good or bad?," Policy Research Working Paper Series 3116, The World Bank.
  11. Carlos O. Arteta, 2003. "Are financially dollarized countries more prone to costly crises?," International Finance Discussion Papers 763, Board of Governors of the Federal Reserve System (U.S.).
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Citations

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Cited by:
  1. Carlos Díaz Alvarado & Alejandro Izquierdo & Ugo Panizza, 2004. "Viabilidad fiscal en países de mercados emergentes con un enfoque en Ecuador," Research Department Publications 4372, Inter-American Development Bank, Research Department.
  2. Elena-Ivona Dumitrescu & Bertrand Candelon & Christophe Hurlin & Franz C. Palm, 2012. "Multivariate Dynamic Probit Models: An Application to Financial Crises Mutation," Working Papers halshs-00630036, HAL.
  3. Simone Bertoli & Jesus Fernandez-Huertas Moraga & Francesc Ortega, 2010. "Crossing the Border: Self-selection, Earnings and Individual Migration Decisions," CReAM Discussion Paper Series 1011, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  4. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  5. María Lorena Marí del Cristo & Marta Gómez-Puig, 2012. "“Pass-through in dollarized countries: should Ecuador abandon the U.S. Dollar?”," IREA Working Papers 201216, University of Barcelona, Research Institute of Applied Economics, revised Oct 2012.
  6. Laeven, Luc & Valencia, Fabián, 2012. "The use of blanket guarantees in banking crises," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1220-1248.
  7. Carlos Díaz Alvarado & Alejandro Izquierdo & Ugo Panizza, 2004. "Fiscal Sustainability in Emerging Market Countries with an Application to Ecuador," IDB Publications 6681, Inter-American Development Bank.
  8. Jeromin Zettelmeyer & Federico Sturzenegger, 2005. "Haircuts," 2005 Meeting Papers 18, Society for Economic Dynamics.

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