Ecuador has no plans to replace the U.S. dollar says Central Bank director; predicts economic growth for 2010

Ecuador's government will not drop the U.S. dollar as its currency, despite recent speculation, while stronger economic growth this year could lead to the reduction of some trade barriers, Ecuador's central bank head said Friday.

"The government of President (Rafael) Correa has determined that it will maintain the dollarization scheme," said Central Bank of Ecuador President Diego Borja, who is also the country's Minister for Economic Coordination.

Borja said "rumors" have been circulating recently that the government, which adopted the U.S. dollar as its official currency in 2000, is considering changing that policy.

"The exact opposite is true: the goal is to consolidate dollarization," he said in an interview with Dow Jones Newswires in Cancun, where the Inter-American Development Bank is holding an annual meeting.

Economic growth is expected to accelerate this year, with gross domestic product likely to increase 6.8%, after slowing to 1% in 2009, Borja said.

As a result, the government is considering reducing some import tariffs on consumer goods, he said. Tariffs were hiked last year, to the limits allowed by the World Trade Organization, to "safeguard" local industry amid the global economic crisis, he said.

The government's inflation target for 2010 is 3%, and unemployment should remain below 5%, he noted.

Borja raised the forecast for government investment in public works in 2010 to $7 billion from $6 billion, as he estimated earlier this year.

He also said the government is planning to reform the stock exchange to "create a cheaper form of capitalization for companies, so they don't seek bank loans but rather sell shares and debt securities."

"The goal is for companies to issue securities and trade them on the secondary market," he said, adding that transactions on the Ecuadorian stock market currently average less than $1 million per day.

Regarding a February currency outflow that was previously described only as "important," Borja said the money that left Ecuador amounted to around $600 million.

"The country is dollarized, therefore it has to control the departure of its funds, in both the commercial and financial arenas," he said.

Meanwhile, earlier this week, Borja said five banks operating in Ecuador will have to repatriate $651 million of their reserves invested abroad by May 31.

Last May, in response to a big currency outflow in the first quarter of 2009, the central bank established a liquidity requirement forcing banks to keep at least 45% of their reserves in Ecuador.

The outflow that took place in February prompted the central bank to expand the way it calculates reserves, Borja said.

Banco del Pichincha should repatriate $293 million; Produbanco, $52 million; Bolivariano, $85 million, state-run Banco del Pacifico, $208 million and the local unit of the U.K.'s Lloyds TSB Group PLC, $13 million.

The banks will face "sanctions" if they fail to comply, Borja said Friday.

Credit: By Paul Kiernan, Dow Jones Newswires; http://online.wsj.com