REPORT #383 September 2000

Produced by the Belize Development Trust

Midnight today Saturday is the last day for holding Sucre's in Ecuador. After that the local sovereign money is worthless. A memory, useful for wallpaper, toilet paper and historical memorabilia.

Ecuador in this small Andean nation has gone the way of the US dollar for official currency in the streets. Adoption of the dollar came after collapse of the Sucre. Due to years of politicians running the country on deficit spending ( like Belize and Fonseca). The Sucre at one point had suffered so badly from inflation that it went from 3000 sucres to the dollar, to 7000 sucres to the dollar and at the end to 30,000 sucres to the dollar. It took three wheel barrows full of Sucres to buy a Coca cola.

Ecuador because of deficit spending by politicians living beyond the country means had spiraled inflation to over 104% per year. In the last year since the dollarization campaign switchover was instigated, inflation dropped to 14.3% last January and only 1.4 % this last month of August.

Ecuador joins Panama and nine other countries in which the US dollar is legal tender. Belize is probably a decade or more away from it's own bankruptcy at the current rate of borrowing and spending by our Finance Minister Ralph Fonseca.

The Guardian, an opposition political rag, said Ralph Fonseca was bragging about being the bad boy of the IMF and World Bank. Even if Ralphie didn't say it, it is probably close enough to the truth.

The thing is, that Fonseca's ( Finance Minister) program of public works and investment and upgrades of the infra-structure needed to be done. In that sense, he is doing something good! The trouble is, he is using a Belizean Government Credit Card to pay for it. Should a country live on credit and beyond it's means? Those are interesting questions? The local Belize currency while set at a government par of $2 Belizean for $1 USA is actually worth only .33 cents Belizean to the USA $1. Exchange on the streets by the currency traders continue to trade at the $2 to $1 rate, minus a percentage of about 15% for commissions, so the strength of the Belize Dollar is more based on religious FAITH than reality. A bit like the Greater Fool Theory in buying stocks. You buy stock at a high price, hoping some fool will come along and pay more for it, than you did.

Where this will all end is anybody's guess? We hope and so do all the citizens that Fonseca's big GAMBLE, go for BROKE strategy will work out! In incurring insurmountable debt for the nation of Belize at current levels of foreign exchange earnings and tax revenue, Fonseca and Musa are gambling on a throw of the dice with YOUR CREDIT CARD that the infra-structure upgrades and investments will boost the economy incomes sufficient to downgrade the level of debt incurred percentage wise overall, by increased government revenue in taxes from a more robust economic picture.

I'm a conservative, so this approach makes me shudder. But then I've been wrong many times before, so we wait and see.

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