This time last year, Ecuador's officials were wringing their hands in desperation as the country defaulted on its foreign debt. And in January 2000, Ecuador's president announced the country would adopt the U.S. dollar as its official currency, as frantic selling of sucres threatened a complete collapse of the economy. The government had frozen most bank deposits 10 months earlier to stem a bank run.

Confounding critics who said dollarization wouldn't work, nearly all the results have been positive.

• One day after the dollarization announcement, the sucre stabilized at the new official level of 25,000 per dollar -- where it has remained ever since, despite serious political turmoil.

• Gross domestic product is now forecast to grow at 1.3 percent this year, compared to an earlier forecast of zero.

• Employment has begun to pick up and short-term interest rates are about 10 percent of what they were just before dollarization.

• Ecuadorans have stopped hoarding their money or sending it abroad -- depositing more than $600 million in banks.

The country's foreign debt has been partially renegotiated and the monthly inflation rate -- measured in sucres -- is falling. In dollar terms, some prices are below their levels of two years ago.

The present government has initiated economic reforms including some privatization and greater flexibility in its labor laws.

But observers say that much still needs to be done to attract greater foreign investment. The government still owns 70 percent of banks, and improvement in political and regulatory matters is urgently needed. Although some tax simplification is reportedly on the way, the country needs a strong dose of supply-side reforms.

Source: Dora de Ampuero (Ecuadoran Institute of Political Economy), "Ecuador's Free Fall Ends Thanks to a Switch to Dollars," Wall Street Journal, September 1, 2000.