WORLD TRADE  
ORGANIZATION   
WT/WGTDF/W/62 
24 April 2012 
 (12-2176) 
 Original:   Spanish 
  
 
SEMINAR ON EXCHANGE RATES AND TRADE 
 
WORKING GROUP ON TRAD E, DEBT AND FINANCE 
 
DOLLARIZATION IN ECUADOR:  TEMPORARY FOREIGN 
TRADE EXCHANGE RESTRICTIONS
1 
   The main purpose of this document is not to present a formal and academic study of the relationship between exchange rate movements and foreign trade in goods in two economies, but to 
share with seminar participants Ecuador's experi ence of adopting a fixed exchange rate through 
dollarization, which has had a significant impact on it s external sector, in particular foreign trade. 
 
Background 
 
 It is important to remember that a dollari zed system involves adopting an extreme fixed 
exchange rate regime, under which the commitment to maintain exchange parity is so strong and 
irrevocable that the local currency is completely w ithdrawn and the foreign currency is adopted as the 
country's own (see Frankel, 1999;  and Berg and Borensztein, 2000).  Upon the adoption of this 
system, Ecuador's external sector became the sour ce of the money supply for developing production, 
which involved " a high cost […] as far as the tools and instruments available to intervene in the 
economy were concerned;  basically, Ecuador was no  longer able to issue its own money and so use 
monetary and exchange policy to offset any external shocks " (Basic document submitted to the WTO 
by Ecuador:  Balance-of-payments safeguard measure, WT/BOP/G/15, 2009).   Until 1999, the sucre was Ecuador's legal curre ncy and external tran sactions were conducted 
through the Central Bank by applying the exchange rate for the sucre and the foreign currency.  
In January 2000, faced with the worst economic cr isis of the past 50 years, Ecuador adopted a 
dollarization regime with a view to slowing down the accelerated depreciation of its national currency 
and preventing hyperinflation (Basic docum ent submitted to the WTO by Ecuador:  
Balance-of-payments safeguard measure, WT/BOP/G/15, 2009).  
 " When Ecuador adopted dollarization, its m onetary authorities used the international 
monetary reserve to "withdraw" the national currency (the sucre) and "exchange" for dollars taken 
from the reserve at a nominal rate of 25,000 sucres/ dollar.  The internati onal reserves were therefore 
"distributed" in March 2000 and became part of th e money supply at the same time as the monetary 
authorities lost control of the economy's liquidity.  That year, the balance in the international 
monetary reserve became part of the economy's liquidity, with the exception of that part 
corresponding to public sector depos its and bank reserves in foreign currency in Ecuador's Central 
Bank " (Basic document submitted to the WTO by Ecuador:  Balance-of-payments safeguard measure, 
WT/BOP/G/15, 2009).  
                                                      
1 This document is an academic contribution to the discussion at the Seminar on Exchange Rates and 
Trade and does not reflect the official position of the Ecuadorian Government. WT/WGTDF/W/62 
Page 2  
 
  The international crisis 
 
 The global financial crisis of 2008 had a ne gative impact on Ecuador's balance-of-payments 
situation in the form of:  " (i) lower earnings from oil because of the decline in the price of crude oil 
on international markets;  (ii) downturn in non- oil exports caused by lower external demand;  
(iii) reduction in remittances because of growin g unemployment in those economies employing 
Ecuadorian migrant labour;  and (iv) fewer lines of credit and resources to finance the balance of payments.  In addition, there have been competitive devaluations by Ecuador's  leading trade partners, 
which has affected Ecuador's foreign trade by making  its exports more costly while lowering the cost 
of imports from those countries " (Basic document submitted to the WTO by Ecuador:  
Balance-of-payments safeguard measure, WT/BOP/G/15, 2009). 
 
Balance-of-payments safeguar d within the WTO framework 
 
 In this context, in 2009 Ecuador applied a safeguard measure under Article XVIII:B of the 
GATT 1994 to address imbalances in its balance of payments.  This safeguard involved the 
application of temporary restrictive import measures to  prevent the further dete rioration of its balance 
of payments and, in particular, its trade bala nce, which had been seriously affected by the 
international crisis.  The crisis had affected Ec uador's major sources of foreign currency:  oil, 
remittances and non-oil exports.  The measure, author ized by consensus by WTO Members, was later 
dismantled progressively over a six-month period. 
 
 Although "… the adoption of the dollar as the nati onal currency stabilized the Ecuadorian 
economy, it did not isolate it from variations in the value of currencies of other countries, and left it 
without the economic policy instruments to address and off set such variations fully or in part.  In the 
light of this situation, Ecuador must use its fe w remaining economic policy instruments to restore the 
external balance when international market conditions are altered " (Technical report by Ecuador on 
the foreign exchange safeguard, Note No. 35771/GVMCEI/DGINC/2009).  
Foreign exchange safeguard within the Andean Community framework  
 
 Having already referred, in document WT/BOP/G/ 15, to the depreciation in its main trading 
partners in the context of this crisis, in  June 2009, Ecuador, pursuant to Article 98
2 ( C h a p t e r  X I  -  
                                                      
2 Article 98:  "If a currency devaluation made by one of the Member Countries alters the normal 
conditions of competition, the country that considers itself to be adversely affected may bring the case before the General Secretariat, which should hand down its  decision briefly and summ arily.  Once the General 
Secretariat has verified the existen ce of the disturbance, the country th at is adversely affected may take 
temporary corrective measures so long as the condition exists, while abiding by the General Secretariat's 
recommendations.  In any case, those measures may not involve reducing imports to levels below those that 
existed prior to the devaluation. 
The application of the temporary measures refe rred to notwithstanding, any Member Country may 
request the Commission to hand down a final decision on the matter. 
The Member Country that de valued its currency may ask the General Secretariat to review the situation 
at any time, with a view to easing or eliminating the cited corrective measures .  The Commission may amend 
the General Secretariat's decision. 
In the situation referred to in this Article, the co untry which considers itself to be adversely affected 
may, in presenting the case to the General Secretariat, propose protective measures th at are commensurate with 
the magnitude of the alleged disturbance, accompanied by the technical substan tiation of its proposal.  
The General Secretariat may request any suppl ementary information it deems advisable. 
The General Secretariat shall hand down its brief and summary decision within a period of one month 
after receiving the request.  If it fails to  do so within the stipulated period  and the requesting country feels that 
the delay may be harmful to its interests, it may take the initial measures it had proposed;  this action shall be  WT/WGTDF/W/62 
 Page 3 
 
 
  Safeguard Clauses) of the Cartagena Agreement, requ ested that the General Secretariat of the Andean 
Community (SGCA) "… issue a decision regarding Ecuador's intention to adopt temporary 
corrective measures … " on account of it being  "affected or harmed by a currency devaluation made 
by another country or other Member countries whic h alters the normal conditions of competition " 
(Technical report by Ecuador on the foreign exchange safeguard, Note 
No. 35771/GVMCEI/DGINC/2009). 
  For its part, the SGCA, in Resolution No. 1250 of 8 August 2009, states that pursuant to the Cartagena Agreement and Andean Court of Justi ce case-law, it is responsible for examining the 
following three basic aspects when assessing request s for the application of foreign exchange 
safeguard measures, (SGCA Resolution No. 1250): 
(A) Formal and procedural requirements: 
(a) Bringing of the case before the General Secretariat;  and 
(b) Bringing of the case (before the General Secretariat) by a Member country 
that considers itself to be adversely affected. 
(B) Conditions for the application of fo reign exchange safeguard measures: 
(a) Verification of a currency devaluation made by a Member country other than 
the applicant;  and 
(b) Verification of the disruption to the normal conditions of competition. 
(C) Requirements inherent to the natu re and scope of the measures: 
(a) Must be temporary and applied only so long as the disruption to the normal 
conditions of competition exists; 
(b) Must be commensurate with the magnitude of the alleged disturbance;  and 
(c) Must not involve reducing imports and tr ade flows to levels below those that 
existed prior to the devaluation. 
                                                                                                                                                                     
immediately reported to the General Secretariat, which sh all decide whether the measures that have been applied 
should be maintained, modified, or suspended. 
In communicating its decision, the General Secretaria t shall bear in mind, among other criteria, the 
economic indicators regarding the conditions of trade competition in the subregion adopted in general by the 
Commission, at the General Secretaria t's proposal, the individual charact eristics of the Member Countries' 
foreign exchange systems and any studies which the Monetary and Foreign Exchange Council may have made on the subject. 
The General Secretariat shall pr oceed according to its own crite ria until the Commission adopts the 
system of economic indicators. 
Notwithstanding the foregoing, if, during the period between the presentation in question and the 
General Secretariat's decision, in the opinion of the ap plicant Member Country, ther e are background elements 
which give reasonable grounds to fear that the devaluation may cause immediate harmful effects that may have serious implications for its economy that will require the adoption of protective measures on an emergency 
basis, it may present the situation to the General Secr etariat;  the latter, if it finds the request to be 
well-grounded, shall have a period of seven continuous days in which to authorize suitable measures to be taken.  The General Secretariat's final decisi on regarding the disruption of the normal conditions of competition shall, 
in any case, determine whether the auth orized emergency measures shall be maintained, modified, or suspended. 
Measures that are adopted pursuant to this Article may not involve reducing trade to levels below those 
that existed prior to the devaluation. 
The second and third paragraphs of this Article sha ll be fully applicable to all of these measures". WT/WGTDF/W/62 
Page 4  
 
  (D) Issue any necessary recommendations con cerning the application of corrective 
measures as foreign exchange safeguard measures. 
  The SGCA therefore focused on the above-men tioned variables when assessing the request 
and technical report submitted by Ecuador. 
 
 For the purposes of this document, rather than  focus on procedural aspects, we will examine 
the relevant economic grounds ((B) and (C)) for appl ying trade-restricting measures due to currency 
devaluation by other countries.  
 With regard to point (B)(a), "Verification of a currency devaluation made by a Member 
country other than the applicant", th e SGCA analysed the following aspects: 
 
(i) The dollarization of the Ecuadoria n monetary system, which "… did not isolate the 
country from the effects of the variations observed in the value of currencies of other 
countries …", in particular those of its trading partners, "… and left it without the 
traditional monetary and foreign exchange policy instruments to address and offset 
these effects fully or in part …" (Technical report by Ecuador on the foreign exchange 
safeguard, Note No. 35771/GVMCEI/DGINC/2009). 
 
(ii) The nominal depreciation (devaluation)
3 of the Colombian peso, which "… began 
half-way through 2007 and has grown ste adily during recent months, reaching a 
record level of 40.6 per cent, year on year, in March 2009, and 25.6 per cent  in 
May 2009 …".  " When comparing average nominal exchange rate quotations in the 
first quarter … devaluation of 34 per cent wa s recorded in the first quarter of 2009 in 
relation to the same period in 2008.  Taki ng as a reference the second quarter of each 
year, devaluation of 23 per cent was observed between 2008 and 2009.  
The devaluation rate between May 2008 and March 2009 was in the region of 
46 per cent " (Technical report by Ecuador on the foreign exchange safeguard, 
Note No. 35771/GVMCEI/DGINC/2009).  
(iii) The Colombian foreign exchange system:  "… It could be argued that the increase in 
the price of the dollar is due exclusively to the action of market forces, given the 
floating regime under which Colombia adm inisters its foreign exchange policy;  
in practice however, specific intervention by the Central Bank of the Republic of 
Colombia encouraged the steady depreciation of the peso ". 
 
(iv) The parity of the dollar with other regional and world currencies. 
  It should be noted that the SGCA rightly felt that the terms devaluation and depreciation, in 
their economic sense, "… applied to the value of a currency, mean a reduction in the value of this 
currency in relation to another currency, and therefo re refer to an increase in the exchange rate of 
the first currency in relation to the second ", and that a technical distinction can be made, in that 
devaluation is " … an administrative measure taken by the government or Central Bank to modify 
exchange parity … ", in other words, a political decision. 
  While depreciation is a product of market forces, "… in a floating regime, the government or 
Central Bank also occasionally decides to int ervene in the free exchange market directly (by buying 
                                                      
3 The terms devaluation and depreciation both refer to  an increase in the price of a reference currency 
in relation to another currency;  however, the term devaluation is conventionally used to describe a price increase under a fixed exchange rate system, while depr eciation refers to a price increase under a flexible 
exchange rate system (see Krugman, P. and Obstfeld, M., 1999.  International Economics:  Theory and Policy).  WT/WGTDF/W/62 
 Page 5 
 
 
  or selling foreign currency) or indirectly (interest rat es, reserves etc.), which means that flotation 
does not exclude the use of official intervention and monetary policy adjustment to influence the 
exchange rate " (SGCA Resolution No. 1250). 
  The SGCA concludes its analysis by noting that "… case-law, the purpose of the rule, and the 
feasibility of making a practical distinction between  "devaluation" and "depreciation" indicate that 
the foreign exchange safeguard is fully applicable to any situation in which there is a drop in the 
price of a Member country's currency, regardless of  whether this occurs und er a fixed or floating 
exchange regime " (SGCA Resolution No. 1250). 
 
 Having clarified this important aspect, the SGCA goes on to look at the timeframe for 
examining these conditions (depreciation and the disruption of conditions of competition) and 
considers it " appropriate to establish, as the period for examining the conditions for the application  of 
safeguard measures, the period from June 2008 to J une 2009, which is a representative period, since 
the consideration of twelve (12) months (one ca lendar year) isolates any possible exchange rate 
variations deriving from seasonal market trends;  th e start of the period is relatively recent, on the 
understanding that the purpose of the foreign exchange  safeguard measure is to remedy a disruption, 
i.e. a disturbance in the terms of Article 98 of  the Cartagena Agreement, which has altered the 
conditions of competition, but not to modify the conditions of competition that have been established 
and considered normal for several years … " (SGCA Resolution No. 1250). 
 
 On this occasion, as a result of all these considerations, the SGCA confirmed that the 
depreciation of the nominal exchange rate of th e Colombian peso in relation to the dollar was 
57.1 per cent from June 2008 to February 2009 a nd that the accumulated depreciation over the 
analysis period was 30.6 per cent.  
 In relation to point (B)(b), "Verification of the disruption to the normal conditions of 
competition", the SGCA examined the following aspects:  
(i) The disruption to both countries' bilateral real exchange rate caused by nominal 
exchange rate variations, and the im plications of this situation:  " due to the nominal 
depreciation of the peso in relation to th e dollar, in the international market the 
Colombian goods basket is cheaper that th e Ecuadorian goods basket, in other words, 
there has been a steady rise in the bila teral real exchange rate between Ecuador and 
Colombia since June 2008 ";  and Ecuador's concern about this " accelerated 
depreciation process", "due to the rapid det erioration that it could cause to the price 
competitiveness of local production " (Technical report by Ecuador on the foreign 
exchange safeguard, Note No. 35771/GVMCEI/DGINC/2009). 
 
(ii) "From June 2007, the bilateral real exchange rate index dropped steadily to the point 
where it had lost 26 per cent of competitivenes s, in annual terms, by March 2009.  
While the following months saw a change in  the exchange rate trend, competitiveness 
continues to be down by around a quarter " (Technical report by Ecuador on the 
foreign exchange safeguard, Note No. 35771/GVMCEI/DGINC/2009). 
 
The bilateral real exchange rate with the re st of the world was also examined within 
the context of the arguments submitted by Colombia.  Colombia stated that " Ecuador 
has experienced appreciation in real terms not  only with Colombia, but with other 
countries (…), it has lost comp etitiveness in relation to Mexico (-35 per cent) and the 
United States (-20 per cent), but has gai ned competitiveness in relation to Spain 
(19 per cent), Peru (1.3 p er cent) and Chile (16 per cent) " (SGCA Resolution 
No. 1250). 
 WT/WGTDF/W/62 
Page 6  
 
  With regard to the loss of competitiven ess resulting from the appreciation of the 
bilateral real exchange rate, Ecuador states in its report that " a comparison of the first 
quarters of the years 2005 to 2009 shows an average loss of competitiveness 
of -22 per cent, while in the second quarter this loss was -24 per cent … " and 
concludes that devaluation by Colombia has seriously affected the conditions of 
competition by causing its competitiveness to fall by a quarter (SGCA Resolution 
No. 1250). 
 
(iii) Trade flows between the two countries were also analysed.  Ecuador stated that 
"imports from Colombia to have affect ed Ecuador are mainly non-oil imports and 
compete with domestic production " and that such imports " have increased radically, 
from a monthly average of US$108. 3 million (between January 2006 and 
February 2008) to US$152.4 million a m onth (from March 2008 onwards), i.e. a 
41 per cent increase in the average value ".  Colombia, however, stated that " imports 
from Colombia increased by 20 per cent, while those from other countries showed 
greater increases:  Brazil (38 per cent) , United States (26 per cent), Mexico 
(45 per cent), Venezuela (22 per cent)… " (SGCA Resolution No. 1250).  
  In order to verify a disruption to the normal  conditions of competition, the SGCA examines 
first and foremost the evolution of the bilateral real exchange rate as an indicator of the price levels of 
the two economies concerned, and, to a lesser exte nt, aspects such as trade flows and competitiveness.  
It uses the situation recorded before the start of the currency devaluation as a point of comparison for 
determining the " disruption to the normal conditions of competition ". 
  In this case, the SGCA's calculations took into  consideration monthly data from the Consumer 
Price Index and verified the disruption to the normal conditions of competition expressed as the 
accumulated variation of the bilateral real excha nge rate as at June 2009, i.e. 18.5 per cent. 
 
Accumulated variation of the bilateral real exchange rate 
of the Colombian peso vs. the dollar 
(As at 30 June 2009) 
 
Currency Start date 
Jun-08 Jun-07 Jun-06 Jun-05 Jun-04 Jun-03 
Colombian peso -18.5 -10.8 23.0 13.4 35.9 45.8 
Source:  Bank of the Republic. 
 
Data prepared by the General Secretar iat of the Andean Community (SGCA). 
 
 For the analysis carried out in respect of poi nt (C)(a) regarding the temporary nature of the 
measures concerned, the SGCA establishes, on the basi s of existing regulations, that measures to deal 
with currency devaluation may be applied " so long as the condition exists " and refers to the Andean 
Court of Justice decision regarding the fore ign exchange safeguard , according to which 
"the temporary nature of these cor rective measures shall be mainta ined so long as the condition 
exists;  in effect, the first paragraph concerns the duration of the measures.  This is a legal time 
period because it is established in the Agreement itself, and a time period of an indefinite duration 
because it is subject to the occurrence of a future,  but certain, event, such as the cessation of the 
causes of the disruption ". 
  WT/WGTDF/W/62 
 Page 7 
 
 
   With regard to point (C)(b) on the requirement that measures be commensurate with the 
magnitude of the alleged disturbance, Ecuador  in this case proposed exempting Colombia from 
Andean preferences, which would mean reapplying the MFN tariff to its imports, for a total of 666 ten-digit subheadings.  
 Ecuador's argument, as examined by the SGCA, was as follows: 
 
(i) For Ecuador, the proposed measures "… entail non-discriminatory treatment, since it 
has been decided to use the National Import  Tariff applied to third countries, which is 
less discriminatory than the imposition of any other flat tariff rate;  Ecuador adds 
that the purpose of this measure is to protect domestic production and that currency 
devaluation does not have the same effect on all tariff subheadings, as its impact also depends on factors such as Colombian an d Ecuadorian production, relative prices, 
consumer tastes and preferences, and establis hed distribution channels;  Ecuador 
also argues that the magnitude of impor ts from Colombia, compared to other 
countries, is substantial " (SGCA Resolution No. 1250). 
 
(ii) "Trade from Colombia results in  a weighted average tariff  of 26 per cent, a value 
similar to the drop in the real exchange ra te (25 per cent) when Ecuador submitted its 
request for a foreign exchange safeguard " (SGCA Resolution No. 1250). 
 
(iii) Ecuador chose to apply the measure to c onsumer goods in general, and not to all 
bilateral trade, as such a decision would have been against the interests of both countries in that it would have disrupted trade flows of raw materials and capital goods of productive and complement ary importance for both economies 
(Technical report by Ecuador on the foreign exchange safeguard, Note 
No. 35771/GVMCEI/DGINC/2009). 
  The SGCA believes that " … the very purpose of the foreign exchange safeguard is to protect 
a country when the "normal conditions of compe tition" are disrupted as a result of an exchange 
variation with a Member country ". 
 
 The measures, apart from being non-discriminatory
4, must therefore be applied "… without 
exceeding the proportion necessary for the fulfilment of th eir purpose, i.e. to remedy the disruption to 
the normal conditions of competition between Colombian and Ecuadorian production in Ecuador's 
market;  the principle of proportionality therefore pl ays a fundamental role in the fulfilment of this 
requirement by ensuring that foreign exchange sa feguard measures are not excessive in relation to 
the corrective objective sought … " (SGCA Resolution No. 1250). 
  With regard to point (C)(c) on the non-reducti on of imports and trade flows to levels below 
those that existed prior to the devaluation, the SG CA felt that the principle of proportionality in some 
way ensures that there is no excessive disruption to bilateral trade as it existed prior to the 
devaluation.  It requested, however, that Ecua dor and Colombia periodically submit information 
regarding " … variations in exchange rates and consumer price indices, and the levels of ad valorem 
charges applied under the foreign exchange safeguar d, and statistics on imports and exports to 
Ecuador of products from Colombia, so as to be  able to examine, among other things, how the 
disruption to the conditions of competition evolves,  and verify that the corrective measures will not 
lead to a reduction in the import and trade flow l evels that existed prior to the devaluation " (SGCA 
Resolution No. 1250). 
 
                                                      
4 According to the Andean Court of Justice's definition, "the notion of discrimination implies both the 
different handling of similar situations and the identical handling of different situations". WT/WGTDF/W/62 
Page 8  
 
   Finally, in Resolution No. 1250, the SGCA  accepts the applicability of the exchange 
measures imposed by Ecuador.  These measures were applied for a six-month period, during which time, according to a technical a ssessment by Ecuador's Foreign Trade and Investment Council, the 
conditions giving rise to their application were eliminated, i.e. the disruption was remedied. 
 
 A number of measure requests have been  submitted within the Andean Community 
framework since the entry into for ce of the Cartagena Agreement;  in over 40 years, the SGCA has 
received and issued decisions on three cases (in ad dition to the one submitted by Ecuador in 2009, 
which is the most recent):  
- Cartagena Agreement Board Resolutions Nos. 252, 253 and 254 of April 1986.  
Colombia requested measures against Ecuador, Peru, Venezuela and Bolivia;  measures were approved agai nst Venezuela and Ecuador. 
 
- SGCA Resolution No. 218 of April 1999.  Colombia requested the application of 
corrective measures against Ecuador;  the SGCA refused the request. 
  It should also be noted that in 20 10 Ecuador signed a Partial Scope Economic 
Complementarity Agreement with Guatemala.  In the light of Ecuador's dollarized status and its 
exchange and monetary constraints and their impact on the national economy, Chapter VIII 
(Trade Defence), Section B (Bilateral Safeguard) of  this Agreement included a mechanism similar to 
that in Article 98 of the Cartagena Agreement. 
  When summarizing Ecuador's experience in  this respect, which essentially reflects the 
Cartagena Agreement's provisions on the applica tion of foreign exchange  safeguards, general 
consideration should be gi ven to the following: 
 
(a) Verification of the currency de valuation or depreciation; 
(b) Verification of any disruption to the normal conditions of competition; 
(c) The measures must be temporary and app lied only so long as the disruption to the 
normal conditions of competition exists; 
(d) The measures must be commensurate with the magnitude of the alleged disturbance;  
and 
(e) Must not involve reducing imports and trade flows to levels below those that existed 
prior to the devaluation or depreciation. 
 It is clear why a country like Ecuador is inte rested in addressing this issue at international 
level.  As has already been mentioned, the issue is  one of interest to economies that are particularly 
vulnerable to external sector performance but which lack the tools to deal with such vulnerability. 
  The sui generis  measures applied by Ecuador, i.e. the balance-of-payments safeguard within 
the WTO framework and the foreign exchange safe guard within the Andean Community framework, 
highlight the economic policy constraints experienced  by the country's economic authorities when it 
comes to influencing the performance of the economy's external sector.   After several decades of existence and va rious implementation attempts, a number doubts 
persist over certain aspects of the Andean Communi ty mechanism, and it would therefore be of 
interest not only to Ecuador, but to other countries par ticipating in this forum, if the academic sector 
could enhance its analysis or, where studies have alr eady been carried out, if they could be circulated 
and presented for discussion in this forum:  WT/WGTDF/W/62 
 Page 9 
 
 
   
(a) Is there a strong and genuine relationship be tween the nominal exchange rate or real 
exchange rate and increased exports/imports? 
 
(b) Are there any variables other than nominal and real exchange rates which explain, to a 
large extent, the relationship with in creased exports?  If so, what are they? 
 
(c) Where there is a relationship between cu rrency value and relative prices and an 
increase in exports, how does it contribute to this increase? 
 
(d) How long does it take for the effects of de preciation to subside when an economy is 
affected? 
 
(e) Are small economies more vulnerable to the effects of the devaluations or 
depreciations of their partners? 
 
(f) Can econometric models be used to isol ate and identify clearly and objectively the 
effects that exchange rate vari ations have on foreign trade? 
  The above questions derive from Ecuador's experience of applying the above-mentioned 
foreign exchange safeguard measures and from a re view of the Resolution containing the Andean 
Community's decision in that regard. 
  While it is important to investigate the above -mentioned relationships and test the relevant 
economic theories, the analysis should also be ex tended to the creation of mechanisms that can 
remedy these effects and especially to dollarized or fixed exchange rate economies, which no longer 
have the ability to issue national currency and whic h must address real economic variables, such as 
production and employment, without the fundamental tools.   In this light, Ecuador's Ministry of Economic  Policy Coordination is currently developing an 
econometric model to test several of these theories, in  particular the Harberger-Laursen-Metzler effect 
in relation to Ecuadorian trade balance performance. 
 
 The competent Ministry plans to conclude this work by evaluating the results, and will produce a formal academic document in May.  We will then circulate the results with a view to 
contributing to the discussion in this forum.  
 Quito, 21 March 2012. 
 
__________