BY JANE BUSSEY

 Launching a controversial experiment that will be closely watched across Latin
 America, Ecuador's President Gustavo Noboa signed a bill into law Thursday
 making the U.S. dollar his nation's currency.

 The move triggered immediate support from the powerful International Monetary
 Fund and other international agencies, which announced $2 billion in loans, a
 financial lifeline to help the South American country foot the bill for switching to
 dollars and for rebuilding its shattered economy.

 Under the dollarization plan, the country's currency, the sucre, will be phased out
 and replaced by dollars over a six-month period, starting April 1. The central bank
 will no longer print sucres, although it will mint sucre coins. Loans, deposits,
 government bonds and all other financial instruments will be converted to dollars,
 a massive undertaking.

 The move to the dollar has already cost Jamil Mahuad the presidency and has the
 support of less than one Ecuadorean in four, according to local opinion polls.
 Labor unions and indigenous groups announced a series of strikes and protests,
 including a nationwide shutdown scheduled for March 21. Protests in January
 triggered a short-lived military coup that forced Mahuad from office and left the
 presidency in the hands of Noboa.

 Ecuador's poor have seen their living standard slip drastically because of inflation
 and devaluation and expect a further deterioration under this dollarization
 package, which also includes a series of austerity measures and plans for
 privatization of state-run companies.

 Despite the opposition, Ecuadorean officials see dollarization as the only way to
 tame runaway inflation, reverse the economy's downward spiral and restore
 confidence to the nation. Inflation could hit 90 percent this year and the economy
 shrank by 7.5 percent last year, the worst economic performance in the
 hemisphere.

 ``Dollarization is like trying to lose weight by wiring your jaw shut,'' conceded
 Ramiro Crespo, president of Analytica Securities, a Quito broker-dealer. ``It is a
 desperate measure. But there is a greater sense of tranquillity now because
 before, under Mahuad, with the constant devaluations, there was too much
 uncertainty.''

 Although the Federal Reserve and the U.S. Treasury have repeatedly warned
 countries that they dollarize at their own risk, a series of American officials,
 including Peter Romero, the acting assistant secretary of state for Western
 Hemispheric Affairs, have traveled to Quito in recent weeks, visits that
 Ecuadoreans interpreted as a show of support from Washington.

 The Treasury Department had no comment on the dollarization law, but issued a
 statement saying it ``welcomed'' the IMF announcement that it would be lending
 Ecuador $300 million over the next three years, in part to implement the
 dollarization progrma. The World Bank will lend Ecuador $425 million, the
 Inter-American Development Bank will extend $620 million in credits and $700
 million will come from the Andean Development Corporation.

 Not everyone is mourning the passing of the sucre, whose value has plunged in
 about 18 months from 6,000 to $1 to the current rate of 25,000 to $1.

 Dollarization has generated a group of outspoken supporters in capitals around
 the hemisphere and the appeal of the stable dollar in troubled Latin American
 countries is not disputed.

 Supporters of dollarization insist that it stops reckless spending and economic
 mismanagement because countries can no longer print money to finance deficit
 spending. Argentina, Mexico and El Salvador have also talked of dollarization, and
 the experience in Ecuador is being closely watched.

 But the measure remains highly controversial because it makes it impossible for
 countries to control their own domestic economic policies, such as setting
 interest rates -- one of the most powerful tools to speed up or slow down
 economies. In the future, Ecuador will have to follow interest rates set by the U.S.
 Federal Reserve, even if Ecuador's economy is moving in the opposite direction of
 the U.S. economy.

 ``This is a bad idea whose time has come,'' said Walter Molano, director of
 research at BCP Securities in Greenwich, Conn.

 The news of the huge lending by international agencies underscored that bailing
 out Ecuador's ailing economy will be an expensive proposition. The loan
 announcement comes one day after a panel recommended that the IMF halt its
 huge loans to bail out countries. This loan will be Ecuador's ninth IMF rescue
 package in 17 years.

 ``Is this the final answer?'' asked Martin Schubert, president of European
 Inter-American Finance Corp. in Miami. ``I doubt it.''

                     Copyright 2000 Miami Herald