March 9, 1999
Web posted at: 9:58 p.m. EDT (2158 GMT)

In this story: Gatherings that threaten order are banned Emergency economic plan due Thursday Argentine-style solution considered RELATED STORIES, SITES

QUITO, ECUADOR (CNN) -- Ecuador's government declared a 60-day state of emergency and called out the military Tuesday to staff basic services during a general strike planned to protest economic austerity policies.

President Jamil Mahuad's government said the military would also give "all necessary support" to keep the nation's oil industry going during the strike.

The decree allows the government to use the military to protect oil and electricity installations, limit public meetings and movement and order strikers back to work.

Trade unions angered by Mahuad's economic reforms, which have ended fuel subsidies and caused prices to soar, are threatening to paralyze industry Wednesday and Thursday and bring oil production to a halt.

Protesting Indian groups have already started blocking roads in northern Ecuador.

Mahuad earlier Tuesday extended an emergency bank holiday through Thursday to keep panicked citizens from withdrawing their savings as the government prepared potentially drastic economic measures.

Monday was declared a surprise holiday after a run on banking deposits last week that coincided with a 25 percent drop in the value of the nation's currency, the sucre.

Interior Minister Vladimiro Alvarez said the state of emergency would not infringe on citizens' rights. But he said it would guarantee order, and that all gatherings that could threaten public order would be banned.

"The armed forces will give all necessary support to oil installations and will help maintain basic services, order and national security," Alvarez told reporters. "All of the republic's territory has been made a security zone."

Ecuador last declared a state of emergency in February 1997 during the chaotic final days of President Abdala Bucaram, fired by Congress for "mental incompetence."

Before the emergency declaration, Finance Minister Ana Lucia Armijos sought to reassure markets that Mahuad would announce economic emergency measures Thursday.

"These are measures on the fiscal side which have to be adopted to face the crisis," she told reporters, calling it the worst crisis Ecuador had faced in 50 years.

Ecuador's economy has been battered over the past year by $2.6 billion in damage from El Nino-powered floods and mudslides and falling prices of its main export, oil. Economic growth has fallen to near zero, and inflation is running near 50 percent.

Ecuador's bankers charged that Mahuad was losing control of the economy after he ordered the unscheduled bank holidays.

"At this moment, the government has lost control of the country and must retake control," said Carlos Larreategui, president of Ecuador's Association of Private Banks. "If it doesn't attack the fundamental problems, it would be a catastrophe."

The situation has been aggravated by an international financial crisis that has crippled Latin America's largest economy, Brazil's, and put the whole region under pressure.

Armijos said one move being considered was an Argentine-style currency board to peg Ecuador's currency to the U.S. dollar. That measure, considered by other countries like Russia and Indonesia at the height of their own recent crises, would be a drastic move for the Andean nation of 12.2 million.

"It's an option we are considering. We haven't ruled it out," Armijos said, adding that her team had met with members of a private think tank headed by Domingo Cavallo, the man behind Argentina's currency system, called "convertibility."

Ecuadorians flocked to withdraw their savings last week on persistent rumors that foreign currency bank accounts would be confiscated -- a move the government has repeatedly denied.

Argentina confiscated dollar accounts a little over a year before it pegged its peso to the dollar in 1991.

The panic pressured Ecuador's sucre currency to an all-time low against the dollar last week, lashing an already weak banking system and raising fears that Ecuador could default on $16 billion in foreign debt.

A political centrist and former mayor of the capital Quito, Mahuad took office last August. His tough economic policies to deal with the crisis have been received badly by a majority of the nation's citizens, 63 percent of whom live in poverty.

"Mahuad is the only one responsible for this crisis," said Fausto Dutan, head of the United Workers Front. "There isn't anything to eat in this country."

Reuters contributed to this report.

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