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  Ecuador Faces Harsh Economic Measures

Two guards ask a photographer to stop outside a closed bank in Quito, Ecuador on Friday. (AP)
By Carlos Cisternas
Associated Press Writer
Thursday, March 11, 1999; 11:05 p.m. EST

QUITO, Ecuador (AP) Ecuador's president announced tax hikes and other tough economic measures Thursday in the country's latest attempt to address its worst financial crisis in decades.

The announcement came as a two-day nationwide strike to protest the government's economic programs wound down and just hours after the Central Bank's board of directors, including president Luis Jacome, resigned.

The government's political opponents had accused Jacome of mismanaging Ecuador's fiscal policy.

Ecuador is locked in its worst economic crisis in recent decades, battered by low prices for its main export, oil, and $2.6 billion in damage from El Nino-powered floods last year.

Inflation is near 50 percent, the highest in Latin America, and the national currency lost a quarter of its value last week.

In a nationwide television address late Thursday, President Jamil Mahuad detailed plans to jail tax evaders, eliminate sales tax exemptions except on food and medicine and impose new taxes on the rich.

Mahuad also announced that banks, which have been closed for four days, would remain shut until Monday to give the government time to implement his program.

Mahuad said the country's rich have to learn they have a duty to pay taxes. "They should give thanks to God that they have the money to do it," he said.

Among other points of his plan to end the $1.2 budget deficit:

  • Restrict the amount of money that can be withdrawn from checking and savings accounts.
  • Propose an increase in the sales tax from 10 percent to 15 percent.
  • Increase the price of a gallon of gasoline from $1 to $1.90.

Mahuad said the increase in gasoline prices was an emergency measure until Congress approved the increase in the sales tax. He said gasoline prices would be gradually reduced after the sales tax increase went into effect.

Before the president's announcement, police dispersed protesters with tear gas in isolated street clashes Thursday. No injuries were reported.

Police have arrested 235 people over the two days of protests, with 29 of those detained on Thursday, said Col. Mauro Lopez, head of police anti-riot operations.

Mahuad decreed a 60-day state of emergency Tuesday to offset the double impact of the strike and financial crisis, and ordered machine gun-toting police to guard oil and electricity installations from strikers.

Strikers want Mahuad to back down on earlier austerity measures that have ended fuel subsidies, frozen wages and caused prices to soar for already impoverished Ecuadoreans.

The strike was called by Ecuador's powerful, leftist-led unions and has the support of student and Indian groups. It has shut down most commerce, costing Ecuadorean businesses $120 million, according to the Quito Chamber of Commerce.

© Copyright 1999 The Associated Press

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