More Ecuador

Goldman apparently thinks that after the default Ecuador will abandon dollarization:

"Dec. 17 (Bloomberg) -- Ecuador’s default on $3.9 billion of
international bonds means it’s only a matter of time before the
country drops the U.S. dollar as its currency, Goldman Sachs
Group Inc. says.
Ecuador’s use of the dollar gives President Rafael Correa no
outlet for providing credit to the economy as access to foreign
financing dries up and revenue from sales of oil, the nation’s
biggest export, tumbles. Correa, a critic of so-called
dollarization, also may use the default as an excuse to abandon
the policy, said Alberto Ramos, a Latin America economist with
Goldman Sachs in New York."

I would bet that in that case you end up with a huge surge in inflation. Ecuador's economy will need to be financed somehow and, as the article says, with int'l capital mkts drying up (and who can blame them if Ecuador has defaulted on every sovereign bond they have ever issued) and with oil at $45... where's the money come from? To quote Ben Bernanke: "The [Ecuadorian] government has a technology called a printing press..." Welcome back to Latin America in the 90s. Overvalued currencies, currency boards or outright dollarization, currency mismatches, and debt defaults.

Then again, I would bet my left hand on this assessmet. Over the summer Goldman forecast an oil price of up to $250 by year-end. Granted, that was the upper limit of their forecast but... $50 is a far way from $250.