Ecuador seen headed for another devaluation

             EDWARD BARTRAM and JAMES CRAIG
             Bloomberg News

             QUITO, Ecuador -- Ecuador may be gearing up for its second currency
             devaluation this year as a new government faces plunging commodity prices,
             slowing growth and accelerating inflation.

             While the sucre has already lost 25 percent of its value against the dollar this year
             -- and government officials say they'll support their currency -- bankers say
             another devaluation is in the cards.

             ``It's very probable in the next couple of weeks that there will be a devaluation of
             between 10 and 12 percent,'' said Luis Hernandez, credit chief at Banco de
             Guayaquil SA.

             Finance Minister Fidel Jaramillo, who as Central Bank director in March devalued
             the sucre by 7.5 percent, has denied he is considering another devaluation.

             President Jamil Mahuad, in office two weeks, inherited a $21 billion economy
             projected to grow at between zero and 1 percent this year. Growth has been
             throttled by the effects of El Nino and collapsing oil and other commodities prices,
             which Wednesday hit a 12-year low.

             Ecuador's international reserves, totaling $2.1 billion in 1997, are seen slipping to
             less than $1.9 billion this year.

             Inflation is forecast to reach 40 percent from 31 percent last year as the sucre
             depreciates at an annual rate of up to 35 percent. The spread between the inflation
             and depreciation rates, analysts say, means the sucre is over-valued.

             The government each day sets the band range in which the sucre trades.

             The currency strengthened Friday to 5,494 to the dollar but had slid to 5,505
             earlier this week and only the Central Bank's benchmark lending rate of 45
             percent has prevented further depreciation as pressures mount.

             Last week, authorities shut Banco de Prestamos SA, the ninth-biggest bank, as oil
             industry defaults mounted and depositors withdrew $520 million in three months.

             The nation's dollar debt has crashed along with all emerging markets this month as
             Russia's devaluation and default caused losses of more than $30 billion.

             Last week, Ecuador's dollar debt fell 12 percent, driving the composite yield
             spread to 18.3 percentage points more than comparable U.S. Treasuries.

             The scenario is not new for emerging markets. Since last year, some Asian nations
             and Russia have devalued their currencies and seen their banking systems wobble.

             ``The market's expecting a (sucre) devaluation,'' said Arturo Veliz, currency trader
             at Citibank in Quito. ``Inflation's ahead of the sucre and there's continued
             uncertainty because the government hasn't produced its economic plan yet.''

             Jaramillo has yet to unveil his plan for shoring up the trouble-plagued economy and
             curbing a budget deficit swollen to 6 percent of gross domestic product.