ECUADOR BECOMES NEW MARKET FOR COUNTERFEIT MONEY

QUITO, Ecuador, Jan. 27 A year ago, the government announced that it was 20
abandoning the sucre as the national currency and adopting the American20
dollar as the solution to its chronic economic problems. While the promised
20 benefits have been slow to arrive for ordinary Ecuadoreans, the move
has20 proved an unexpected boon to two very dangerous groups: drug
traffickers20 and counterfeiters in neighboring Colombia.

Colombia, the world's largest source not only of cocaine but also of bogus
20 American currency, produces 40 percent of the fake dollars worldwide,20
American officials say. Almost overnight, its counterfeiters were presented
20 with a new market of 12.5 million people right on their doorstep. Not
ones 20 to miss an opportunity, they cranked up the presses.

Now, as other Latin American countries also switch to the dollar 97 El20
Salvador did on Jan. 1 and Guatemala will on May 1 97 the problem of20
counterfeiting is expected to grow, American officials say. And the move to
20 the dollar is only likely to accelerate as negotiations with the
United20 States for a hemispheric trade agreement progress, with several
other small 20 Central American and Caribbean nations reportedly
considering the switch.

"There is just a lot more counterfeit currency circulating in Latin America
20 right now, and a lot of it has to do with the fact that countries like20
Ecuador are now accepting the dollar," said Alex Echo, supervisor of the20
international team at the Miami office of the United States Secret Service.
20 "The Colombians are a tough adversary who keep up with the latest20
technology to improve their product and put out a lot of currency, so you20
can only catch so much of it."

Before Ecuador adopted the dollar, Mr. Echo explained, "you had to go to an
20 exchange house to get dollars, and the people there were very good at20
spotting fakes because it was their livelihood." But now "everyone has to20
accept dollars, and a lot of people just do not have that trained eye," he
20 added.

As a result, "our seizures have gone up in the region, and that's natural,"
20 Mr. Echo added. "The populace needs to get used to the new currency, and
it 20 is going to be a little while before everyone feels comfortable."

American officials say the chances that any counterfeit currency20
circulating here will leak back into the United States are slim, because20
American bank personnel are expert at detecting fakes. But dollarization in
20 Latin America is nonetheless proving a challenge, confronting American20
officials with "a lot of factors that you'd never see in a classroom," a20
Treasury official acknowledged.

For Ecuador, adopting the dollar was a way of imposing strict fiscal20
discipline, in effect by turning monetary policy over to the United States
20 Federal Reserve Board. Other nations are considering the shift for
similar 20 reasons. But the increasing circulation of bogus money has
proved an20 unanticipated complication, with the Colombians quickly
learning how to20 reproduce even the new design of American bills, which
was first20 implemented in 1996 largely to thwart counterfeiting.

Until Ecuador unexpectedly took the leap to the dollar, which led to the20
overthrow of President Jamil Mahuad, Panama was the only country in the20
Western Hemisphere that officially used the dollar as its currency. But20
Panama has used dollars for nearly a century 97 meaning its people are20
familiar with greenbacks and are more savvy about detecting fakes 97 and it
20 has only one-fifth the population of Ecuador.

"Asking people to change their currency is like asking them to change their
20 language or religion," said Fernando GuzmE1n, deputy governor of
Ecuador's 20 Central Bank. "We were doing something that no one else had
done, we were20 doing it rapidly, and we had no one to guide us or tell us
of their20 experience."

To help Ecuador deal with the problems, a United States government team20
representing the Federal Reserve, the Secret Service and the Treasury20
Department visited here in the fall. One result, Mr. GuzmE1n said, was that
20 instead of destroying counterfeit bills, Ecuador now "sends our bad
notes20 intact to the United States so that their characteristics can be
studied20 and identified."

Government officials here and in the United States are far less20
forthcoming, however, about the laundering of drug money, and will say20
little more than that they are improving cooperation. But the dimensions of
20 the problem are evident.

In recent years, the cocaine and heroin trades have been so profitable that
20 Colombian drug cartels have earned more dollars than they know what to
do with.

Indeed, traffickers there have been so eager to exchange their dollars for
20 pesos that Colombia may be the only country in the world in which the
black 20 market rate for dollars is lower than the legal rate.

With their domestic market all but saturated and the United States more20
vigilant than ever, Colombian trafficking groups have also been looking for
20 new places where they can buy up legitimate businesses to launder
their20 earnings. The combination of a weak legal structure and its use of
the20 dollar quickly made Ecuador an attractive target.

"It's much easier now for someone to launder their money in Ecuador," said
20 Pablo Lucio-Paredes, author of "The Dollarization Book: What Everyone20
Should Know," a best seller here. "Before you had to change your money into
20 sucres, which was cumbersome and increased the risk that you might
lose20 money" because the value of the sucre was slipping daily. "Now,20
unfortunately, there is no risk at all because the whole country is using20
nothing but dollars."

To prepare Ecuadoreans for the transition to the dollar, which is to20
conclude in March with the withdrawal of the last sucre bills, the20
government here has printed guidebooks in both Spanish and Quechua, the20
main Indian language here. The booklets explain what each American bill20
looks like and provide tips on how to identify fake ones.

But the transition appears to have been complicated by the country's20
poverty. One of every eight Ecuadoreans is illiterate, according to20
government figures, and in the past those people have relied on the20
different colors in which denominations of the sucre were printed as a20
guide to the value of the notes.

"It still bothers me that the American bills are all just one color," said
20 Amalia Quishpe, a vendor of vegetables at a market here who grew up in
the 20 interior and did not get past the second grade. "I've had to learn
to20 recognize the different faces on the bills, and until I did, I got
fooled a 20 few times."

Afraid of being bamboozled by counterfeiters, many stores here are refusing
20 to accept large denomination bills. "I won't take anything larger than
a20 $20 bill," said Luis Edgardo MelE9ndez, owner of a photo- supply shop
here. 20 "The first time that the bank rejected a $100 bill that I had
accepted as20 genuine was lesson enough for me."

Even coins, though not generally counterfeited, have proved to be a major20
headache. Financial transactions in Ecuador, where the minimum wage is20
under $100 a month, involve much smaller sums than in the United States,20
and thus the demand for coins has been greater than the government's20
ability to meet it.

For one thing, coins are heavy, and the government has had difficulty20
finding planes that can fly the necessary amounts to remote areas. In20
addition, American coins do not show their values in figures. "That has20
proved a big problem for people here who can't speak English or can't20
read," Mr. GuzmE1n said.

To meet the demand, Ecuador has begun minting coins of its own that are the
20 same size, color, composition and value as American coins. But those
coins 20 are beginning to show up in parking meters and vending machines in
American 20 cities (though the United States government considers the
problem a minor one).

If Ecuador's government had it to do all over again, Mr. Lucio-Paredes20
said, it might take things more slowly and do more advance work. At the20
very least, other countries might consider that path if they hope to avoid
20 similar problems, he said.

"One way to dollarize is to do what El Salvador is doing right now, from a
20 position of strength in an atmosphere of stability," he said. "Or you
can20 do it as Ecuador did, on the brink of economic chaos, with a lot of20
problems in government finances and the bank system, as a sort of20
life-saving measure. Obviously the most difficult circumstances are those20
Ecuador chose."