The Impact of Foreign Aid on the Dependency of Recipient Countries: The Dollarization Policy of the Government of the Republic of Ecuador

This study examines the relationship between foreign aid and recipient-country dependence through a case study of the Republic of Ecuador, focusing on the period following the implementation of the dollarization policy in 2000. Using dependency theory, complex interdependence, and institutional approaches, the research finds that although foreign aid provides short-term economic stabilization and facilitates post-crisis recovery, it simultaneously reinforces fiscal and structural dependence on international institutions and donor states, especially the United States. Dollarization, initially intended to curb inflation and restore market confidence, significantly reduced Ecuador’s monetary sovereignty and deepened its reliance on external economic policies. Findings from the literature and policy evaluations indicate that IMF assistance through the Extended Fund Facility (EFF) improved fiscal governance and strengthened social protection, while also contributing to long-term dependency patterns exacerbated by the loss of national monetary instruments. Efforts to diversify development partnerships, such as cooperation with Indonesia and the People’s Republic of China, offer new opportunities but also carry the risk of increasing external debt burdens. The study concludes that without a comprehensive exit strategy and strengthened domestic economic capacity, Ecuador is likely to remain trapped in a cycle of external dependence that constrains its long-term economic sovereignty.