SAN SALVADOR Battered by years of sluggish economic growth, bouts of runaway inflation and soaring unemployment rates, Latin American nations are increasingly turning to the U.S. dollar as an anchor of economic stability, AFP reported.

On January 1, El Salvador became the third Latin nation to fully dollarize its economy. It followed Ecuador -- which replaced its sucres for dollars in September 1999 -- and Panama, which has been using U.S. dollars since 1904.

While few other Latin nations seem ready to fully adopt the Yankee greenback, many have pegged their currency to a fixed or semifixed exchange rate with the U.S. dollar, and have economies in which U.S. dollars are widely accepted.

In Ecuador, Congress in April adopted a fixed exchange rate of 25,000 sucres to the dollar to overcome the nation's worst-ever economic crisis, which climaxed in 1999 with a 197 percent depreciation of the sucre against the dollar. By September 2000, sucres were out -- surviving only in coin form -- and dollars were in.

But dollarization did not solve Ecuador's woes. Though Ecuador ended the year without a deficit, it registered a meager 1.9 percent gross domestic product increase and saw an annual inflation rate of 91 percent, the highest in Latin America.

In El Salvador, the U.S. greenback began circulating alongside the traditional colon currency on January 1, with a fixed exchange rate of 8.75 colons to the dollar. Colons will eventually be phased out and replaced by dollars.

Guatemala's Congress also enacted a law allowing the dollar to circulate as currency along with its own quetzal, with wages in dollars and dollar-denominated savings and current accounts all legalized starting in May 2001.

Until 1999, the country most receptive to the U.S. dollar was Argentina, where then-president Carlos Menem approved a law in 1991 that set the country's peso on equal footing with the dollar. The exchange rate was backed up, peso for peso, by the national reserves.

Menem proposed adopting the greenback as the regional currency to stabilize Latin American economies. But the proposal sparked a fierce controversy in the Mercosur trade group (Argentina, Brazil, Paraguay and Uruguay), with Brazilian President Fernando Henrique Cardoso dubbing the scheme "unthinkable."

Proponents of dollarization insist that it will drive down inflation and interest rates and soften the blow of international financial crises.

But opponents point to the financial and political consequences surrounding a nation's surrendering its financial sovereignty.

Some analysts and officials insist that more-or-less dollarized economies like Costa Rica, Peru and Uruguay would not see major changes if they made the U.S. currency official.

In Mexico, where the dollar floats freely -- the dollar can be bought and sold freely without intervention from the Central Bank -- officials have shied away from dollarization. Chile and Colombia also allow the dollar to float.

Brazil, which used to rely on a system of currency bands that limited the rise and fall of the dollar, let the dollar float in January 1999 and saw an immediate 50 percent devaluation of its real.

With the dollar currently valued at 1.95 reals, the Central Bank nevertheless says that "no change in the system is forecast for 2001."

Venezuela currently limits the dollar's fluctuations with currency bands that allow it to increase or decrease based on the reference amount of 700 bolivars, though President Hugo Chavez said recently that it could be substituted with a fixed exchange rate.

Paraguay, Peru and Bolivia also use currency band systems, which dictate that the money in circulation must be less than or equal to the Central Bank's reserves, in order to allow the bank to buy or sell dollars if there is a drastic increase or decrease in the currency's value.

In Honduras, the Central Bank sets the exchange rate, but there is a general consensus that the country is not yet prepared for dollarization.

In Nicaragua, a system of mini-devaluations has been in effect since 1992, and there appears to be no pressing need to dollarize.

Costa Rica, where the dollar floats freely, also uses a system of small devaluations, and Central Bank President Eduardo Lizano insists that official dollarization is a plausible option.

In Cuba, meanwhile, the Cuban peso and the U.S. dollar officially exchange as equals, though the unofficial exchange rate is around 21 pesos to the dollar.

Cuban Leader Fidel Castro fiercely opposes dollarization, even though he authorized free circulation of the U.S. currency in 1993 to stimulate the island's beleaguered economy, according to AFP.