roger hollander

Ecuador: Paradox or Paradigm December 23, 2008

(This is an article I wrote (October 5, 1999) and submitted somewhere, I don’t remember.  In any case it was rejected.  It summarizes Ecuador’s political and economic climate and suggests that it might be a paradigm for the rest of Latin America.)

Whereas the vast majority of Ecuadorians would not know what a Brady Bond is any more than they could identify the Brady Bunch, it can only be fear of violent Ecuadorian public reaction to further “belt tightening” measures that prompted the fundamentally conservative center-right government of President Jamie Mahuad to default on $44.5 million in Brady Bond interest payments earlier this month.  While Ecuador may be one of the smallest and least economically developed amongst its Latin American neighbors and thereby easily dismissed as not comparable to the economic “giants” such as Brazil, Mexico or Argentina, to overlook the significance of this event for that reason is to ignore a continent-wide unrest of which Ecuador is as representative as any other Latin American republic.

The relatively mild international reaction to Ecuador’s unprecedented action would indicate that the world banking community is convinced that the tail is not likely to wag the dog.  This, on the one hand, overlooks several key characteristics that Ecuador shares with its Latin American neighbors – large gaps between rich and poor, entrenched governmental corruption and instability, deep poverty, small and shrinking middle classes, overwhelming external debt, and dependency upon unstable world commodity markets.  More importantly, it fails to take into account the single most critical factor that economists love to under-rate: the angry passions of desperate masses.

Ecuador is blessed with abundant natural resources.  It is the world’s largest exporter of bananas and is also a major producer of cocoa, coffee, fresh flowers, coconut, pineapple, rice, and sugar cane.  Its offshore and inland fishing industry yields massive quantities of lobster, shrimp, tuna, tilapia, and other high demand seafood products.  The discovery of large oil deposits in its tropical rainforests in the 1970’s has thrust Ecuador amongst the leading petroleum producing nations of the Americas.  The same Oriente region is potentially rife with precious metals such as silver and gold.  With such natural riches, a diversity of bio-geographic regions (tropical rainforest, the Andes cordillera, lush coastal plains, and the Galápagos Islands) that is amenable to high yield agriculture and aquaculture production as well as regional and international tourism, and with a small population of just under thirteen million, Ecuador should be among the wealthiest nations on earth.

Yet, it is one of the poorest and it suffers perpetual economic crisis.  Ecuador has both the highest inflation rate and per capita external debt in all Latin America.  It has high rates of infant mortality and illiteracy that reflect a minimal public investment in health and education.  Nearly one quarter of its adult population is unemployed and half of those employed are underemployed, managing a bare existence by selling everything from hard candy to tropical fruit, tooth paste to toilet paper, on city streets.  The poverty rate is estimated at 80 per cent, with more than half of that considered to be deep poverty.  It is not uncommon to see children as young as four and five years of age begging and/or working on the streets of Guayaquil, a seaport of over two million inhabitants, which is the country’s largest city and which suffers from a dilapidated infrastructure, disease epidemic due to inadequate sanitation, air and water pollution, and which is experiencing the proliferation of bamboo housing slums on its borders due to the influx of refugees from even more severe rural poverty.

Ecuador returned to constitutional government after a military dictatorship that lasted throughout the 1970’s.  Its political culture is characterized by corruption, greed and incompetence.  Its judicial system is almost entirely politicized.  Over a dozen political parties jockey for power, and the inability of the legislative and executive branches to find common ground leaves the country in a state of almost perpetual political paralysis.  There is constant labor strife, fueled, among other things, by the fact that government workers, particularly teachers and health workers whose salaries are embarrassing low to begin with, are compelled to initiate work stoppages to force government ministries to release their pay checks, which are often several months in arrears.  In addition, there is chronic unrest amongst students, petroleum and utilities workers, Indigenous peoples and campesinos, and other sectors of society as a result unpopular policies that are perceived as throwing the burden of economic crisis on the backs of the poorest and most vulnerable members of society.  Even the Catholic Church, despite its essentially conservative nature, often finds itself along side more traditional dissidents in chastising the government.

In 1996, Abdalá Bucaram, a demagogic and  unbelievably vulgar “populist,” representing a party with  left wing rhetoric and right wing policies, won the presidency and ring-mastered a governmental circus that was overthrown by a Congress-led, military supported and bloodless coup d’etat which followed two days of massive nation-wide general strike in February of  1997.  With more than a bit of theatric irony, Bucaram, who proudly calls himself El Loco, was ousted by the Ecuadorian Congress on the constitutional ground of “mental incompetence,”  and went into exile in Panama. Immediately, the Congress, in violation of the constitution, appointed its own leader, Fabian Alarcón, as interim president, bypassing the legitimate successor, the elected Vice President, Rosalía Arteaga, who had the misfortune to have been born of the wrong gender.

In August of 1998, under the banner of the center-right Popular Democracy party, Jamil Mahuad, a former mayor of Quito, Ecuador’s capital city, began a four year presidential term, having barely edged out Alvaro Noboa, heir to Ecuador’s largest banana fortune and the country’s wealthiest individual, a man with no prior political experience other than an appointed position in the government of Bucaram, who would no doubt have returned from exile should Noboa have won.  Mahuad proceeded to implement a “paquetizo,” a package of economic policies far more stringent and devastating than those proposed by and which lead to the ouster of Bucaram.  By mid-1999 the government had more than doubled the price of gasoline, devalued the currency, and raised the cost of public utilities as much as five hundred percent.  A nation-wide banking crisis in the spring had lead to a week-long closure of all banks and was followed by the freezing of bank accounts.  Hundreds of thousands of Ecuadorians lost their life savings.  Things came to a head in early July, when a two day general strike called for by transportation workers ended up shutting down Ecuador’s inter-regional transportation for nearly two weeks.

The only political party in Ecuador with representation in Congress that as a matter of policy advocates the cessation of external debt payments is the Marxist-Leninist oriented Movement for Popular Democracy (MPD), which draws its major support from the teachers’ union and middle class professionals.  A handful of so-called “center-left” parties, who always morph into center-right should they capture the presidency, will sometimes echo such demand while in opposition.  However, nothing less than extraordinary circumstances can explain the unilateral withholding of a scheduled debt payment, particularly when such an action is taken by a government with no pretence toward or prior history of radicalism.

It is interesting to note that Ecuador is not among those countries for which the IMF is seriously considering the forgiving of past debt.  Ostensibly this is because of Ecuador’s relative “wealth,” which fails to take into account its skewed distribution, and because of the endemic corruption within the political process.  However, even if Ecuador were to be magically freed of the Albatross of external debt, apart from some undeniable short term benefit, this would not begin to solve the structural problems that lie at the root of the nation’s tragic history.

Crippling external debt is the symptom not the cause of Ecuador’s woes, and it can be argued that the same is substantially the same for virtually every Latin American nation.   In short, given its history of external resource exploitation which presents us with today’s reality, a reality characterized by brutal discrepancies in the distribution of wealth and an overall dearth of both physical infrastructure (roads, utilities, sanitation) and social infrastructure (health, education, democratic government), Ecuador simply is not a viable political/economic unit. As government after government has proven, no amount of reform, be it of the strong armed neo-Liberal variety, which is the current style, or the more traditional borrow and spend (or steal) it variety, will get to the root of the problem.

Ecuador lacks a responsible leadership class.  Election to public office is considered tantamount to a license to accumulate wealth.  Presidents, Vice-Presidents, and Congressmen who leave office are almost as likely to go into exile in Panama, Chile, Costa Rica or Miami as they are to return to private life in Ecuador.  There is no sense amongst Ecuadorians that its crisis can be solved at the political level as it presently exists.  An example of this was the Popular Assembly, a by-product of the February 1997 uprising that lead to the ouster of Bucaram, which was seen as a way to reform the Constitution over the head of the Congress, which was considered too mired in corruption to achieve meaningful change.  The interim government, however, set the ground rules for the Assembly, which resulted in the existing political parties being able to get their loyal supporters elected to and in control of the Assembly, which in turn produced nothing that constituted genuine change.

On the other hand, one does find in Ecuador a relatively strong union movement, militant teachers, angry students, a highly organized and effective Indigenous movement, a nascent and growing women’s movement, a discontented and fearful professional class, and millions of suffering and disillusioned “ordinary people.”  Like the Guagua Pinchincha volcano, which as been on low boil for nearly a year and only this week has begun to spew tons of ash and dust over nearby Quito, the repressed and volcanic passions of this small but not atypical Latin nation may erupt at any moment, and without warning.

 And the rest of Latin America may not be that far behind.