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Ecuador: Unrest Order of the Day August 25, 2008

Posted by rogerhollander in Ecuador Politics, History, Government, Culture, Ecuador: Unrest Order of the Day.
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(Unfortunately, the letters I wrote during the coup d’etat that ousted Abdalá Bucaram in 1997 have disappeared from my computer.  If they exist, the do so in the computers of some of those to whom they were addressed.  So, my diary accounts of the political machinations I have witnessed over the years begin in early 1999 with protests against the Mahuad government.)


Thursday, 18 Mar 1999


Not likely that any of the following has made the news in the US or Canada, but what is happening in Ecuador at the moment is quite astonishing.


A new government was elected last July, usually described as “center-right” but certainly more right than center.  The president is Jamil Mahuad, former mayor of Quito, whose centrist right Popular Democracy party has aligned itself with the extreme right Social Democrats to control the Congress along with the Presidency.


The government has had a serious budget problem for a variety of reasons, including the crippling external debt, the devastations from El Niño, the drop in oil prices, and the inability to collect taxes and customs duties due to endemic corruption that exists up to the highest levels.


The government’s first actions were strong and unpopular.  It withdrew subsidies such that the cost of domestic gas, electricity, telephone service, and water doubled and tripled.  The cost of gasoline also rose sharply which caused inflation to rise above 40%, the highest in all Latin America.  In a bizarre move, it replaced income tax with a “capital circulation” tax of 1%, which means that whenever one makes a bank transaction, the bank collects 1% for the government.


All of the above caused popular dissent, and protests began.


Then about twp weeks ago, the government ordered the Central Bank to withdraw its support of the currency (the sucre) and let it “float” on the open money market.  This caused a rash of speculation and the value of the sucre dropped dramatically (it had been about 7500 to the US dollar, and went as much as 19,000 before it settled to around 12,000).  This amounts to a devaluation of about 60%.


Labour unions and popular organizations then called a two day general strike nationwide for March 10 and 11, which virtually shut the country down.  Two days before the strike (Monday, the 8th) the government ordered all banks closed, and they have been closed ever since.  They are expected to re-open on Monday the 15th (I am writing this on Sunday the 14th, but since we have no telephone service at the time in Playas, I have no idea when I will be able to send it).  On Thursday night (the 11th), the President went on television and dropped the following bombshell:


1) gasoline prices will immediately rise by nearly 300 %!!!!!!!!!!  A gallon cost about 2500 sucres when I arrived in Ecuador four years ago (a little more than one U.S. dollar).  When this government took power it was up to about 6000, and they jacked it up to about 8500.  When I put gas in my car yesterday, I paid more than 23,000 sucres a gallon.


2) bank accounts above 5 million sucres will be frozen for a year (with a formula to withdraw a percentage during the year).  People with term deposits will only be able to withdraw interest during this year.


3) already embarrassing levels of government services will be cut further, causing further disaster to an already pathetic system of education and health (at the moment teachers are on hunger strike because they haven’t been paid in three months).


This past week has been chaotic.  If you had money in the bank but no bank machine card, you were out of luck; there was no way to access your accounts.  Here in Playas, where I arrived yesterday (from Guayaquil), the weekend tourism flow, in this the height of the season, is down by about 75%.  People either have no money or cannot afford the gas to get here.


Imagine the inflationary spiral that will be set in motion with a nearly 300% increase in gasoline; fares for busses, taxis, inner-city transport; and then just about anything you buy has to be transported from somewhere.  When the currency got devalued, prices shot up by up to 50% overnight, people who have debts in US dollars have their debt increased by 60%, and the cost of importing products from the US will go up by that amount as well.  But the debt will be paid, the budget nearly balanced, and the IMF and World Bank will be happy.


The only problem is that the average family will have just about enough spending power to afford a breakfast of plantain fried in oil every morning and nothing more for the other two meals, housing, clothing, etc.


The nation is in a state of stunned silence.  Once this wears off, I have no idea what will happen next.


Just thought you all would be interested in the dramatic and nearly unbelievable happenings in this otherwise wonderful country.





Tuesday, March 16


Still no telephone service, so I have been unable to send the above.  Here is an up to the minute update:


There is a popular uprising across all of Ecuador.  Virtually every popular organization is participating in an effort to oust the government if it doesn’t rescind its draconian measures.  Taxis have immobilized traffic flow in every major city.  400,000 Indigenous Ecuadorians and campesinos are blocking inner-city transportation.  This in addition to hunger strikes, marches, demonstrations, and looting of food stores (here in Playas on Saturday the outdoor market and some of the food shops were sacked).  The

government claims it has the support of the military and the US, which, if true, may evaporate rapidly as things escalate.  It appears that there is developing in Congress the will to overturn the measures, with Mahuad’s Popular Democracy Party being totally isolated, even abandoned by its major ally, the rightist Social Democrats.  Another nationwide general strike has been called for today.


(The Mahuad government somehow managed to stumble along until the following January.  During this period some major banks whose highest officials had been making large uncollectible loans to phony entities they themselves had set up, collapsed; and thousands of Ecuadorians who had their savings in these banks had them wiped out.  Said bank officials have fled to the U.S. and Europe.  As we will see, Mahuad’s walls of Jericho came tumbling down early in 2000.)