The election last month of a former military officer, Colonel Lucio Gutiérrez, to the presidency of Ecuador, has raised all kinds of alarm signals around the hemisphere. Like Venezuela's Hugo Chávez, Gutiérrez first came to the attention of his people when he participated in an unsuccessful coup; served time in jail and was cashiered from the army; took up a political career after his release; and now has managed to win the presidency by popular vote. Like Chávez, too, Gutiérrez has vigorously spoken out against globalization, economic reform, market economics, and the United States. Rumors that he forms part of a regional alliance with the Venezuelan president persist.

The comparison between the two men may indeed be overdrawn. Nonetheless, the recent developments in Ecuador are worth exploring, if for no other reason than to decide to what extent they are unique to that country or represent a broader trend.

A Divided Country

As one of South America's smallest countries, Ecuador does not normally receive much attention in the American press or in policy circles in Washington. This is not surprising. Its principal exports are raw materials--oil, coffee, bananas, and fish. Although oil has lately represented half the country's overseas sales (and 20 percent of its GDP), Ecuador's oil production is not on a scale to render it a major player within the Organization of Petroleum Exporting Countries (OPEC), of which it is a founding member. Nor is it a major supplier of energy or fuels to the United States.

As small as it is, Ecuador is nonetheless a deeply divided society--both geographically and ethnically. The most fundamental schism is historic--between the port city of Guayaquil on the Pacific and the capitol Quito in the Andean highlands, some 300 miles away. For more than 150 years, Ecuadorian politics has been a tale of two cities, with the elites of Guayaquil and Quito struggling for control of the budget, patronage, and the national agenda.

Lately, however, long-simmering ethnic divisions have opened a new fracture line in national politics. Ecuador's Indian communities, mostly concentrated in the highlands, count for roughly a third of the country's population. Until fairly recently, substantial numbers of Indians did not participate in the money economy; some still do not. Unlike the coastal-dwellers, who are oriented outward to trade, or the inhabitants of the capital, for whom the major industry is politics; the indigenous communities have operated outside the mainstream economy--in small-scale agriculture, crafts, or pastoral husbandry. More than anything else, it was the formal dollarization of the economy in early 2000 that politicized the Indian communities. While it produced monetary instability and low inflation, also raised the prices of many items of basic necessity. It was shrewd of Colonel Gutiérrez to recognize this fact; that insight, more than anything else, has led to his rapid ascent.

Weak Institutions

Although Ecuador has been a democratic state for nearly twenty-five years, it has yet to develop firm political institutions. For one thing, most of the parties are weak and many are personalistic rather than programmatic. Nor have elections brought political stability. President Gustavo Noboa, the outgoing chief executive, is the country's sixth president since 1996. In the most recent elections, candidates from more than a half-dozen parties divided up the vote between them, forcing a second round between Gutiérrez and Alvaro Noboa (no relation). It is perhaps symptomatic of the state of Ecuadorian politics that the latter Noboa, a banana king reputedly the richest man in the country and a part-time resident of New York, ran on a platform very nearly as populist as that of Colonel Gutiérrez. Among other things, he offered to construct between 100,000 and 200,000 houses a year, thus creating between one and two million jobs; to create another million in agriculture; to democratize the health delivery system; and to improve education. A poor public speaker--charismatically challenged, one might say--he may have made it into the runoff simply by spending more money than the other candidates (and more than the law technically allows), although he also enjoys a certain popularity from the opportune distribution of free food and medicine to the needy.

While it is undoubtedly true that no democracy, including our own, appears at its best during the hurly-burly of a hard-fought presidential campaign, the showdown between Gutiérrez and Noboa was unusually unedifying. The colonel's supporters accused Noboa of being responsible for deplorable working conditions on his plantations, including the unscrupulous use of child labor. For his part, Noboa accused Gutiérrez of being a "communist wife-beater," and ran film footage of riots and disorder in Venezuela, as if to offer Ecuadorians a foretaste of what the colonel had in store for them. Indeed, it might be said that Hugo Chávez--whom Colonel Gutiérrez claims never to have met or even spoken with on the phone--was almost a candidate in his own right.

The President-Elect

In a country with few serious political parties it cannot be surprising that the most successful politicians have been men with strong (if passing) popular appeal. One such is Lucio Gutiérrez, 54. Virtually unknown to the Ecuadorian public as recently as five years ago, he first burst onto the political scene as part of a three-man junta that ousted President Jamil Mahuad in 2000 and governed the country for roughly seventy-two hours until the congress and supreme court ratified then Vice President Gustavo Noboa as Mahuad's successor. A dynamic speaker, Gutiérrez campaigned all over Ecuador in his jungle fatigues, railing against proposed market reforms and promising to increase social spending and to reconsider the decision to make the dollar the country's official currency. He also promised to shut down the U.S. drug surveillance base in Manta, on the country's coast. As the leading U.S. financial periodical financial periodical put it, "he looks like the stuff of a Wall Street nightmare" (Wall Street Journal, November 19).

As the second round approached, however, Gutiérrez toned down his rhetoric. On a lightning trip to the United States, he insisted that his only ideology was respect for human rights and private property and that his objective was to govern as a consensus builder. He backed off from his earlier promises to expel the U.S. operation from Manta or even to revisit the dollarization issue. Most important of all, in New York he praised balanced budgets and foreign investment, and he promised to honor existing agreements and obligations and to complete an unfinished financial understanding with the International Monetary Fund. He even offered to boost oil production by granting new concessions to foreign investors. In Miami he emphatically insisted that "I am not Hugo Chávez," for whatever that may be worth, and denied reports from two former U.S. ambassadors to Ecuador that he had already received financing from the Venezuelan strongman. For her part, a Venezuelan political scientist who was in Ecuador as an election observer was surprised to find that voters there were perfectly aware of the comparison but unworried; "Your president is a crazy populist," the colonel's supporters told her, "nothing like our Lucio."[1] So far this prediction has held true; after months of incendiary accusations against the country's elite, he has promised to create a government of national union, and in spite of his vaunted anti-imperialism, he has accepted an invitation to travel to Washington to meet with President Bush.

What Awaits Gutiérrez

If the president-elect has suddenly discovered the virtues of pragmatism and good sense, a glance at the country's economic indicators may explain why. With an economy dependent on the export of a few products, Ecuador is very sensitive to fluctuations in commodity prices. While its economy has been buoyed lately by high oil prices, the 2002 budget is still in shortfall, and Gutiérrez must still negotiate an agreement with the IMF. In fact, during the campaign Gutiérrez warned President Noboa that he would not necessarily consider himself bound to any agreement with the Fund, thus effectively postponing any accord until sometime in the new year.

For some time the IMF has regarded Ecuador's $14 billion foreign debt as unsustainable, and with reason: servicing the debt gobbled up fully 68 percent of the GDP in 2002. Instead, the Fund proposes that all future revenues from a new oil pipeline be used to pay down part of the balance. Ecuador's congress has been less accommodating; in May it earmarked only 70 percent of oil income to foreign debt repayment, placing 10 percent aside for social spending. According to one report,[2] if the congress does not delete the social spending category, the IMF will probably not approve the bridge loan President Noboa is seeking. At issue is not merely red ink, but future investor confidence. From the point of view of the political class, of course, to sign away the country's only reliable source of foreign exchange, however well founded from a technical point of view, is repugnant on the face of it. Without jam to spread around, what is the point of being in politics at all?

The harsh fact is, however, that the only way that Ecuador can avoid periodic slumps caused by oscillations in commodity prices is to institute fundamental economic reforms--restructure its banking system, reduce state subsidies on articles of mass consumption, and privatize state-owned industries in electricity and telecommunications. Unfortunately, such reforms are highly unpopular, not just with the have-nots but with the middle class and Ecuador's elites. In January 2001, the Noboa administration almost went the way of its predecessor by toying with an increase in fuel prices and bus fares. In May 2002, it was necessary to declare a state of emergency because of a strike by bus drivers demanding a fare increase. In short, the country is poised on a narrow ledge between economic necessity and social unrest. Any attempt to break out of this dilemma risks civil war.

Dim Prospects

It may indeed be, as the Ecuadorians told their Venezuelan visitor, that "our Lucio" is not like Chávez. On the other hand, like the Venezuelan president, he comes to power having aroused huge expectations, with little prospect of being able to satisfy them. To govern is to choose, as President Chávez has lately discovered to his acute distress. Having convinced his followers that a painless solution to their problems is at hand, Gutiérrez must now deliver. This will require some unique political skills--skills that so far no Ecuadorian politician, much less one whose training is restricted to the military arts, has yet displayed.

For one thing, Gutiérrez has no party of his own and has but tenuous contact with the country's traditional political forces. His Twenty-First of July Patriotic Movement (named after his failed coup) is a cobbled-together affair joining Marxists, indigenous rights activists, ex-military men, and independents, while Ecuador's congress is controlled by the conservative Social Christian party.

For another, the country's heavy foreign debt provides him with very little room for maneuver. If he cannot reach an agreement with the IMF, he may be forced to depart from dollarization, if only to recapture the capacity to devalue Ecuador's currency. What impact this might have on consumer prices remains to be seen; before the adoption of the U.S. unit of currency, the country was extremely vulnerable to periodic bursts of inflation. For yet another, events in the Middle East over the next two or three years--a regime change in Iraq and possibly Iran, leading to a lifting of existing embargoes--may send oil prices downward, a prospect President Chávez himself might well ponder.

What is perhaps remarkable about events in Ecuador is the degree to which formulas already tried elsewhere in Latin America and found wanting nonetheless continue to exercise remarkable appeal, as if the laws of economics could be repealed by sheer force of will. The prospects for political stability in Ecuador are therefore not good. While that country is far from the United States, it is very close indeed to Colombia, a country to which two successive American administrations have made a serious commitment. An Ecuador lured into chaos by a self-appointed messiah may thus become a problematic piece in the Bush administration's regional policy puzzle, of concern by virtue of its geography if nothing else.

Notes

1. Maria Teresa Romero, "En Ecuador sí somos famosos," El Universal (Caracas) December 4, 2002.

2. Paul Crespo, "Ecuador Alert: Election and Crisis," Center for Strategic and International Studies, October 18, 2002.

Mark Falcoff is a resident scholar at AEI.