Ecuador's 'Divided State' is Pulled Toward the Left
07 April 2006
Plagued for six years by a cycle of political instability, Ecuador plunged into social conflict on March 13 when the Confederation of Indigenous Nationalities of Ecuador (Conaie) mounted a campaign of direct action aimed at blocking Quito's negotiations on a free trade agreement (F.T.A.) with Washington.
The roots of Ecuador's instability, which is symptomized by the failure of its last three elected presidents to complete their terms in office, lie in the country's condition of being what its current president Alfredo Palacio calls a "divided state." The rifts within Ecuador's political structure are based on localism overlaid by a split between rich and poor that has resulted in weak presidents who are constrained to mediate between populist indigenous and mestizo movements, and the traditional creole political class that controls the legislature and judiciary. Executive authority is continually vulnerable to direct action from popular forces and institutional coups from the political class, depending upon which of the adversaries has not had its interests satisfied.
The pattern of Ecuador's politics was set early in the twentieth century and has been sustained by the country's economy, which has been dependent on exports of primary products that are subject to economic cycles. Populist pressures have gained strength when markets have collapsed and when they have risen, starting early in the twentieth century with the cocoa boom and bust, and continuing with the vicissitudes of the banana market and most recently the petroleum market. Declining fortunes lead to demands for economic security and advancing prosperity triggers calls to share the wealth. All the while, the wealthy use their institutional control to preserve their advantages.
The interplay between populism and oligarchy has led to chronic deadlock, reflecting a balance of power in which neither of the opposing forces is able to gain dominance permanently, neither is willing to compromise with the other to forge a social contract, and both seek to gain maximum benefits from the central government through intimidation. It is not surprising that efforts to appease both sides have resulted in over-indebtedness that has generated recurrent fiscal crises that have been followed by periods of austerity, which, in turn, have re-stimulated populist pressures.
The current cycle of instability began in 2000 when President Jamil Mahuad responded to a fiscal crisis involving a default on Ecuador's debt by adopting the U.S. dollar as the country's currency. The collapse had been caused by a ballooning fiscal deficit and an expansionary monetary policy that had left the country with a 52.2 percent rate of inflation, a 7.3 percent decline in G.D.P., a currency devalued by 65 percent, and a poverty rate of 70 percent (double what it had been through the 1990s).
Mahuad's drastic measure to curb inflation amounted to an austerity program that penalized the broad sectors of the population that did not have access to dollars, sparking a populist reaction that led to his ouster. Instrumental in the opposition movement was Conaie, the first self-organized indigenous movement in Ecuador's history.
Conaie was a new wrinkle in Ecuador's divided state. Previous populist movements had been led by opportunistic members of the political class or the military, and had not appealed directly to indigenous interests. With the emergence of Conaie, the indigenous peoples, who number one-third of Ecuador's population of 13 million, had mobilized around their own distinct interests and had become players in the political system, adding to it a complicating element that would tend to make the expedient and transitory compromises among the political class and its local power bases more difficult to achieve.
Conaie showed its strength in 2002 when its backing pushed Lucio Gutierrez, who ran on a platform of rolling back neo-liberal reforms, over the top in that year's presidential election. Gutierrez, however, quickly reversed course, maintaining the International Monetary Fund's program of structural adjustment and the dollar as Ecuador's currency. Gutierrez's reversal damaged Conaie's credibility and led to divisions in the movement, but not to its demise.
As rising oil prices eased Ecuador's financial situation, indigenous protests began to target oil facilities, demanding a share of revenues for local interests and environmental protection. Meanwhile, Gutierrez fell into a conflict with the traditional political class and was ousted by Ecuador's Congress in April 2005 after he had replaced the Supreme Court, which he had accused of being biased against him.
Gutierrez was succeeded by Alfredo Palacio, his vice president, who had broken with Gutierrez over economic policy. A cardiologist and non-partisan moderate, Palacio had no political base of his own and attempted to placate populist sentiment by increasing social spending through diverting funds meant for structural adjustment to health and education programs. His efforts were not sufficient to prevent further direct action against oil facilities that came to a head in August 2005 when indigenous protests pressured oil companies to promise to undertake public works and pay local taxes. The protests were estimated to have caused a US$500 million loss of export earnings.
From then on, local actions occurred throughout the country and Conaie's leadership became more sure of its footing and more confident of Palacio's weakness. Only a day before the current wave of direct action began on March 13, Palacio had appeased striking oil contract workers and two weeks earlier he had ended a demonstration targeting oil facilities in Napo province by promising to increase spending on social programs, roads and a regional airport.
The Divided State is Pulled from the Left
Conaie, which had regrouped and announced its solidarity with South America's populist bloc led by Venezuelan President Hugo Chavez and recently joined by Bolivian President Evo Morales, backed its direct-action campaign of road blocks and marches with a broad program of social and political change based on regional autonomy, economic nationalism and indigenous rights. Timed to head off Quito's negotiations with Washington on the F.T.A. -- set to begin on March 23 -- Conaie's action, which quickly gained momentum and coordination, included demands that the government suspend the talks and submit the F.T.A. to a referendum after public consultation, nationalize the hydrocarbons industry and expel U.S. oil company Occidental Petroleum (Oxy) from the country, convene a constituent assembly that would rewrite Ecuador's constitution to expand indigenous rights, and decline to renew an agreement granting the United States the use of the Manta Air Force Base for its Plan Colombia anti-drug campaign.
As has been the case throughout Latin America, and for conflicts over trade agreements in general, the F.T.A. split Ecuador into two camps, with groups that would benefit financially from the deal supporting it and sectors that would lose out opposing it. Public opinion polls showed 50 percent of Ecuador's citizens against the F.T.A. and 35 percent in favor of it, with support for the pact concentrated in the urban areas and the business sector, and 81 percent of the public saying that Ecuador was not ready to enter the agreement.
Taking advantage of the strong sentiment against the F.T.A., Conaie argued that the pact would devastate agricultural sectors directed to the domestic market, in particular, rice, maize, beef and poultry. It also defended the interests of domestic pharmaceutical manufacturers who would be hurt by agreements protecting the rights of U.S. producers.
On the opposing side, led by the National Council of Chambers of Commerce, were the export interests, including the textile sector, the cut-flower industry and banana growers. The pro-F.T.A. forces argued that the deal had to be closed quickly because Peru and Colombia had already each finalized an F.T.A. with the U.S., carrying the danger that Ecuador would be left behind. In addition, Washington refused to promise that it would continue negotiations past April 15, and current trade preferences granted by the U.S. were due to expire at the end of 2006.
As Conaie organized road blocks throughout the highlands and protests spread to the oil-producing Amazon basin, Palacio refused to back away from the negotiations, but promised that Ecuador's team would bargain hard to protect domestic "food security," "public health" and "biodiversity." Foreign Trade Minister Jorge Illingworth argued that the F.T.A. would boost exports, lower taxes, benefit 120 businesses and keep in place financial aid from the U.S.
The negotiations began on March 23 and were expected to end with an agreement by March 31, but by April 4 they were still going on. Conaie held firm to its position, threatening to mount a broad "uprising" in conjunction with other labor and peasant groups if the government did not hold public consultations on the pact followed by a referendum. Palacio countered that the agreement would be completed and sent to Congress, after which a referendum could be discussed if there was popular sentiment for one.
At present, it is unclear whether Quito and Washington will finalize an F.T.A. even if the current negotiations are successful. The pact would require ratification by the legislatures in both capitals, which is by no means certain -- the U.S. Senate would balk if Palacio delivers on his promise to protect Ecuador's agricultural and pharmaceutical sectors, and organized popular sentiment against the agreement in Ecuador makes ratification uncertain whatever shape the document takes.
As the conflict over the F.T.A. was playing out, pressures mounted on foreign oil companies to share the revenues generated by high oil prices with the central government and localities. On this issue, the populists and the government were on the same side, although the latter stopped short of moving toward nationalization.
Petroleum is Ecuador's current cash cow, accounting for 15 percent of G.D.P., 40 percent of export earnings and one-third of tax revenues. Output was up six percent in 2005 to 563,000 barrels per day (bpd), with the state company Petroecuador pumping 196,000 and foreign companies 367,000 of the total. The $5.4 billion in oil revenues were instrumental in moving G.D.P. up 2.5 percent in 2005, providing the funds that have made it possible for Ecuador to begin to pay off its debt and for Palacio to buy off protestors at a cost estimated by analysts at $1 billion since he assumed office.
Greater national control of petroleum reserves and revenues is widely popular in Ecuador and has placed foreign oil producers on the defensive. In particular, Oxy has been plagued by grassroots protests and a government suit claiming that it illegally sold out part of its concession to the Canadian producer EnCana. A major foreign player in Ecuador's oil patch, Oxy pumps 115,000 bpd and is estimated to have gained $600 million in extra revenues from the recent oil price spike.
In order to ward off the threat of expulsion from Ecuador, which could become a reality if the government won its case, and to appease the grassroots movements, Oxy proposed on March 17 a plan in which it would share its revenues if it was granted an extension of its contract through 2019. The multi-faceted plan, which would cost the company approximately $300 million, would allocate $100 million to a nonprofit foundation that would fund social development projects, $110 million to joint projects with Petroecuador, $50 million as a bonus for contract extension and $13 million to aid in the modernization of Ecuador's tax system. At the same time, Oxy made it clear that it would regard termination of its contract as unlawful expropriation.
Oxy's proposal did nothing to alter Conaie's demand that the company be expelled from Ecuador. The government did not immediately accept the offer, taking the position that the legal case against Oxy should go through the court system and that the state would move to renegotiate contracts with foreign producers and share a larger portion of their profits.
As Oxy's fate remained uncertain, Palacio's promise came to fruition when, on April 3, Ecuador's Congress passed a bill giving 60 percent of the profits of foreign oil companies to the state when the price of oil exceeds the pegged price of $15 per barrel in existing contracts. Palacio had proposed a fifty-fifty split and the higher figure in the legislation reflects Conaie's successful mobilization of public sentiment. The oil companies responded through their interest group -- the Association of Ecuadorean Hydrocarbon Industries -- that the tax hike was illegal. Local analysts speculated that the legislation might derail the F.T.A. talks. The convergence of popular economic nationalism and the fiscal interests of the state make it likely that Palacio will sign the bill, regardless of the consequences.
Conaie's demand for a constituent assembly to rewrite Ecuador's constitution also found the movement on the same side as Palacio, who had made it a centerpiece of his policies. Here again there was a convergence of interests with Conaie bidding for greater indigenous rights and Palacio for the possibility of a stronger presidency to remove one of the sources of the country's chronic political instability. Palacio, who had been frustrated by Conaie's campaign, claiming that he was already serving the movement's interests -- even in the F.T.A. negotiations -- pleaded that he had presented a proposal for a constituent assembly to Congress, which had rejected it in a move to defend its institutional power and the interests of the traditional parties and their local bases. The direct-action campaign failed to break the deadlock.
The last of Conaie's demands -- that Ecuador exit Plan Colombia -- was met by the government with tentative acquiescence. In conjunction with the F.T.A. negotiations, Ecuador's foreign minister Francisco Carrion met with U.S. Secretary of State Condoleezza Rice. At a press conference, Carrion made it clear that the talks did not include any discussion of renewing U.S. access to Manta and offered that he was not in favor of renewal.
When Conaie's demands and the government's responses to them are viewed as a whole, it seems evident that the direct-action campaign provided an impetus, in conjunction with convergent interests of the government, to pull Ecuador's fractured politics leftward toward the populist pattern of Venezuela and Bolivia, and away from Washington's sphere of influence. With presidential elections in Ecuador scheduled for October 2006, expect all of the political forces to move to appease populist sentiment, confirming the leftward shift.
The Conflict on the Ground
Apart from the issues, Conaie's direct-action campaign was an attempt by the movement to enhance its political power at the expense of institutionalized forces. The campaign is best understood not as an attempt to make a revolution or even to oust Palacio -- although Conaie would not have been averse to either of those results -- but as a test of strength and an opportunity to mobilize a broader base of support around popular issues. Conaie's leadership was aware that it would meet determined resistance to its maximum demands, but calculated -- as proved to be the case -- that a wave of direct action would reveal vulnerabilities in its adversaries.
As road blocks spread to 11 of Ecuador's 22 provinces, disrupting economic activity and cutting food supplies to cities, Conaie won a victory on March 15 when Interior Minister Alfred Castillo resigned -- the third occupant of that office to do so in the past 11 months. As quoted in Latinnews Daily, Castillo attacked Ecuador's political class, asserting that "the Ecuadorean government is being run crazily by speculative financiers who control things by indebting the country and controlling the country's oil."
Castillo's resignation and the mounting protests drove Palacio to seek support from the legislature and judiciary, and the traditional political parties, which gave him only qualified backing with some urging that he engage in "dialogue" with Conaie and others complaining that Conaie was using its campaign to enhance support for its candidates in the October elections.
Lacking a solid phalanx of support, Palacio resorted to his familiar tactic of promising more social spending, which worked to dampen the actions temporarily. Conaie quickly regrouped and announced that it would organize a mass march on Quito to "take over" the capital, convincing Palacio to heed hard-line Defense Minister Oswaldo Jarrin who had moved to fill the power vacuum left by Castillo's exit. On March 22, the government declared a state of emergency in four provinces and blocked the entry of indigenous protestors into Quito.
With its failure to take over the capital and the relative success of security forces in ending its blockades, Conaie declared a "strategic retreat" on March 24, promising to regroup at a leadership conference on March 31 where it would plan new actions. At the end of the conference, which was attended by 1,000 representatives from all of Ecuador's provinces, Conaie leader Humberto Cholango announced that the movement was preparing a "national uprising" and would seek for the first time alliances with student, peasant, community and labor movements opposed to the F.T.A. in order to create a broad front. Conaie's new strategy bore fruit quickly in an alliance with the Ecuadorean National Confederation of Peasant, Indian and Black Organizations (Fenocin), which is currently mounting protests against the F.T.A.
Although it is still too early to determine whether the government's hard-line measures have taken the steam out of Conaie or are only a temporary setback, it is clear that the movement has not been tamed. The success of its new strategy, including appeals to the Catholic Church, which has called for dialogue, to play a mediating role, will depend on whether the populist sentiments that have been released will be sustained or whether the entropic tendency toward localism and acquiescence in government handouts asserts itself.
Conclusion
As a test of strength, Conaie's direct-action campaign had mixed results. The movement did not have sufficient momentum to paralyze the institutional power centers, but it intimidated them enough to move them in the direction of its program. Lacking a single charismatic figure like Venezuela's Chavez and Bolivia's Morales, Conaie is dependent on the solidarity of its local units. It also faces possible dilution of its influence and loss of focus if it succeeds in organizing a broad opposition front. Yet a broad front could also function as a springboard to a populist takeover, as was the case for Morales' Movement to Socialism.
Ecuador is not yet on the verge of joining Venezuela and Bolivia in the populist camp, but some of the conditions for its entry are more firmly in place than they were before Conaie's campaign. In any case, Ecuador is likely to continue to distance itself from Washington's sphere of influence, whether by small steps or a leap.
Report Drafted By:
Dr. Michael A. Weinstein
The Power and Interest News Report (PINR) is an independent organization that utilizes open source intelligence to provide conflict analysis services in the context of international relations. PINR approaches a subject based upon the powers and interests involved, leaving the moral judgments to the reader. This report may not be reproduced, reprinted or broadcast without the written permission of inquiries@pinr.com. All comments should be directed to content@pinr.com.
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