CRS Report for Congress

Ecuador: Political/Economic Conditions and US Relations. 1996

by Mark P. Sullivan, Specialist in Latin American Affairs

Foreign Affairs and National Defense Division

SUMMARY

In August 1996, Ecuador inaugurated Abdala Bucaram, the country's sixth president since its return to civilian rule in 1979. A fiery populist, Bucaram's campaigned as a champion of the nation's poor, and he has proclaimed that his presidency represents an end to oligarchic rule. There is speculation, however, that President Bucaram may announce a number of strong economic austerity measures that could test the strength of his popularity. Relations with Peru have improved since the January/February 1995 border war, although a final resolution of the border dispute has not yet been achieved. The two countries agreed to begin direct talks by the end of 1996, and President Bucaram plans to visit Lima in January 1997. Ecuador-US. relations, which traditionally have been close despite some friction over fishing rights in the early 1980s, are today characterized by an important trade and investment relationship, cooperation in counternarcotics measures, and US mediation in the border conflict with Peru.

POLITICAL SITUATION¹

In May and July 1996, Ecuador held presidential elections, the fifth presidential race since the country returned to democratic civilian rule in 1979. Populist Abdala Bucaram, of the center-left Roldista Party (PRE), was victorious in the second round of voting, defeating Jaime Nebot, of the conservative Social Christian Party (PSC), by a vote of 54% to 46%. During the campaign, Bucaram sought the support of the poor and the country's indigenous population by promising increased spending on social programs, and severely criticizing the nation's upper class. Inaugurated on August 10, 1996, Bucaram (who refers to himself as El Loco or the crazy one) is known for his wild antics designed to increase his popularity.

One of the most difficult political challenges facing Bucaram will be working with a coalition of minority parties in the 82-member national Congress. Ecuador's political system is quite fragmented, with 11 electoral blocs represented in the Congress elected in May 1996. Bucaram's PRE holds just 19 seats, although the President will probably be able to count on the support of several other centrist and center-left parties. The largest voting bloc in Congress, 27 seats, is held by the opposition PSC. A new political party representing Ecuador's indigenous population -- the Pachacutik-New Country Movement -- holds eight seats in Congress, demonstrating the growing political power of the country's indigenous groups since they actively began organizing to press for their interests in 1990. Some analysts are concerned that President Bucaram's fiery brand of populism could contribute to a concentration of power in the executive branch. In one of his first actions toward cracking down on corruption, the President declared a state of		Location: Western South America, bordering the Pacific Ocean, Colombia and Peru. Area: almost 110,000 sq. miles, about the size of Colorado. Population: 10.9 million (July 1995 est.) Ethnic Groups: Mestizo (mixed indigenous and Spanish heritage), 40-55%; indigenous 25-40%; Spanish 10%; African 10%. Life Expectancy: 69 years (1994) Literacy: 90% (1995) GDP: $16.6 billion (1994) GNP per capita: $1,280 (1994) US Aid: FY1995: $11.6 million FY1996: $15.1 million (est.) FY1997: $17.3 million (req.) Sources: CIA’s World Factbook 1995; World Bank’s World Development Report 1996; and US Agency for International Development.
emergency, and allowed the military to assume customs officials' functions. Given the fragmentation of parties in Congress, some observers have raised the possibility of Bucaram taking action similar to Peruvian President Fujimori's 1992 dissolution of the legislature to sidestep an uncooperative Congress. Since the country's return to civilian democratic rule, Ecuadorian politics often have been characterized by gridlock, with the executive branch being paralyzed by Congress' frequent use of its extensive powers to question and dismiss cabinet ministers.

Relations with Peru have improved since the January/February 1996 border war, but a final resolution of the border dispute has not yet been achieved. In February 1995, the two countries -- with the mediation of Argentina, Brazil, Chile, and the United States (four guarantor countries of the 1g42 Rio Protocol that ended an earlier border war between the two countries) -- signed agreements for a cease-fire, the separation of forces, and the sending of international observers. The United States has led in a mediating role to resolve the dispute, including the contribution of military observers. In late October 1996, a breakthrough in the peace process occurred when Ecuador and Peru agreed to begin direct talks by the end of 1996 to work toward a definitive solution to the border conflict. On another optimistic note, President Bucaram has met with Peruvian President Fujimori at several regional summits since September 1996, and there are now plans for Bucaram to travel to Lima in January 1997. Both Presidents have made commitments to work for a lasting peace.

ECONOMIC SITUATION

With a per capita income of $1,280, Ecuador ranks as one of the poorest countries in South America. The Agency for International Development's Congressional Presentation for FY1997 notes that Ecuador's income distribution is one of the worst in the Andean region, and the country is saddled with such development problems as growing environmental degradation, high population growth, and large-scale rural and urban poverty characterized by poor health conditions.

The Ecuadorian economy is dominated by the oil industry, which accounts for about one third of its export earnings and public sector revenue. Other important export products are bananas (Ecuador is the world's leading banana producer?, shrimp, and coffee. Industry, while largely serving the domestic market, is becoming more export-oriented.

Throughout the 1980s, Ecuador experienced macroeconomic instability, but under President Sixto Duran-Ballen, 1992-1996, the government initiated a program to stabilize the economy and expand the role of the free market. Inflation was lowered from about 55% in 1992 to about 22% in 1995. The economy grew by almost 4% in 1994, but growth slowed to about 2.3% in 1995.

During the 1996 presidential campaign, Bucaram strongly criticized Ecuador's free-market reform. Upon election, he proclaimed his victory as a defeat for the "oligarchy," and promised to govern for the poor. Bucaram subsequently toned down his rhetoric, and vowed that his government wanted to work with the help of the financial and business sectors and foreign investment. Nevertheless, upon being inaugurated, Bucaram noted that it was the "first day of a people's administration, and the last day of supremacy of the oligarchs." Bucaram's fiery rhetoric has worried the business community, although his appointment of some economic advisers from that community and his meetings with market reformers from other Latin American countries have ameliorated some business concerns.

There has been speculation that the Bucaram government will announce tough economic measures in order to combat the fiscal deficit. Potential measures include an increase in gas prices and electricity and telephone charges as well as the elimination of subsidies for cooking gas. Such measures, while deemed necessary by economists, could diminish President Bucaram's notable popularity among the poor.

US RELATIONS

Ecuador-US. relations, which traditionally have been close despite some friction over fishing rights in the early 1980s, are today characterized by an important trade and investment relationship, cooperation in counternarcotics measures, and US mediation in the border conflict with Peru. US foreign aid to Ecuador has consisted largely of development assistance and a Peace Corps program.

The United States is Ecuador's single largest trading partner, and is an important source of foreign investment. In 1995, the United States was the destination of almost 43% of Ecuador's exports and the origin of almost 36% of its imports. Ecuadorian exports to the United States in 1995, which amounted to $1.9 billion, included oil (almost 38%), fish (25%), and fruit, largely bananas (14%). Ecuador's imports from the United States, which amounted to $1.5 billion in 1995, included a variety of equipment for civil engineering, aircraft, and telecommunications as well as consumer goods and motor vehicles. According to the Department of State, Ecuador's trade policy was significantly liberalized in the early 1990s, with tariff reductions and the elimination of most non-tariff surcharges. Ecuador has also substantially liberalized its foreign investment regime in recent years. US investment amounted to $728 million in 1994, with 76% concentrated in the oil industry. While Ecuador and the United States signed a bilateral Intellectual Property Rights Agreement in 1993, the Department of State notes that enforcement of intellectual property rights remains a problem in Ecuador.

Ecuador has not been a producer or processor of cocaine, but it is a major transit country for cocaine shipped from Colombia to the United States. The government cooperates closely with the United States on a range of counternarcotics efforts. However, the State Department's March 1996 International Narcotics Control Strategy Report called for the Ecuadorian government to invest more resources in efforts to reduce drug trafficking, and also cited the need for judicial reform in Ecuador. It noted that corruption of the judicial system impedes effective counternarcotics enforcement.

With regard to the Peru-Ecuador border conflict, the United States continues to contribute over 60 personnel and logistical support to the Ecuador- Peru Military Observers Mission (MO~EP) located in the disputed border area between the two countries. The United States has continued to work with the three other guarantor countries to help bring about an enduring solution to the border conflict.

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FOOTNOTES

1-[ Sources for this report include the Foreign Broadcast Information Service , Latin American Weekly Report , Latin American Regional Reports - Andean Group , and the Miami Herald . For more detailed background on Ecuador through 1993, see Ecuador: Country Background Report , CRS Report 93-963 F, November 5, 1993, 14 p. For background on Ecuador's indigenous groups, see Latin American Indigenous Peoples and Considerations for US Assistance , CRS Report 91-663 F, August 30, 1991. pp. 59-76.]