Ecuador: Macroeconomic Armageddon??

Ecuador's political travails, including the battle for control between the Jamil Mahuad (Gustavo Noboa) government and the "parallel government"

• After the Assembly (unconstitutionally) voted to remove 27 of the 31 Ecuadorean Supreme Court justices, tear gas was required to convince them to leave. It appears that they were de facto controlled by the former President Leon Febres Cordero.

• Preliminary election returns indicate President Lucio Gutierrez's Patriotic Society Party may fail to win 5% of the vote. Since it did not obtain 5% of the vote in 2002, a second consecutive failure will result in Ecuador's constitution requiring its disbanding.

• Bernardo Tobar, the president of OCP, said that the OCP oil pipeline had been running since Sept. 5, 2003 at 160,000 to 170,000 barrels/day. This level is expected to continue for the next four to five months, before going up to 250,000 barrels/day. He estimated that U.S.$6-12 billion is required to double Ecuador's crude oil output. Currently, no firm forecasts are possible on when the OCP pipeline will attain its capacity of 450,000 barrels/day.

• Techint has completed the construction of the crude oil pipeline commissioned by the OCP Ecuador consortium (Repsol YPF, AEC, Petrobras, Occidental, Perenco, Agip, Techint). Normal operations are intended to start in Oct. 2003. While the design capacity of the pipeline is 450,000 bpd, the starting usage is expected to be 200,000 bpd. Construction time was 25 months. Cost was U.S.$1.4 billion, which is U.S.$300 million above the initial estimate.

• Ecuador's Foreign Minister Patricio Zuquilanda confirmed that Gustavo Noboa would be allowed safe passage to the Dominican Republic.

• Ecuador's Patriotic Society party (of which President Lucio Gutierrez is a member) has ended its political alliance with the Indian political movement Pachakutik over an IMF-required labor reform bill. The three Pachakutik cabinet ministers are expected to step down immediately.

• Dominican President Hipólito Mejía has directly authorized granting political asylum to Gustavo Noboa.

• Ecuador's former president Gustavo Noboa has filed for political asylum with the Dominican Republic.

• Several international oil companies want Ecuador's Constitutional Tribunal to undo a an executive decree, issued currently, that undoes another decree issued in Jan. 2003. This reverses the profit margin on fuel sales from 18% to 15%. The following companies have an interest in this: Repsol YPF SA (Spanish/Argentine), Royal Dutch/Shell, ExxonMobil, ChevronTexaco, and Compania General de Combustibles (Argentina). Between them, they control about 50% of Ecuador's fuel market.

• The IMF has required that Petroecuador collect its bills from electric utilities more efficiently, for Ecuador to recieve its next disbursement. Ecuador's President Lucio Gutierrez has issued a corresponding decree requiring electric utilities to pay for thermal power plant fuel first. This is expected to increase Petroecuador's income by U.S.$200 million over the next year.

• Ecuador's state prosecutor Mariana Yepez is investigating whether Noboa's use, of U.S.$126 million in bonds leftover from the 2000 debt swap, to strengthen two state banks exceeded the allowable use. It is unclear whether the investigation is objective, or political: Gustavo Noboa is not on good terms with the Social Christian political party.

• World Bank Vice President David de Ferranti said that the achievements, situation, and programs implemented by Lucio Gutierrez' government were extraordinary. Almost half of the World Bank loan funds to Ecuador have gone to social projects, including health coverage and education. The austerity policies implemented include an increase in gasoline prices, a 10% tax on luxury vehicles, and a 20% pay cut for government officials earning more than U.S.$1,000/month. Lucio's salary was included in this pay cut.

• Foreign companies declined to renew crude oil supply contracts for July at a price of $4.05 below West Texas Intermediate per barrel. They are currently paying $4.95 below West Texas Intermediate for Ecuadorean crude oil. About 120,000 barrels per day of 24.5 API crude oil are involved. Jorge Luis Zapater, head of international commerce at state-owned Petroecuador, said the government would have to decide what to do next.

• Continued opposition to Ecuador's President Lucio Gutierrez (and his plans for further opening to the private sector) has resulted in the resignation of PetroEcuador's head Guillermo Rosero, and the dismissal of Marcelo Roman as the workers' representative at Petroecuador's Administrative Council.

• As part of a U.S.$205 million IMF deal, Ecuador signed contracts to recover U.S.$392 million in Filanbanco loans with two companies: Mexico's Thesis Antares Consulting, and Panama's Gomez, Giraldo, & associates. The intent is to assign similar-looking halves to each firm, and to give each firm one year to try to recover the loans.

• Fitch IBCA has upgraded the long-term outlook on Ecuador's CCC+ long-term foreign debt from "stable" to "positive", based on the IMF's approval of a U.S.$205 million standby loan.

• Ecuador's Chief Justice Armando Bermeo of Ecuador's Supreme Court has ruled that Roberto and William Isaías defrauded the government of Ecuador by embezzling U.S.$654 million in federal bailout funds. He thus directly overruled Ecuador's Attorney General Mariana Yépez, who had explicitly stated that they had only falsified documents, and that they had not embezzled government funds. Armando then ordered the trial to proceed against the Isaias brothers, and 11 other former bank executives of Filanbanco Trust & Banking.

• Two branches of CONAIE (Pachakutik and Ecuarunari) have explicitly distanced themselves from Lucio Gutierrez, in response to the signing of the IMF letter of intent. It is unclear whether they have concrete alternative proposals in mind.

• Ecuador has signed a letter of intent for a US$200 million IMF program which would make the country eligible for an additional US$230 million in exceptional financing from the Inter-American Development Bank and the World Bank. Fitch IBCA is willing to raise Ecuador's long-term foreign sovereign currency rating from CCC+, provided that Ecuador:
  • clears approximately US$150 million in arrears to multilateral and Paris Club creditors.
  • obtains congressional approval of the president's budget, which includes a public sector wage freeze and a US$18/barrel Ecuador oil price assumption.

• President Lucio Gutierrez has decided that Ecuador needs a wartime-style economy to recover. Declared changes include: 35% rise in the price of gasoline from U.S.$1.12/gallon to U.S.$1.48/gallon; increased taxes on luxury vehicles; government officials earning more than U.S.$1,000/month are taking a 20% wage cut with no chance of a pay raise in 2003. One monthly subsidy for the poor was raised from U.S.$11.50/month to U.S.$15/month. [Then again, Gustavo Noboa gave a 46% increase to some of this officials in 2002....]

• Ecuador's National Statistics and Census Institute (INEC) director Carlos Cortez said that Ecuador's overall inflation for 2002 was 9.35%. The monthly rate for Dec. 2002 was 0.35%, a drop from Nov. 2002's 0.69%.

• Lucio Gutierrez has won the run-off election.

• The presidential candidates in Ecuador's runoff election are Col. Lucio Gutierrez (19.5%) and banana magnate Alvaro Noboa (17.6%). Alvaro Noboa is not related to Gustavo Noboa; he is the richest Ecuadorean. Socialist lawmaker Leon Roldos had 15.6% of the vote. This was announced by Supreme Electoral Tribunal President Carlos Aguinaga, with 88% of the polling stations counted.

• Ecuador's Finance Minister Francisco Arosemana announced that Ecuador had pulled out of talks with the IMF. The talks are intended to be resumed by the new administration in January 2003. Elections are scheduled for October 20, 2002.

• Ecuador's Constitutional Tribunal ruled that the Electoral Tribunal did not have conclusive evidence that Antonio Vargas submitted falsified signatures. It proceeded to overrule the Electoral Tribunal's denial of presidential candidacy to Vargas.

• The earliest estimated possible opening of the OCP oil pipeline is now June 2003.

• Ecuador's state auditor reported on August 23, 2002, that the Finance Ministry, under former Finance Minister Carlos Julio Emanuel, authorized payments for U.S.$108 million to local governments in 2002 -- while charging it to the 2001 budget. Ecuador's Supreme Court followed up on this, today, with a "preventive prison" order for Carlos Julio Emanuel, as well as his close adviser former Finance Undersecretary Jorge Moran.

• The multinational consortium that is responsible for 45% of the financing of the U.S.$1.2 billion OCP (Oleoductos de Crudos Pesados) oil pipeline considers Ecuador in violation of international trade treaties -- for failure to refund the VAT (value-added tax) since August 2001. This will eventually cause these companies to reassess whether they wish to continue operations in Ecuador. This consortium includes: Encana Corp. (Calgary, Canada) [unstable reporting...is Alberta Energy Co. involved as well, or in place of Encana?], Occidential Petroleum Corp., Kerr McGee Corp., Spain's Repsol-YPF SA, Italy's Agip SpA, Argentina's Perez Companc SA, and Argentina's construction firm Techint. Encana Corp., in particular, is disputing U.S.$70 million in non-refunded VAT. The current deadline for completion of this pipeline is July 2003. At prior rates of construction, the pipeline is at least two months behind schedule...hopefully the recently hired 2,000 laborers and technicians will remediate this. The OCP is expected to run at about half capacity [220,000 bbl/day, compared to 450,000 bbl/day] initially, due to a 7% decline in private-sector production. Repsol has had to reduce production due to its exposure to Argentina, while Perez Companc is current a takeover target. Brazil's Petrobras is in the process of buying Perez Companc. Encana still plans to increase production to at least 80,000 bbl/day from its current 50,000 bbl/day.

• Twelve [Xinhua] or thirteen [MSNBC] candidates are running for Ecuador's Presidency. Gustavo Noboa is not among them. Candidates include:
  • Banana industry millionaire Alvaro Noboa
  • center-left former President Rodrigo Borja [1988-1992]
  • former President Osvaldo Hurtado [1981-1984]
  • army Col. Lucio Gutierrez [alternative government 2000]
  • CONAIE leader Antonio Vargas [alternative government 2000]
  • Ecuador's former ambassador to the United States, Ivonne Juez de Baki
  • Xavier Neira [center-right Social Christian party]
  • Leon Roldos [socialist lawmaker; planning to run as independent]
  • Jacobo Bucaram [not Abdala "El Loco" Bucaram] from the Party of Roldosista Ecuatoriano (PRE)
  To win outright on October 20, 2002, a candidate must obtain 50% of the vote, or 40% of the vote with at least a 10% percentage lead. Otherwise, a runoff between the top two candidates will be held on November 24, 2002.

• Ecuador's Finance Minister, Carlos Julio Emanuel, proved unable to investigate allegations that senior Finance Ministry officials took bribes in exchange for access to government funds -- and resigned. Francisco Arosemena Robles is expected to replace him in that role.

• Ecuador's recently passed fiscal reform bill, while it does address the IMF objectives of limiting public spending and creating an oil stabilization fund, was not drastic enough to release U.S.$240 million of loans. However, Ecuador's projected GDP growth for 2002 is 4%, and is expecting a new crude oil pipeline project to complete in 2003. The latter is expected to obviate any need for further IMF aid.

• Since the "state of emergency" has actually permitted the intensification of protests in the provinces of Sucumbios and Orellana, Gustavo Noboa has ordered the army to restore order in those provices. One citation from the decree: "The commander of the army's Amazonas division, Gen. Jorge Mino Vaca, is delegated as the sole authority to restore order in the area of security." Petroecuador has noted that 118,000 barrels of oil have been prevented from reaching market in a timely fashion (worth approximiately $1.9 million). The oil pipeline is scheduled to go into production in 2003.

• President Gustavo Noboa has decreed a state of emergency in the Amazon jungle provinces of Sucumbios and Orellana near Columbia's border -- in response to nonviolent protests by Ecuadorean Indians that have not only totally shut down the construction of an oil pipeline, but have also shut down a highway linking Sucumbios with Quito. The highway shutdown has completely prevented incoming shipments from Quito (or anywhere else in Ecuador) from arriving for the past six days. [The distance is only about 113 miles.]

• Ecuador's former Economy Minister Jorge Gallardo resigned in response to the decision of the Attorney General's office to ask the Supreme Court for his provisional arrest over supposed financial irregularities when he was the executive president of the Pacific Bank in 1999-2000. He has no intention of returning to Ecuador (from negotiations in Washington D.C. with the IMF) until Ecuador's Supreme Court rules on the validity of the arrest order. The new Ecuadorean Economy Minister, Carlos J. Emanuel, will be responsible for impending negotiations with the IMF.

• Ecuador's government was reviewing how to liquidate state-owned Filanbanco, which was closed on July 17, 2001 due to persistent lack of liquidity. The stage under discussion does not include non-performing loans (75%) or fixed assets.

• 41,000 public employees are expected to join a strike intended to raise wages to the point where they cover 75% of the "basic basket" of goods for a family of four [75% of $289/month, i.e. just over $216/month]. This is stacked on top of another strike in hospitals, which has shut down non-emergency health care for the past two weeks [i.e., since July 3, 2001?].

• Ecuador's Congress, even with obvious procedural errors, failed to override Noboa's veto (with the VAT tax increase). However, Defense Minister Hugo Unda was quoted (regarding with those Congressmen trying to override the veto) as saying, "They are playing with fire. ... They are playing with the future of the country and we have the right to do something so that this doesn't happen."

• The IMF has finally reported on the difference the VAT tax increase would make if it was sustained: a revision of Ecuador's estimate deficit to between 0.3% and 0.5% of GDP, in contrast to 3.9% of GDP without the VAT tax increase.

• A two-point increase in Ecuador's VAT tax slid through Congress, due to opposition being more vocal than present to override Noboa's veto: 76 votes against, 11 votes for, 11 abstaining (out of 123). Several legislators slipped out of the chamber while others abstained. Failure to pass this would have terminated Ecuador's IMF program. A planned attempt to challenge the veto on Constitutional grounds may be a desperation move; naively, precedents do exist for a presidential veto revising a bill.

• Leo Goldstein, economist at Salomon Smith Barney, reported that Ecuador needs IMF support to avoid defaulting on its sovereign debt within 18 months.

• Ecuador's macroeconomy grew at 2.3% for 2000, in contrast to a 7.3% decline for 1999. This was attributed to higher oil prices and debt restructuring.

• Ecuador's Congress voted 86 to 8 against the tax reform bill with a VAT increase to 15% from 12%. There are questions as to whether several possible maneuvers by Noboa will be effective.

• The director of Ecuador's Transportation Council, Humberto Cevallos, reported that a public transportation strike in progress was intended to freeze bus fares (currently under discussion between the government and CONAIE) at current levels. Quito's buses were running on nonstandard routes due to taxis parked on key intersections; buses were almost unlocatable in Guayaquil.

• Finance Minister Jorge Gallardo has commented that if Ecuador's Congress does not pass a tax reform (this includes an increase in the VAT [12% to 15%?] and a decrease in the maximum income tax rate to 20% from 25%), Ecuador would post a fiscal deficit of more than 4.0% of GDP for 2001. IMF representative Jeffrey Franks noted that without this tax reform, it would be practically impossible for Ecuador to achieve macroeconomic growth for 2001. It should be noted that most legislators oppose this tax reform, and are representing the general population on this.

• CONAIE has managed to negotiate a partial rollback on fuel prices and bus fares, and other points of protest. Due to progess in negotiations, CONAIE cancelled their support for the Popular Front's protests the day before [Feb. 6, 2001].

• Quito's deputy mayor Efren Cocios freed Antonio Vargas and Luis Villacis, ruling that their arrest was illegal and unconstitutional. Negotiations were expected to have some sort of results within a week or so.

• The following organizations have all offered to mediate negotiations between the Ecuadorean Indians and the Noboa government: Ecuador's Congress, the Quito Chamber of Commerce, and the National Association of Municipalities.

• Police used tear gas in an attempt to disperse the massive protests (leftist unions augmented by Ecuadorean Indians). They also arrested CONAIE's president Antonio Vargas and the Popular Front's leader Luis Villacis, presumably on charges of attempting to overthrow the government by organizing these protests.

• At least 5,000 Ecuadorean Indians have arrived in Quito to persuade the government to reduce or repeal a 75% increase in bus fares and 25% increase in fuel prices to $1/gallon. Several roadways were blocked.

• In Cotopaxi province, about 1,500 Indians tried to block the Pan-American highway, but were dispersed in a clash with the military that left 10 Indians and one soldier injured. CONAIE vice president Ricardo Ulcuango mentioned the possibility of coordinating a massive march to Quito if the (IMF-required) economic measures that went into effect in early January 2000 were not reversed.

• Admiral Miguel Saona, chief of Ecuador's High Military Command, has indicated that the ongoing protests of the price increases appear to be an attempt to overthrow Ecuador's government -- and that the march planned for Jan. 21, 2001 will be suppressed. Antonio Vargas, head of CONAIE, appears willing to see if the Admiral can make his forces follow up on his comments....

• Luis Villacis, president of the union group Popular Front, announced plans to coordinate a 2,000 to 3,000 person march to the presidential palace. This is to protest a number of price hikes, including 25% in the most widely-used gasoline and 75% in local bus fares. CONAIE's president Antonio Vargas has indicated plans to coordinate something, starting Jan. 22, 2001, if methods of raising revenue that do not as directly impact Ecuadoreans are not implemented. This reversal would directly invalidate Ecuador's agreement with the IMF.

• This was the third day of mildly disruptive protests against the price increases noted Dec. 29, 2000. However, the bus and taxi fare increases were reversed by a magistrate -- provoking a counter-strike by bus and taxi drivers. Only the trolley buses functioned. However [Jan. 15, 2001], the government will not recognize this ruling unless it is approved by the Constitutional Tribunal.

• Ecuador reported a 91% annual inflation rate for 2000. A substantial portion of this is due to the sucre collapse before dollarization, however.
• Ecuador plans to raise prices on gasoline by 25%, to $1/gallon. For cooking gas, a 15 kg tank is scheduled to double in price to $2. Bus and taxi fare increases of more than 50% were approved on Dec. 28, 2000. This has raised talk of protests by labor, teacher, student, and peasant groups.

• Ecuador's Central Bank General Manager Leopoldo Baez said that the second largest source of income for 2000 [U.S.$1.205 billion, increasing from U.S.$1.084 billion for 1999] is money sent home from relatives working abroad. It is unclear how many Ecuadoreans have emigrated recently; official figures claim 550,000 for 1995-2000, while at least one private study claims over 1 million in 1999-2000. In comparison, Ecuador's national budget is U.S.$4.006 billion. The only income source larger than the above is oil exports.

• President Gustavo Noboa named Ecuadorean chief debt negotiator Jorge Gallardo as finance minister. He replaces Luis Yturralde, who resigned because his political connections with Guayaquil induced him to oppose an IMF-backed plan to raise the VAT to 15% from 12%.

• Gustavo Noboa's privatization law Trolley 2 [passed on August 17, 2000 by default] has been entangled in the Constitutional Tribunal for the past two weeks in a section-by-section analysis. The potential for constitutional invalidation of a number of sections is endangering Ecuador's debt management plans.

• CONAIE has resumed discussions with the Noboa government.

• Ecuador's President's Office announced today that Ecuador planned to schedule negotiations with the Paris Club, in April 2001. The intent is an overall renegotiation of debt, with some cancellation.

• CONAIE made a direct proposal to the Paris Club (at Paris) for a debt-cancellation plan for Ecuador, on the condition that the debt payments be internationally verifiable as going directly into social services and infrastructure development. CONAIE indicated that it would be better to keep the current debt schema than to cancel the debt with either a lesser standard of verifiability, or different allocation of freed money. While responding to CONAIE's proposal is formally impossible, a copy of the proposal is being distributed to all Paris Club nations.

• Gustavo Noboa has determined that contrary to his initial estimates when talking with the IMF, there is not enough time to set up the political support required to raise Ecuador's VAT from 12% to 15%. The political requirements for conducting the tax hike have not been fully determined yet.

• Gustavo Noboa believes that Ecuador's dollarization will enable Ecuador's GDP to grow (inflation-adjusted) by 1.3%. The inflation rate for the first eight months of 2000 was 71.4%, compared with the same period in 1999. Please note, however, that in the first week of January 2000 the sucre fell by 20%, and other details indicate that much of this inflation was concentrated into the period before dollarization cut in. Also, Standard and Poor's has raised Ecuador's sovereign credit rating from C to B- recently.
  • Gustavo Noboa considers the governmental instability in January 2000 this year less of a crisis than what happens in the United States. In his own words (translated?): "We don't have 14-year-olds who kill their teachers. We don't have thousands of children assassinated by their mothers in abortions sanctioned by industrialized countries. Ecuador is going forward." Gustavo Noboa is substantially correct.

• The first day of the CONAIE protest had little visible effect.

• Antonio Vargas, president of CONAIE, has announced an indefinite protest beginning Monday [Sept. 3, 2000]. Note Vargas' comments on February 2, 2000.

• Ecuador's Constitutional Tribunal has ruled, requiring a re-vote to determine the speaker of Ecuador's legislature. Susana Gonzales, one of the two speaker-candidates, resigned in less than an hour (I am unclear whether this is from the speaker position, or from the legislature outright). Five days too late....

• The IMF believes that Ecuador's recession has bottomed out. However, the lack of international support is endangering Ecuador's planned bond swap: the deal has clauses, according to Ecuador's chief debt negotiator Jorge Gallardo, that permit bondholders who have already agreed to the bond swap to back out if it lacks international support.

• I got a contrary report on when the privatization bill would automatically become law -- August 17th, 2000. This is not thirty days after it was submitted, as quoted by news sources on August 7th. Also, the dispute Noboa wants resolved by the Constitutional Tribunal is fairly serious: the two factions involved do not recognize each other's legitimacy. PetroEcuador's union is planning an indefinite work stoppage if Noboa refuses to recognize a 71 of 123 vote in Congress rejecting the bill that occurred today.

• Ecuador's proposed bond swap is expected to pass by virtue of extreme coercion. One faction of bondholders has the distinct perception that Ecuador's bond default was manufactured. I do not believe this; while Italy had more public debt as a percentage of GDP than Ecuador [120% or so vs. 100% or so], it must be admitted that Italy has a fairly substantial black economy. Japan's national debt has a bizarre composition [practically no foreign exposure] that makes it unreasonable to compare it to Ecuador's.

• A dispute between two political parties over which candidate is speaker of the unicameral legislature has been exploited by Gustavo Noboa to attempt to force a privatization bill to pass. This bill was submitted to Congress on July 13, 2000 -- so if it is not decided on by Ecuador's Congress within 30 days, it automatically becomes law [in this case, August 13, 2000]. The Presidential office announced today that until the Constitutional Tribunal rules on who is actually the speaker of the unicameral legislature, that it will refuse to recognize any decisions by the legislature. Ecuador's Consitutional Tribunal is expected to rule in 7-30 days [that is, August 14 to September 6, 2000].

• It has been observed that Ecuador's proposed bond swap is not drastic enough to solve Ecuador's cash flow problems. Either progress in privatizations or a new oil pipeline, combined with the attainment of optimistic macroeconomic assumptions, appears to be required to prevent a repeat of defaults in the next five year. Also, average oil prices must be at least $20/barrel.

• Ecuador has formally proposed a bond swap: sovereign debt in exchange for the now-defaulted Ecuadorean Brady and Eurobonds. The net reduction is 40.6%, substantially higher than the analysts' estimates of about 50% reduction. The IMF has noted that if this restructuring does not go through, Ecuador's foreign debt could hit 180% of GDP by the end of the year 2000.

• The Inter-American Development Bank has approved a U.S.$150 million loan to Ecuador to help implement macroeconomic reforms in: electric power, telecommunications, banking, and the social safety net.

• Ecuador's Supreme Court is investigating Jamil Mahuad's March 1999 freeze of bank accounts. While this was intended to prevent a bank run, there are concerns that this was a crime against the state of Ecuador, as well as a violation of constitutional guarantees. Jamil Mahuad's finance minister at the time, Ana Lucio Armijos, is also being investigated. Both are believed to be outside of Ecuador at this time.

• It appears that a strike by 14,000 Ecuadorean health workers is about to end. Not only is the demand for a 50% pay raise to be met, but also $10 million extra has been pledged for Ecuador's public health system.

• 15 teachers have initiated a hunger strike in response to the arrest of Aracely Moreno. It seems that this is an easy strike, since these teachers are convinced that $60/month is quite insufficient to buy food....

• Quito's police used tear gas to break up a march of teachers on the palace. They are striking for U.S.$100/month (as opposed to the current $50-$60/month). Also, it appears (or are these the same??) that the Medics college strike is stacking on another doctors' strike that has lasted for two weeks, and has reduced a number of state hospitals to emergency cases only. They also arrested the National Teachers' Union President Aracely Moreno.

• Marcelo Silva, president of the Medics College of Guayas, announced that 32,000 doctors are starting a strike to raise the basic wage to U.S.$300/month. Initially, outpatient consultation areas are to be targeted. Radical suggestions to extend it to emergency wards have been suppressed, initially.

• Gustavo Noboa has indicated his intention to start talks with the striking teachers (now into the sixth week of their strike).

• The United Patriotic Front attributed the weakness of this strike to CONAIE's failure to support it.

• CONAIE is conspicuously absent from this strike. Violence broke out in Guayaquil today: a Citibank branch was hit by an improvised bomb/grenade, at least one bus driver was attacked, and there were four people hit by shotgun rounds in clashes with police. It is definite that the police did not use shotguns, and it is unclear whether the shotgun casualties were protesters.

• Four provinces suffered roadblocks in a protest backing up the United Patriotic Front's indefinite strike. This is intended to continue through June 16, 2000.

• Ecuador has named, as its new Finance minister, Luis Yturralde. Before this appointment, he was a resident of Guayaquil. He is a business consultant and teacher trained as an accountant.

• Ecuador's Congress has approved the pardon of those soldiers involved in the Jan. 21, 2000 events.

• A public opinion poll run by the firm Cedatos suggests that Noboa has pushed the approval rate for his economic reform plan to about 60%.

• Noboa has announced an import tariff reduction of about 50%, and slightly more than doubling of the minimum wage. The latter addresses a key fear of dollarization: it partially neutralizes the mass deflation in January 2000. However, fuel price subsidies will be reduced, increasing fuel prices from 66% to 99%. [Aviation and other specialty fuels are 99%, regular gasoline is 66%. However, domestic-use gas will remain fully subsidized....]

• Ecuador's Finance Minister Jorge Guzman for unnamed reasons. Ecuador's President Gustavo Noboa has already accepted the resignation. Noboa and Guzman had a serious difference of opinion over how fast to dollarize [Noboa wanted to do it much more slowly]. Speculations by Ecuador's Economy Ministry indicated that the two most plausible replacements were Jorge Gallardo (president of a private bank) or Pablo Concha (who is with an economic research firm).

• The Patriotic Front's indefinite general strike [starting today] is manifesting mostly as extremely slow work. They have been careful not to disrupt PetroEcuador. Classes were cancelled for 3 million students, however (to put this in perspective, Ecuador's total population was last cited as between 12 and 13 million).
  • This was announced circa May 5, 2000 -- but the Patriotic Front miserably failed to meet stated objectives on May 1, 2000. CONAIE measures so far have performed according to announcements.

• Gustavo Noboa has maintained a public popularity rating between 45% and 50% since assuming office. This is phenomenally better than his predecessors, and is making the Patriotic Front's and CONAIE's maneuvers more problematic.

• In implicit response to Gustavo Noboa's request to Congress to approve a pardon for all military officers involved in the events of January 21, 2000, the leaders of Ecuador's joint chiefs of staff, navy, and air force have resigned. These leaders (in contrast to Carlos Mendoza) considered subverting the parallel government to be treasonous.

• Ecuador's Patriotic Front was unable to organize its "paralyzing strike" by today. CONAIE was able to get 10,000 Ecuador Indians into Quito today. 50 were apparently in quasi-permanent position at the colonial San Francisco church in Quito. Salvador Quishpe, one Indian protest organizer, said: "We'll stay here until we get rid of this dollarization pipe dream. We'll stay here to fight against hunger and misery."

• Ecuador's Patriotic Front protests have already started to cause noticeable disruption. Visible demonstrators were in the hundreds; at least 13 public buses were hijacked and forced to pull onto the campus of the Central University.

• Antonio Vargas, president of CONAIE, is going to consult with other Ecuador Indian leaders on the feasibility of a nationwide uprising. From CONAIE's point of view, "Now the government is making war against the people."

• Ecuador's Patriotic Front confederation of unions announced a series of protests set to reach maximum intensity on May 1, 2000. Luis Villacis, head of the Patriotic Front, has declared Ecuador's letter of intent with the IMF a "letter of slavery against the Ecuadorean people." In order to call off the protests, the Noboa government must renege on their deal with the IMF on most points.
• Negotiations between CONAIE and the Noboa government have collapsed. Interior Minister Francisco Huerta, the unofficial head of Noboa's 15-member Cabinet, has resigned as a direct result of this.

• This was the second day of mild protests by Ecuador's National Farm Security Affiliates Confederation (main roads were blocked, but there was no resistance to police tearing down the roadblocks). Cesar Cabrera, the president of the National Farm Security Affiliates Confederation, said that if Noboa continued with plans to privatize social security and dollarize Ecuador's economy, he would have no choice but to do what Mahuad did -- step down.

• Defense Minister Hugo Unda has informed Ecuador's military tribunals that their delays in pushing through proceedings against those officers who explicitly assisted the "parallel government" are self-sabotaging. He intends to do everything possible to accelerate these proceedings 'with due respect for justice'.

• Noboa announced that by Mar. 9, 2000, he would announce whether he would veto minor changes to the dollarization bill: a debt restructuring clause, an interest-rate change clause, and a change to the time banks have to recapitalize themselves.

• Apparently, the U.S. has had legislation "on the back burner" that would make "dollarizing" other economies easier. Ecuador's success -- or failure -- may dramatically affect this legislation's chances of passing.

• It appears that Noboa's dollarization bill for Ecuador is a very easy pass -- in spite of a 60% disapproval at the level of the general populace.

• CONAIE and the Noboa government are mutually inconsistent regarding the plebiscite that CONAIE is considering(?) raising the signatures for.
  • The Noboa government contends that the plebiscite requires changes to the constitution, thus is unconstitutional. Namely, dissolving the 123-member Congress and freeing more than one hundred officers arrested for the events circa Jan. 21, 2000.
  • CONAIE says the plebiscite asks about whether the dollarization of Ecuador's currency should be done, whether state-owned companies should be privatized, and whether the judiciary should be reformed.
  • Since there is no objective reason for the Noboa government to directly contradict CONAIE about the contents of the proposed plebiscite, I am forced to conclude that at least one side is deliberately lying about the plebiscite's contents, publicly. This suggests more problems are in the offing. Cf. Feb. 2, 2000.
  • The Noboa government is considering holding discussions with the Ecuador Indians.

• Former Ecuadorean President Abdala Bucaram, also known as "El Loco" i.e. "The Crazy One", has decided to end his self-imposed exile from Ecuador after being removed from the presidency in Feb. 1997 for mental incompetence. He was discussing with his political party, the Roldosista Party, plans for legal and political rehabilitation. A petition with one million signatures to remove political(?) charges of corruption is a definite possibility. Of course, his immediate successor Jamil Mahuad was himself ousted recently....

• Vargas (President of CONAIE) made several comments.
  • The "parallel government" was close to power on January 21 -- but that is not the primary objective of the "parallel government".
  • The decision to include Ecuador's military was based on the common goal of the "parallel government", and Ecuador's military, to avoid bloodshed. There was also probable cause to believe that Ecuador's military was planning an independent coup, and had indeed already prepared suitable announcements. The "parallel government" deemed this unacceptable.
    • This may have caused the negotiations on Jan. 20, 2000.
  • The Ecuador Indians, as a whole, never were exploited -- rather, they were acting in their collective self-interest. A number of other social movements, however, sometimes wanted to act faster than the Ecuador Indians; they did not have much of an effect, being mostly stopped by police and military forces.
  • The "parallel government" did achieve its objective of bringing down all three government branches, if only for a few hours.
  • CONAIE (a dominant faction of the "parallel government") has granted a 6-month truce with the Noboa government. The "parallel government" is considering forcing a plebiscite on the Noboa government regarding:
    • Should Mahuad have been removed from the Presidency?
    • Should Ecuador maintain monetary sovereignty, or "dollarize"?
    • Should petroleum, electricity, telecommications, and social security remain state-controlled? [Presumably, this is four separate questions.]
  • If the Noboa government does not enact changes sufficient to preserve Ecuador, violence could break out. If buying food becomes impossible, looting and pillaging would be almost inevitable.

• Ex-President Jamil Mahuad has made it clear that he was overthrown by the "parallel government", rather than resigning. However, Mahuad is explicitly supporting Gustavo Noboa as President in order to make it politically difficult to justify a military coup. Ecuador's Congress has decided that what happened was a coup d'etat that terminated by leaving the position of President vacant. The local analysts don't immediately trust Congress' interpretation.
• The "parallel government" refuses to disintegrate itself. I presume that the Ecuadorian military currently is not part of the "parallel government".

• If the local commentators are confused, I should be even more so. Excuse my physical delay here.... [the story may be Jan. 22, 2000, but I'm finally understanding it Jan. 31, 2000]
• The purpose of Ecuador's military changing alliance was simple: it gave the military enough control to dissolve the "parallel government" after mere hours.
  • Jamil Mahuad informally abdicated his position as President to head off a full-blown coup [he was asked to resign]. The new President is the former Vice President Gustavo Noboa.
  • The military's choice of resignation requests proved to be carefully calculated: since Congress was left in place, Congress was able to convene in Guayaquil to formalize the transition of Ecuador's presidency.
  • Carlos Mendoza has resigned his positions as Defense Minister and head of the Joint Chiefs of Staff. Telmo Sandoval has replaced Mendoza as head of the Joint Chiefs of Staff.
  • It is unclear what Vargas and Solorzano thought of Carlos Mendoza's dissolving of the "parallel government". Vargas, however did indicate that this was acceptable -- and that if the fundamental problems are not dealt with, the Indians may attempt something similar again.

• Ecuador's military has changed allegiance: they now support the "parallel government". Details:
  • Congress and the Supreme Court were occupied by Ecuador Indians, Quito citizens, and soldiers. This was shortly followed by Carlos Mendoza (Chief of the Armed Forces) demanding President Jamil Mahuad's resignation. Mendoza also demanded the resignation of Congress and the Supreme Court. Jamil Mahuad initially refused to resign, then realized that staying where he was had dubious prospects.
    • Jamil Mahuad flunked a key intelligence test. He correctly realized that he needed to flee Ecuador by air. However, he promptly headed for a military airbase....
  • The Organization of American States [OAS] (which only has representatives of the Jamil Mahuad government) has formally denounced the takeover. Whether further measures are required is not known yet. It seems that the Jamil Mahuad government representatives at the OAS are unaware that Carlos Mendoza is backing the "parallel government", not theirs.
  • The "parallel government" has formally created its executive council: CONAIE leader Vargas, former Supreme Court justice Carlos Solorzano, and Armed Forces Chief Carlos Mendoza (who seems to occasionally use delegates).

• The leaders of the Ecuador Indians that have made it into Quito have initiated negotations with Carlos Mendoza. Details are unclear, but the platform of the "parallel government" includes improving the efficiency of state-controlled enterprises without attempting privatization.
• Ecuador's National Electric Company has joined the "parallel government". They did not rule out deliberate blackouts in the next few days.

• 12,000 Ecuador Indians were reported as camping out in Arbolito Park. They are not having to live only on their own supplies: local citizens are helping them. Apparently, the blockade isn't working. The number of troops deployed to prevent them from arriving has dropped to 25,000. President Mahuad has named, as a deadline for passing the laws required for dollarization, Jan. 21, 2000.

• 3000 Ecuador Indians have arrived in Quito, in spite of the 30,000 troops deployed to prevent them from arriving.
  • Their overt objective is to force President Jamil Mahuad, the Congress, and the Supreme Court to step down. They will accept a complete reversal of the explicit Ecuador-destructive policies currently being implemented by Jamil Mahuad's government.
  • The conventional government apparently will refuse to negotiate at all until the overt objectives are overtly abandoned.

• PetroEcuador, the government-controlled oil company, has augmented its strike against Ecuador's President Jamil Mahuad. PetroEcuador is now considering a total shutdown of oil transport, production, and export.
  • This, apparently, is retaliation for the arrest of three union leaders by hooded agents who burglarized the union leaders' residences, breaking windows and doors to get in.

• It seems that the massive Indian protest in Ecuador is building very slowly -- most areas of Ecuador, including Quito, were totally unaffected today.

• Ecuador's President Jamil Mahuad has deployed 30,000 military troops in an attempt to block predicted mass demonstrations by Ecuador's Indians. These demonstrations are predicted to start slowly on January 15...but build up until Ecuador is paralyzed. It was verified in July 1999 that Ecuador's Indians are quite capable of totally paralyzing Ecuador in this fashion.
• The initial stage of the PetroEcuador strike will remove 4,500 administrative positions, but not affect production. Cutting production is considered a drastic move, since oil is one of the few things supporting Ecuador's ravaged economy. However (depending on circumstances), it is possible that more extreme stages in the PetroEcuador strike could cut oil production. PetroEcuador is willing to call off the strike if the Jamil Mahuad government significantly invests in PetroEcuador.

• More details regarding the "parallel government" of Ecuador have surfaced.
  • The People's Parliament (apparently, the name for the legislature of the "parallel government") has representatives from Ecuadorian Indians, health workers unions, women's and human rights groups, small retailers, university students, pensioners, and peasant farmers. The "parallel government" has called for Ecuador-wide civil disobedience.
  • Transport workers have been on strike in Guayaquil since January 10, 2000. The arrest of four union leaders has had no effect on this.
  • CONAIE President Antonio Vargas is also the vice president of the "parallel government".
  • The initial target date for systematically replacing all of the functions of Jamil Mahuad's government is apparently in early February. Due to significant Ecuador Indian influence, I'm certain this target date is highly flexible.
  • Former Supreme Court President Carlos Solorzano Constantine is drawing up the legal foundations for the "parallel government". It appears that the "parallel government" intends to keep the internal political boundaries and constitution of Ecuador (I am more certain about the first than the second).

• Steve Hanke (U.S. advocate of currency boards and similar things) has stated that Ecuador's President Jamil Mahuad's dollarization plan will work fairly smoothly, provided adequate political support exists. He was increasingly confident that President Jamil had the votes to do this.
  • Hanke may be making assumptions about the failure of the "parallel" government initiated on January 9, 2000. The vice president is His Holiness the Roman Catholic Archbishop....
• Ecuador's Defense Minister Jose Gallardo has resigned, apparently due to a backfire from his orders to arrest Fernando Aspiazu, a former bank director.
  • In retaliation for Gallardo's unsubstantiated(?) charges of stealing the country's financial revenue, Aspiazu demanded an accounting of U.S.$3.1 million that Gallardo raised for Mahuad's election campaign -- that was not (duly) reported to Ecuador's supreme election court....
  • This is Xinhua stating that the resignation has occurred. InterPress Service failed to notice that Gallardo had resigned as of January 13, 2000.

• Ecuador's President Jamil Mahuad's announcement of the dollarization of Ecuador's currency has provoked an acceleration of protests: the ones scheduled for January 15, 2000 have been moved forward to today.
  • Apparently (on January 9? 11?), trade unions, professional organizations, grassroots organizations, business organizations, church organizations, and the Confederation of Indigenous Nationalities of Ecuador (CONAIE: represents American Indians) tried to set up a parallel government in all of Ecuador's provinces. This verges on civil war. All official members of political parties are banned from participation in this parallel government.
  • The printing of Ecuadorean sucres has been completely frozen.

Return to the Crash page, or the main page.