What’s All the News About Ecuador?

Protestors dissipate from the tire-burning site
Protestors dissipate from the tire-burning site

In the three months since we moved to Cuenca, Ecuador, lots of things have happened: political protests have been building in intensity, blocking roads and resulting in violence in other cities (but not here in Cuenca); a huge dormant volcano near the Capital has begun to erupt; el Niño has caused mudslides which have blocked roads and washed out crops on the eastern side of the Andes mountains, towards the rainforest of the Oriente. The global media has taken notice, and everyone from the communist Guardian to the capitalist  Bloomberg has published their take on the situation. I have been striving to keep up with all the perspectives on the situation. Here’s what I’ve learned:

First, even though I read Spanish moderately well, reading the local papers is not very helpful. While Ecuador’s government does not exert explicit censorship on the press, the press is licensed, and there is a law that requires media outlets to give equal space or time to the government to respond to anything the media publishes. Therefore, any criticism of the government is very oblique in the newspapers.  Additionally, Ecuadorian libel laws are much more biased in favor of the plaintiff than America’s, and government officials have filed suits resulting in large settlements against newspapers in the past, which also exerts a muting effect on political writing and broadcasting, and even on social media commentary. So, even though Ecuadorians don’t have to fear the midnight knock on the door as they do in more repressive regimes, it is difficult to find exposition of the real issues by those who feel most passionate about them.

The economic basics: Ecuador’s government has benefited from contracting with oil corporations to extract oil from territories that are not privately owned (though many of them are territories of indigenous people who live nomadic hunter-gatherer or migratory farming lifestyles). In exchange, the government pays the oil corporations a fixed fee and keeps the raw petroleum produced.  When Presidente Rafael Correa took over in 2007, the price of oil was high, and the profit from selling the oil has been plowed into infrastructure, varying from roads and sewers to art museums, as well as providing a safety net of medical, educational, and welfare services. At the same time that this “soft socialism” has been in effect, the tax rate on a person at or below average income (about $12,000) is zero, and around 60% of the population is self-employed in microenterprises, meaning the grassroots economy functions essentially as a laissez-faire system. I’ve been told that it is rare for the micro-entrepreneur to be audited. This combination has resulted in a dramatic decline in the number of people living in dire poverty over the past decade.

However, when the price of oil dropped beginning in 2014, the Ecuadorian government, an OPEC member, began to be in trouble. It had all these contracts to pay domestic and foreign corporations from $30-58 per barrel for extracting oil, and as oil dropped to $60, $50, $40, and below, those contracts became net losses for the government. Since then, Correa has been doing some fancy shuffling while hoping for the price to rebound. Loans from China and “renegotiating” contracts with the oil companies were some tactics.

He also raised taxes on imports, in addition to the stable 12% IVA (Value-Added Tax, a sales tax). From talking with local people of mestizo (mixed indigenous/European) extraction, I’ve learned that the working middle class here is concerned about this hidden taxation on retail goods. The government frames import taxes as being protective of locally-produced goods, but in a population containing so many merchants, people are quick to perceive that the tax on imports also drives up the price of local goods which substitute for them.

One interesting twist is Correa’s introduction of a digital currency.  He framed the introduction as a nod to the future of Bitcoin and other cryptocurrencies, but the currency Ecuador introduced is not a cryptocurrency, it is a central bank-issued currency that is denominated in dollars. Ecuador’s national currency is the US dollar.  This puts Correa in the position of being unable to inflate or deflate his currency at will to influence interest rates and foreign trade balances. As of December 2016, all banks in Ecuador will be required to issue electronic dollars in exchange for cash dollars on demand, and people will be able to pay each other with electronic dollars via cellphone or computer. Individuals will have to have an account with the government to use the currency, though, and fewer than 30,000 have signed up so far. This has the potential to allow the government to create additional “dollars” which have no value outside Ecuador, and to use them to pay government benefits and government contractors.  The potential for disaster is obvious to anyone who thinks it through.

Rafael Correa
Rafael Correa

When Correa first introduced a plan to raise inheritance taxes to 70% in June, there was an upswelling of public opposition. Even though most microenterprises would have been below the limit of the exemption, Ecuadorians have observed real estate prices rising and their own economic situations improving, and could easily imagine themselves forced to sell family farms, haciendas, and businesses, some dating back to Spanish colonial times, in order to pay the taxes when a patriarch died. Another issue: Ecuador’s constitution allows the President to serve two terms; Rafael Correa’s term ends in 2017, and he is attempting to get the legislature to amend the constitution so he can run again; the prospect of him becoming a “benevolent dictator,” or “President for Life” was also scary to the opposition. The protests I saw when I first came in June were of two sorts: the first type was dominated by people in office attire, protesting the inheritance taxes and chanting “Out, Correa, Out!”  The other type was dominated by indigenous cholas, the women in their native hats, velvet skirts, and shawls and the men in buttoned shirts and denim or khaki. Their signs protested encroachment on their water rights (the government recently removed water rights from local control and sold some to Nestle and Coca-Cola) and the increase in oil and mineral extraction in indigenous areas. Correa promptly withdrew his tax proposal, surprising those of us used to political protests which result in no action by the government!

Over the summer, the price of oil stayed low, and criticism of Correa and his administration increased. His popularity dropped from the high 80s to around 50%; still ahead of any of his challengers. Correa has an unusual approach to public criticism; he engages his critics, whether they are local opposition or American talk-show hosts, in speeches, press talks, and social media (he is the #1 worldwide Tweeter among heads of state).  He began to sound paranoid when he accused the opposition of plotting a coup against him, and that seemed to embolden the protestors; although a truce was called during Pope Francisco’s visit in July, each wave of protests became better-attended and more violent. The police reacted with restraint, at least compared to the police response to protests in the U.S., even when protestors began to use 15-foot beams of lumber as spears against their tear gas and riot shields.

Quito: much more violent than Cuenca
Quito: much more violent than Cuenca

I should add, I saw none of this in peaceful Cuenca.  On the night of the most intense protests, traffic was blocked. It was an almost surreal scene, where the government had the central public park full of government agency booths and tents, giving away freebie merchandise and food and drink, and a stage was set up where a popular band blasted festive music.

Cheerful street festival a block away from protests
Cheerful street festival a block away from protests

A party atmosphere prevailed, disrupted only occasionally by camo-clad soldiers marching across the square in formation, while a block away armored police were deflecting the chanting marchers from reaching the square. However, the most violence I saw was a tire set on fire in an intersection and a few glass bottles thrown at armored police.

Armoured horses and police blocked protestors from the square
Armoured horses and police blocked protestors from the square

Women with babies in arms and old ladies mingled in the crowd around the marchers and protesters posed with their signs for photos by us gringos who happened to blunder onto the scene. One of the four armored horses was young and skittish and appeared incompletely trained for the work, and I later heard it had shied and fallen, injuring itself slightly.

Also present that day was a man who was talking English into his jacket collar. Though dark, he was tall and heavy for an Ecuadorian, and looked a bit more polished and better-equipped than the general run of Ecuadorian law enforcement. He saw me aim my phone and carefully turned his face away from the camera. How much of a role is the US “national security” club taking in these protests? It would not be the first time they have acted to destabilize an unfriendly Latin American leader. Correa has thumbed his nose at America more than once, by expelling US soldiers from a military base, and by providing Julian Assange with asylum at Ecuador’s London Embassy.

Don't mind me, I'll just talk to my jacket collar...
Don’t mind me, I’ll just talk to my jacket collar…
Cotopaxi spewing ash and steam
Cotopaxi spewing ash and steam: Photo by Henri Leduc

Basic geography: Ecuador, located on the equator, is divided into three regions: the western pacific coast is full of beach communities, fishing villages, and seaports. The sierra is the Ecuadorian part of the imposing Andes mountain range, which splits the nation down the middle. The Pan-American highway runs down the spine of the mountain ridge, connecting the capital, Quito, and Cuenca, where I live, and numerous smaller mountain towns and villages in between and southwards into Peru. And the eastern part, the Oriente, contains the Ecuadorian portion of the Amazon rain forest, and also most of the oil and mineral deposits.

When the southern-hemisphere winter rains hit in June and July, they were fierce.  Climatologists soon confirmed that the global weather had shifted into the pattern known as el Niño, which warms the equatorial Pacific and causes decreased fishery yields and torrential rains in western South America and the Southern US. The torrential rains began to wash out mountain roads along the Pan-American highway, some of them only recently reopened after the protesters dissipated.  Some crops were ruined. There were a few deaths due to flooding and mudslides.

As soon as the mudslides were cleared, an even bigger wave of marches, these dominated by the indigenous protestors, began; one march ran the length of the mountain ridge, ending in Quito; along the way more violence erupted as police fought with protestors to open the roads.  A French-Brazilian professor and journalist, Manuela Picq, married to an indigenous activist, was arrested along with others in the protests. There was great outcry when they tried to revoke her visa and deport her, but at a hearing a few days later, a judge allowed her to stay and ordered an investigation into why she had been detained when her visa was in order. I found it reassuring, that the rule of law was followed.

Then, in early August, Cotopaxi erupted. So far, the eruptions have been relatively mild outpourings of ash and steam. Cotopaxi is considered one of the world’s most dangerous volcanoes. It is located 30 miles from Ecuador’s capital, Quito, and since its last major eruption in 1903, the suburbs of Quito have extended a good distance towards the volcano.  In 1877, it obliterated the town of Latacunga, nearby, and some of the volcanic flows reached the Pacific ocean, 60 miles downhill. Geologists still believe it is coincidental, but there have been quite a few earthquakes and eruptions along the Ring, from Fukushima to Chile and the western US in recent years! Coincidence or not, Cotapaxi has the potential to threaten the lives of over 300,000 Ecuadorians if a really big eruption explodes. The Ecuadorian government therefore acted even more aggressively to clear the protests from blocking the roads that would be used for evacuations, provoking more anger by the protestors. The government also declared a “State of Exception,” banning all non-sanctioned media communications about Cotopaxi. This was ostensibly to prevent rumors from running wild, but one can see how it might be abused to suppress political speech as well.

Ash from Cotopaxi’s simmering is settling on agricultural plains to the south, affecting crops and livestock. So far, flights to and from Quito are mostly unaffected. It remains to be seen how badly Ecuador’s overall agricultural production will be affected by the combination of Cotopaxi and el Niño. Considering that Ecuador’s main exports are oil, bananas, shrimp, and coffee, this could put even more of a squeeze on the trade situation and the currency.

So, to summarize: Ecuador’s government is under pressure from decreasing oil revenues, protests over taxes and resources, climate fluctuations, and a volcanic eruption. Here in Cuenca, we are mostly mercifully insulated from the drama, as are our social-media friends in Quito and other mountain towns, and on the coast. Life in Cuenca goes on in its warm and relaxed fashion. Local people, tourists, and expats walk the bustling streets, go to work and school, ride the buses, and shop at local mercados and gleaming shopping malls. All this upheaval gives me and my husband pause: do we really want to pay to move the rest of our belongings here, and settle in for the long haul? We had a long heart-to-heart and finally agreed: we love it here. Ecuador and her people have won our hearts. We will abide and wait to see what happens next.

2015-08-16 10.07.50
This country’s natural beauty is beyond compare

Additional Reading:




http://www.oecd.org/ctp/tax-global/NEW_Ecuador%20country%20notes_final.pdf (Spanish)



http://www.elcomercio.com/actualidad/manuelapicq-libre-deportacion-fiscalia-partepolicia.html (Spanish)









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