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22/04/2005 | Parliament Ousts Ecuador's Embattled President Gutierrez

WMRC Staff

Ecuador has a new president after opposition parties finally won enough support to oust Lucio Gutiérrez, who has become the third consecutive leader to leave office early in the struggling South American country, amidst a swathe of anti-government protests.

 

Significance
Ecuador's embattled leader has never recovered from losing indigenous support in August 2003 as his government pursued unpopular labour reforms at the advice of the International Monetary Fund (IMF).

Implications
Indigenous groups helped to sweep the populist leader to power, but without their support he has been left isolated. His background as a former coup leader made him vulnerable to allegations of authoritarianism and anti-democratic practices that ultimately claimed his government.

Outlook
Reassurance can be taken from the fact that the armed forces remained on the sidelines and Mr Gutiérrez's removal from office occurred within the democratic framework. Difficult times lie ahead for the interim leader, who will struggle to sustain popular support, while aftershocks will be felt around the Andean region, where Peru and Bolivia are on the brink of political crisis.

Goodbye Gutiérrez

Repeated congressional efforts to eject Ecuadorian president Lucio Gutiérrez finally paid off yesterday as spiralling social unrest finally encouraged enough legislators to support a motion for his removal. Third time lucky, 62 lawmakers opted for his removal, while not one voted against the bid to oust him from office legitimately, staying united long enough to secure the vote. President Gutiérrez proved defiant to the last, refusing to accept the congressional vote until the armed forces made it apparent that he could no longer count on their support. Fleeing from office and poised to take up political asylum in Brazil at the invitation of President Luiz Inácio Lula da Silva, Gutiérrez becomes the third Ecuadorian president in nine years to fail to complete his mandate. 

Prescribing a New President

Born in the industrial city of Guayaquil, Ecuador's new president, Alfredo Palacio, came to politics late in life. A cardiologist by profession, he took up his first government post during the Sixto Duran Ballen administration, when he served as Public Health Minister. Appointed as vice-president at the start of the Gutiérrez government, relations with his superior swiftly became strained. In June 2004, differences between the two men caused a split in the administration as Dr Palacio accused the president of sacrificing social policy initiatives in favour of paying back the country's colossal foreign debt. As deputy leader Palacio enjoyed a relatively good reputation, although he was stained, alongside his superior, by alleged association with suspected drugs trafficker César Fernández in late 2003. Palacio's rise to power mirrors that of Gustavo Noboa, who took office after the ouster of Jamil Mahuad. Noboa himself has just returned from exile, cleared of corruption charges that led him to flee the country when Gutiérrez took office. The apolitical credentials of Ecuador's new interim leader give him the opportunity for consensus building in the Andean nation's divided Congress, but, if unsuccessful, he will be left isolated without party support and in a similar predicament to his troubled predecessors.

Keeping in accordance with the democratic process, Congress members swiftly voted in favour of installing Vice-President Alfredo Palacio as the country's next president. In a popular move the new leader rapidly ordered the arrest of his former boss, who is accused of illegally ordering police to crush anti-government demonstrations. Congress had already ruled a short-lived state of emergency unconstitutional as it attempted to ban public protests last weekend (15-17 April), thus reviving concerns about the ex-coup leader's authoritarian streak. All three military branches have officially endorsed his ouster. Likewise, his former deputy has completely turned his back on his elected leader. Palacio, an apolitical figure and cardiologist by profession, celebrated the end of the Gutiérrez government. Speaking to jubilant crowds from the balcony of the parliament building, Palacio declared: 'the arrogance and fear have ended...The dictatorship has ended.' His preliminary promises include a referendum on institutional reforms and diverting oil funds, traditionally used for debt servicing, to treat Ecuador's social ills.

Uncertainty and Fear Prevail in Economic Realm

Gutierrez confounded initial expectations that he would pursue populist, fiscally irresponsible policies and indeed adhered to surprisingly austere prescriptions. His departure from office can only increase the risks of these being jettisoned in favour of freer-spending policies that in the short term buttress the government's popularity, but in the longer term sow the seeds for economic chaos:

Fiscal Policy: Palacio's plan to divert funds from debt servicing to social spending have fomented fears that the fiscal discipline espoused by his predecessor, which resulted in a surplus from the non-financial public sector of US$613.3 million in 2004, equivalent to 2.0% of GDP, will be abandoned or at least significantly diluted. At least in the short term, however, high oil prices will work to the government's advantage.

Multilateral Financing: Tightly interwoven is the fact that, while the Gutierrez administration was unable to see through the agreement it signed with the IMF in March 2003, it at present has an agreement with the Fund whereby the country is subjected to quarterly economic reviews. Approval of these by the IMF's Executive Board is a prerequisite for the disbursement of loans from multilateral institutions, including the World Bank and the Inter-American Development Bank. These credit lines are factored into the 2005 budget legislation and are central to the financing gap being filled.

Debt Management: A deterioration in conditions on global markets caused the authorities to pull the plug on plans to exchange global 2012 bonds already in circulation for new, cheaper paper and, taking into account developments in the political sphere, may yet force it to hold off from issuing new external debt. The market's reactions to yesterday's political developments were strongly negative as uncertainty built: the 2030 global bond lost 3.25 to 82.5, with country risk - the spread between Ecuador's sovereign debt and comparable US Treasuries - widening by 69 basis points to 768. 

Dollarisation: The replacement of the sucre by the US dollar in 2000 has been key to ending hyperinflation and restoring a degree of stability to the macro-economy. Although politicians may be loath to advocate abandoning the US currency, a collapse in fiscal discipline and the issuance of 'funny money' at home - as occurred in Argentina in the latter years of the peso peg - could culminate in the collapse of dollarisation. This could lead to a return of hyperinflation and economic meltdown.

Earlier this week (and before he took office), Palacio demanded that 'profound changes' be made to the economic policy and that campaign promises to alleviate poverty be fulfilled. Uncertainty regarding how the political situation will evolve and suspicion regarding Palacio's economic stance will keep markets under pressure in coming sessions. Furthermore, although Ecuador's chief trade negotiator Cristian Espinoza told Reuters that Gutierrez's ouster would not affect negotiations over a free-trade deal with the US, a populist president could decide to pull the plug on such talks, playing to 'anti-imperialist' sentiment among the electorate.

Final Straw

Gutiérrez's government has been buffeted from crisis to crisis since it was abandoned by the indigenous Pachakutik movement eight months after the movement helped to secure its election in January 2003. The loss of indigenous support left President Gutiérrez isolated in the national Congress and, although it managed to survive for over 18 months, it never recovered. Opposition to Gutiérrez's leadership has intensified in recent weeks as the president, who claimed to be attempting to purge institutions of political influence, was accused of interfering with the judiciary to secure the return of exiled leaders who would galvanise his beleaguered government. Uproar and social unrest ensued as the Supreme Court annulled corruption charges allowing ex-presidents Abdalá Bucaram, Gustavo Noboa and former vice-president Alberto Dahik to return from exile. The return of Bucaram (known as 'el loco' - 'the crazy one') caused particular outrage because his Ecuadorian Roldosista Party (PRE) has played a pivotal role in rescuing the Gutiérrez government at several key junctures in its troubled term. The judicial ruling was effectively the last straw for legislators and the Ecuadorian electorate and his legal project to reverse the court's restructuring was not enough to rescue him.

Outlook and Implications

Aftershocks from the Gutiérrez ouster will be felt around the Andean region. Peruvian president Alejandro Toledo is in a particularly vulnerable position, facing recurrent bouts of social unrest, corruption allegations and popular approval ratings that fail to reach double figures. Tenacious Toledo only needs to hold on until next year's election, although he will find it harder to do so after the exit of his Ecuadorian counterpart. Meanwhile, Bolivian president Carlos Mesa remains in a vulnerable position in the national Congress even though a recent resignation offer was rejected by legislators. Social unrest forced his predecessor Gonzalo Sánchez de Lozada to leave office in October 2003 over unpopular plans to export Bolivian natural gas. Public protests could be sparked again in the coming weeks as Congress debates controversial hydrocarbons legislation.

Ecuador's political situation is both unstable and uncertain, but some reassurance can be taken from the handling of the latest crisis. The country's armed forces remained on the sidelines despite the political chaos, removing the option of an auto-coup for the impeached leader. The return of exiled leaders has raised tensions, but none of these boast significant levels of popular support. Former president Bucaram is unlikely to be given the chance to launch his leftist revolution, styled on that of independence leader Simón Bolívar and modern-day follower, Venezuelan president Hugo Chávez. The opposition Democratic Left (ID) and the Social Christian Party (PSC) have been winning support in local votes, with both pursuing policies oriented around the centre. Meanwhile, interim leader Palacio is following in the footsteps of his Bolivian counterpart in promising to establish a constituent assembly to reorganise the Ecuadorian state and help bring marginalised communities closer to the democratic process. However, keeping the faith of Ecuador's impatient electorate is an almost insurmountable challenge. Lucio Gutiérrez was unable to do so, even with his mestizo racial profile and indigenous rhetoric, which broke with the tradition of electing white, European-looking Ecuadorian leaders who failed to appeal to the non-white majority. Tensions may ease in the short-to-medium term, but achieving long-term political stability remains far off. On the economic front, policy uncertainty and slippage on the fiscal front will undermine investor confidence, while the structural reforms necessary to secure public finances into the long term will become more elusive than ever.

WMRC (Reino Unido)

 



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