ECUADOR'S NEW ADMINISTRATION: CHALLENGES AND PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85S00317R000200060001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: May 3, 2010
• Sequence Number: 1
• Publication Date: August 1, 1984
• Content Type: REPORT

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Directorate of t
Intelligence
Challenges and Prospects
Ecuador's New Administration:
ALA 84-10082
August 1984
Copy 398
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Directorate of Secret
Intelligence
Ecuador's New Administration:
Challenges and Prospects
This paper was prepared byl Office
of African and Latin American Analysis, with a
contribution from ALA. It was
coordinated with the Directorate o perations.~
Comments and queries are welcome and may be
directed to the Chief, South America Division, ALA,
Secret
ALA 84-10082
August 1984
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Key Judgments
Information available
as of I August 1984
was used in this report.
Challenges and Prospects
Ecuador's New Administration.
The new conservative administration of President Leon Febres-Cordero faces an
array of serious, interrelated problems, the most difficult of which is the struggling
economy. He has inherited high inflation and unemployment, depressed manufac-
turing and construction sectors, and a foreign debt service burden that will
consume 35 percent of export earnings this year. 25X1
registered parties-is only a loose union.
Rising interest rates and a continued slump in the market for oil-one of
Ecuador's principal exports-will plague Febres-Cordero's efforts to improve the
country's external accounts. Meanwhile, the stringent, free market adjustment
measures he promises to employ to foster recovery in the domestic economy will
produce negative political repercussions, such as labor unrest and congressional
obstructionism. His plans to cut basic commodity subsidies, decrease regulation,
and liquidate state monopolies will leave him open to attacks from opponents on
the center-left and left, who control a majority of the seats in Congress. The
President's own coalition-six conservative groups out of Ecuador's legally
Carajo ("Alvaro Lives, Damn It" or AVC) organization and militants from the
Leftist subversive groups-relatively new to Ecuador-hope that Febres-Cordero's
conservative policies will swell the pool of alienated youth and leftists from which 25X1
they draw recruits. Armed terrorist groups-including members of the Alfaro Vive
political support from Ecuador's private sector.
? The conservative armed forces, according to the US defense attache
In attacking these problems, Febres-Cordero has a number of advantages: 25X1
? Foreign bankers are reported to be pleased with his plans for economic recovery,
and this will improve the chances for new lending and foreign investment. 25X1
? His economic philosophy and background as a businessman will garner strong
solidly favor the administration's political and economic
iii Secret
ALA 84-10082
August 1984
President's ready disposal.
programs and its pro-US stance in foreign affairs.
? The President's political skills and charismatic style-always important consid-
erations in Ecuador's fragmented political environment-will enable him to
retain substantial popular backing.
? Febres-Cordero's opponents are not united, ideologically or otherwise, and they
are vulnerable to a variety of political carrots and sticks that are at the
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We believe Febres-Cordero will marshal these assets sufficiently well to keep
opposition activity at controllable levels at least during his first year in office and
thus continue the consolidation of Ecuador's five-year-old democracy. We believe
he will act promptly on economic matters while foreign lenders are sympathetic
and before domestic opponents can organize their forces. Even under favorable
circumstances, however, he will have recurring difficulty, in our view, meeting
foreign debt payments, keeping Ecuador in compliance with IMF criteria, and
paying for imports to reactivate the industrial sector.
We expect the President to use populist tactics-such as low-cost subsidized
housing and job-creation programs-as well as patronage and legal sanctions to
keep labor and leftist political challenges under control. We judge that security
force countermeasures and public hostility toward violence will prevent the nascent
terrorist movement from growing quickly enough to threaten the government's
stability over the next two years or so.
US interests in Ecuador will be served by the new administration's intention to fol-
low a moderate course in foreign affairs and to support US positions in
international forums. This does not necessarily assure that Febres-Cordero will
avoid cooperation with some of the more aggressive Latin American debtors at
regional meetings on the debt question. Despite his nationalistic rhetoric, we doubt
that Febres-Cordero will provoke tensions over Quito's border dispute with Peru.
He probably will not reverse his predecessor's renewal of diplomatic ties with
Cuba, since it could rally his leftist political opponents, unless he receives solid
evidence that Havana is abetting terrorism against his government.
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Ecuador's New Administration:
Challenges and Prospects
Introduction
The inauguration of President Leon Febres-Cordero
on 10 August was the first electoral transfer of power
between civilians in Ecuador since the military re-
stored democracy five years ago.' As a conservative,
Febres-Cordero will be freer from military coup plot-
ting than his leftist predecessors, but he will face
other kinds of political challenges, particularly from
labor and leftist political parties. These will compli-
cate efforts to attack his administration's biggest
problem-the struggling economy.
As Latin America's third-largest oil exporter and an
OPEC member, Ecuador characteristically has been
insulated from economic troubles. A series of fac-
tors-the slump in the oil market, the maturing of
excessive short-term borrowing by Quito, mismanage-
ment and heavy public-sector spending by a statist-
oriented administration-brought on an economic
downturn two years ago. Notwithstanding Febres-
Cordero's campaign promises to remedy the situation
quickly, we judge that the obstacles are too great to
overcome this year:
? Central Bank projections for 1984 indicate that
GDP will grow only about 2 percent.
? Service on the $8 billion debt will consume 35
percent of export earnings this year, creating a
goods-and-services deficit.
? Inflation currently is running at a 45- to 50-percent
annual level.
? Unemployment is near 15 percent, while underem-
ployment is close to 50 percent.
? The sucre is overvalued and, according to a respect-
ed US financial journal, only about one-fourth of all
currency transactions take place on the official
market.
The Magic of the Marketplace
Unlike many of his presidential counterparts in Latin
America, Febres-Cordero is a firm adherent of free
market economic policies. Throughout his presidential
' President Jaime Roldos, who was inaugurated in 1979, died in a
plane crash in 1981 and his term was finished by Vice President
campaign, he pledged to resort to the "magic of the
marketplace" to spur economic growth. According to
the US Embassy, he believes that fiscal austerity,
coupled with free market monetary exchange and
credit policies, will restore domestic and foreign busi-
ness confidence, resuscitate stagnant industrial pro-
duction, and revive exports. Determined to reduce the
government's role in the economy, Febres-Cordero
also plans to cut or eliminate basic commodity subsi-
dies, decrease regulation, liquidate state monopolies,
and reorganize the state petroleum industry. To offset
layoffs arising from projected budget cuts, he intends
to use expected foreign aid to increase employment in
construction through government-subsidized low-cost
housing programs.
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Ecuador: Selected Economic Indicators, 1978-84
Real Economic Growth
Percent
Current Account Balance b
Million US $
Total Debt
Billion US $
Consumer Price Growth
Percent
Foreign Exchange Reserves, End of Year
Million US $
Debt-Service Ratio
Percent
a Estimated.
b Excluding official transfers.
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In addition, Febres-Cordero plans to court foreign
investors. At a meeting in New York in June with
Ecuador's major creditors, he publicly welcomed for-
eign investment in mining, petroleum exploration and
recovery, agroindustry, export industries, and tourism.
According to press reports
he not only favors the abandonment of
many Andean Pact trade and investment restrictions
but prefers the strengthening of existing bilateral
arrangements over regional economic initiatives.
Despite these positions, Febres-Cordero is openly crit-
ical of Ecuador's agreements with the international
financial community and publicly has promised to
negotiate more favorable terms.
The Political Scene
Febres-Cordero faces a fragmented political system.
The US Embassy reports that, although the overall
political spectrum has shifted leftward since the resto-
ration of democracy in 1979, the established parties
and numerous labor groups run the gamut from far
right to far left. Beneath the rhetoric of populism,
however, politics is essentially an elitist activity with
personalism and regionalism blurring ideological
lines. This complicates consensus building and creates
an environment in which a president's personal alli-
ances oft n count for more than his ideological orien-
tation.
Febres-Cordero, having garnered 51.5 percent of the
total valid vote in. May, is backed by a loose coalition
of six conservative parties, which, despite similar
ideologies, have diverse histories and traditions. For
example, the President's Social Christian Party is
relatively new, unabashedly procapitalist and free
market oriented, and closely tied to powerful business
interests in Guayaquil, the country's largest city and
commercial hub. Three other small parties serve
primarily as political vehicles for former presidents.
Right-to-Center
? PSC (Social Christian Party): party of President-
elect Febres-Cordero
? PC (Conservative Party)
? PRN (Revolutionary Nationalist Party)
? CID (Democratic Institutionalist Coalition)
? PNV (Velasquista National Party)
? PL (Liberal Party or Radical Liberal Party)
Center-to-Left
? FRA (Alfarist Radical Front)
? CFP (Concentration of Popular Forces)
? APRE (Revolutionary Popular Action Party) 25X1
? PD (Democratic Party)
? PRE (Ecuadorean Roldocist Party)
? PCD (People, Change and Democracy)
? DP (Popular Democracy)
? ID (Democratic Left): party of defeated presidential
candidate Rodrigo Borfa
Far-Left
? MPD (Democratic Popular Movement)
? FADI (Broad Leftist Front)
? PSE (Socialist Party)
? PSRE (Ecuadorean Socialist Revolutionary Party)
The two other parties in the coalition-the Conserva-
tives and the Liberals-are longtime rivals who have
banded together to resist the center-left. Despite the
obvious boost to their political fortunes resulting from
association with Febres-Cordero, we judge that most
of these conservative parties will continue to hold a
minority position in the political system.
In contrast, an amorphous center encompasses the
majority of the electorate, with parties ranging from
social democratic to centrist populist. The Democratic
Left, which nominated Febres-Cordero's presidential
opponent, Rodrigo Borja, is the best organized and
strongest of all the parties in this category. A largely
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middle-class, social democratic organization affiliated
with the Socialist International, the Democratic Left
advocates social programs and state intervention in a
mixed economy. It has eclipsed the two center-left
parties that supported Febres-Cordero's predecessor,
President Hurtado. Two remaining centrist groups are
potent, coastal-based populist parties that occupy a
pivotal position between the center-left parties and
Febres-Cordero's conservative front.
The parties of the far left also increased their political
base in the last election. Although the Socialist Party
and its allies fared poorer than expected, the two
principal groups-the Maoist Democratic Popular
Movement and the Moscow-line Broad Leftist
Front-achieved modest gains. The Maoist candidate
garnered a significant number of votes from universi-
ty students, poor neighborhoods, peasants, and some
civil servants. Both parties also performed well in
congressional and municipal contests and, taken to-
gether, the presidential candidates of the three far left
parties garnered a respectable 12 percent of the
popular vote.
Labor is a volatile, and potentially powerful, political
force. Traditionally rent by bitter ideological and
personal disputes, this sector has demonstrated great-
er unity over the past two years, according to the US
Embassy. The Unified Workers Front, an umbrella
organization formed in the late 1970s, was stirred to
action by the austerity imposed by the Hurtado
administration. Its two principal components-a
Communist-dominated confederation and a major
democratic organization-laid aside their differences
and mobilized large numbers of trade unionists, peas-
ants, and students in strikes last year. Although the
Front's effectiveness was reduced somewhat when the
powerful transport federation dropped out in 1981,
the US Embassy reports that the organization never-
theless emerged as a major disruptive element in labor
relations during the Hurtado administration.
Political Challenges
Febres-Cordero's election probably will prompt a
major opposition offensive against the new adminis-
tration by parties of the center-left and left, Febres-
Cordero apparently faced incumbent hostility during
Febres-Cordero's first political test probably will
come from the newly elected Congress, where his
conservative backers are a distinct minority. Accord-
ing to the US Embassy, in early July the Democratic
Left, which has more seats than the entire bloc
supporting the new President, joined with six other
center-left and leftist parties (including both the
Moscow-line and Maoist Communist party organiza-
tions) to form the "Progressive Democratic Front."
This coalition, which will account for 42 of 71
congressional seats, reportedly intends to elect the
president of the Congress, control committee assign-
ments, and oppose Febres-Cordero's legislative pro-
gram, according to the US Embassy.
Organized labor, however, could be the new Presi-
dent's most serious political challenge. Although re-
cent, marginal improvements in the economy and the
lameduck status of the previous administration slight-
ly dampened labor's activism; persistent inflation and
continued high unemployment virtually ensure contin-
ued unrest. Moreover, labor confederations are likely
to be even more hostile to Febres-Cordero's conserva-
tive-oriented policies-particularly the proposed aus-
terity measures-than the leftist political parties.
Promised cuts in the entrenched bureaucracy will
alienate the important public employees federation,
but more serious labor ferment probably would result
from any government attempt to eliminate or reduce
long-established subsidies on basic commodities. A
cutback in the gasoline subsidy, for example, would
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anger the powerful Ecuadorean Drivers Federation
and might prompt a strike by the 80,000-member
independent transport workers guild, which could
effectively paralyze the transportation system.
The Subversive Threat
We believe that the new administration also will face
a growing subversive threat from the far left. Ecuador
has been free from terrorist or insurgent activity in
the past, except for instances of Colombian guerrilla
forces transiting or training in northern Ecuadorean
provinces. During the past year, however, a radical
terrorist group called Alfaro Vive Carajo ("Alfaro
Lives, Damn It" or AVC) began a terrorist campaign
that has included seizures of radio stations, some bank
robberies, and probably the May 1984 bombing of the
US Embassy. The group-apparently composed of
present and former student activists-is still very
small but seems well organized and highly disciplined.
In addition, the US Embassy reports that the terror-
ists may have links with some of the political parties
of the radical left and perhaps with Cuban officials in
The New President's Assets
For his part, Febres-Cordero faces these challenges
with a number of assets. He can count on support
from two powerful, conservative domestic institu-
tions-the military and the business community-
that opposed his left-of-center predecessors. As a
result, the tensions and occasional coup plotting that
characterized executive-military relations under for-
mer Presidents Roldos and Hurtado are unlikely
during Febres-Cordero's presidency. According to US
defense attache reporting, the officer corps is pleased
with his election and expects him to promote closer
military ties to the United States. Moreover, we
believe that the armed forces will assist the adminis-
Quito.
At present, the AVC's capabilities appear to be
limited. The group recently suffered a major setback
when police captured 11 members-including the
reputed AVC leader. This apparently has not shaken
the group's resolve. Ecuadorean authorities believe it
may launch an attack to free its imprisoned members,
In our judgment, the Ecuadorean Socialist Revolu-
tionary Party (PSRE)-a small, radical leftist organi-
zation with little electoral support-could prove more
threatening than the AVC in the long run because of
its established university fronts and Cuban backing.
tration in maintaining law and order.
The President's free-market economic initiatives will
draw additional support from his former colleagues in
the commercial sector, according to the US Embassy.
A self-made millionaire, Febres-Cordero has close ties
to numerous business leaders who have expressed
privately and publicly their backing for him. This
support is buttressed by the fact that he is a product
of the Guayaquil business world.
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Finally, Febres-Cordero's considerable political acu- 25X1
men and personal appeal are an important asset. For
example, during the presidential campaign, the char-
ismatic and flamboyant candidate expertly wooed
votes away from his lackluster opponent. The US
Embassy reports that, as a Congressman, Febres-
Cordero's oratorical crusade against corruption in
government produced a public outcry that led to the
resignation of several high-level officials.
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Prospects for the New Administration
In our view, Febres-Cordero probably will cope with
the expected political and economic challenges well
enough to consolidate further Ecuador's fledgling
democracy. Although his conservative ideology is
likely to lead to some increased political polarization,
we believe his substantial backing among the military
and business community, coupled with his popular
support, will serve to keep strikes and protest activity
at controllable levels during his first year in office.
To accomplish his principal economic policy objec-
tives, especially reducing the budget deficit, Febres-
Cordero will have to trim the bloated state bureaucra-
cy, increase gasoline prices, and eliminate food
subsidies-all politically sensitive measures capable of
provoking general strikes and civil disturbances. Eco-
nomic concessions, such as wage increases, that would
mute some of this reaction against austerity would
probably spark a negative response from foreign
The President intends to act promptly on economic
issues in order to capitalize on the current honeymoon
period with lenders before his political opponents and
labor can marshal their forces to oppose austerity.
Given scarce foreign exchange reserves resulting from
a continuing slump in the oil market, efforts to gain
new lending as well as debt refinancing will be
contingent on the new President's ability to reach and
maintain an agreement with the IMF. Although we
expect such an accord to be signed this fall, we judge
that, at least during his first two years in office,
Febres-Cordero will have continuing trouble meeting
debt payments, keeping Ecuador in compliance with
IMF performance criteria, and paying for imports to
reactivate the industrial sector.
The new President probably will use several ap-
proaches in dealing with the recalcitrant labor move-
ment. Aside from his legal authority over labor, he is
likely to exploit his personal links to several important
term.
union officials. Moreover, his influence with business-
men, who have successfully co-opted several powerful
unions in the coastal area, could help manage unruly
workers. Finally, we expect Febres-Cordero to use
populist tactics-including low-cost subsidized hous-
ing and job creation programs-to offset potential
labor discontent. Overall, we believe that by mixing
legal sanctions, political patronage, and promises of
benefits, Febres-Cordero will be able to keep labor
unrest under control for at least the first year of his
The President probably also will withstand the pres-
sures from the political left, in our view. The US
Embassy reports that the newly formed leftist legisla-
tive alliance unites a number of traditional enemies,
who may well end up fighting each other instead of
Febres-Cordero. The President's conservative coali-
tion in the Congress also may be able to increase its
strength through an alliance with the delegates of two
coastal populist parties, many of whose constituents
voted for Febres-Cordero. Failing that, he may be
able to override or get around much congressional
opposition because of infrequent congressional ses-
sions, substantial executive statutory authority, and
powers of political patronage. Finally, Febres-Cor-
dero's appeal to large numbers of voters in poorer
neighborhoods may allow him to take advantage of a
longstanding conservative populist tradition among
the lower classes and thereby offset the left's prosely-
tizing.
We believe that nascent terrorism is unlikely to pose a
direct threat in the near future either to Febres-
Cordero's administration or Ecuadorean democracy
in general. Neither the AVC nor the PSRE at present
have the resources to sustain a widespread insurgency.
Nonetheless, they are capable of mounting a terrorist
campaign that, if coupled with labor unrest, could
raise public and armed forces anxiety and damage the
administration's credibility. Moreover, some Ecuador-
eans have publicly expressed concern that a conserva-
tive administration will swell the pool of alienated
youth and leftists that terrorist groups draw on for
recruits. We expect that, if such a process occurs, it
will build slowly.
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Implications for the United States
We believe the new President will follow a moderate
course in foreign affairs. He has indicated privately to
US officials-and reiterated publicly-that he will
promote improved relations with the United States. In
a recent discussion with the US Ambassador, newly
appointed Foreign Minister Teran said he would
review Ecuador's voting record in international orga-
nizations with a view toward making it more support-
ive of Washington's positions.
Quito's new position on the Latin
American debt problem will emphasize the need for
individual nations to adopt tough, internal measures
to resolve their economic problems and to cease
blaming the industrialized countries for the current
situation. Teran also promised that the Febres-
Cordero administration would be less identified with
the Nonaligned Movement, more involved in antinar-
cotics efforts, and amenable to seeking practical
solutions to the bilateral tuna problem.
In return, Ecuador will expect increased economic aid
and strong US support for its positions in debt
negotiations with the international banks. In addition,
to help counter the growing domestic terrorist threat,
government officials have made it known that they
will look to the United States for help in strengthen-
ing the counterinsurgency and intelligence capabili-
ties of Ecuador's armed forces.
Nevertheless, future relations with Ecuador will not
be entirely trouble free. Bilateral trade will continue
to be adversely affected by the slack Ecuadorean
economy. US exports to Ecuador shrank to about
$570 million last year-a return to 1977 levels-and
are likely to remain depressed this year. In our
judgment, if the nationalistic President is disappoint-
ed with his treatment by international lenders, he
probably will be willing to cooperate more closely on
debt issues with some of the more aggressive Latin
countries, such as Argentina. Similarly, in foreign
affairs, Febres-Cordero's basically pro-US orientation
will not outweigh his need to maintain good relations
with the rest of Latin America. For example, despite
his sympathy with the US approach toward Central
America, the new foreign minister already has stated
that Quito will avoid publicly taking sides regarding
the conflict
The US Embassy notes that notwithstanding Febres-
Cordero's occasional incendiary references to the un-
settled border dispute with Peru, he is unlikely to
engage in any revanchist moves or military adven-
tures. Cognizant that Ecuador is inferior militarily to
Peru, Febres-Cordero probably will continue the pres-
ent policy-favored by senior civilian and military
officials-of trying to reduce tensions with Lima
through continuing dialogue. According to the US
Embassy, the new President appreciates past US
assistance in keeping the border problem under con-
trol and hopes Washington will continue with this
policy in the future.
Finally, Febres-Cordero has pledged to maintain ties
with any country that refrains from interfering in
Ecuadorean politics. This, together with his desire to
avoid providing his opponents on the left with a
unifying issue, makes it unlikely, in our judgment,
that he will unilaterally reverse his predecessor's
restoration of full diplomatic ties with Havana. If
terrorist activities escalate and Cuban complicity can
be proven, however, we would expect him to act
decisively by downgrading or breaking relations.
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