Ecuador's Rebellion Quelled, but Not Its Fiscal Woes

(Oct. 1) -- Ecuadorean President Rafael Correa said today he would offer "no pardon or forgiveness" to the national police force for its role in what he claimed was an attempt to overthrow him.

But while he has regained the upper hand, Correa is still hard-pressed for answers to the severe economic problems that lurk behind Thursday's violent clash, which killed at least three people, according to The Associated Press.

Correa had to be rescued by the military after police barricaded him Thursday in a Quito hospital, where he was treated for inhaling tear gas police fired at him in a rebellion against proposed wage and benefits cuts.

With the military patrolling the streets and order restored, the president's political stature may be enhanced by Thursday's dramatic conflict, during which he shouted at angry police, "If you want to kill the president, here he is. Kill him, if you want to. Kill him if you are brave enough."

Yet despite his triumph, the left-leaning ally of Venezuelan President Hugo Chavez faces an uphill battle in his efforts to push through austerity measures that run counter to the populist programs that won him favor among Ecuador's rank-and-file.

Correa remains the most popular Ecuadorean president in recent history, but that is not a particularly high bar. He took office in 2007 after a turbulent decade in which three presidents were ousted in popular uprisings, and in 2009 he became the first Ecuadorean president in 30 years to be re-elected.

He has failed to garner support -- even among members of his own Country Alliance party -- for cutting state costs, which he says is necessary in the face of declining oil revenues, which make up 35 percent of the Andean nation's annual budget, and falling levels of foreign investment.

According to the Inter-Development Bank, foreign investment in Ecuador totaled $312 million in 2009, a sharp decline from $1 billion in 2008.

Faced with a political impasse, Correa said before Thursday's clash that he is considering dissolving Congress.

The country's constitution -- rewritten in 2008 for the 20th time since the country won independence from Spain in 1822 -- permits the president to dissolve Congress and rule by decree until new presidential and parliamentary elections can be held. The measure would have to be approved by the Constitutional Court, however.

Budget cuts like the one that angered the police force seem inevitable, since Ecuador is desperately short on cash. Two years after Correa's government defaulted on $3.2 billion in global bonds, which Correa had declared "illegitimate," investors remain wary of the president's attempts to assert greater control over resources.

Correa has challenged foreign investors in the gas and oil sectors with protracted contractual disputes, and withdrawn from treaties that gave investors recourse to challenge the government in arbitration tribunals.

There are at least 10 suits pending against Ecuador, which at the peak of oil prices in 2007 hiked the tax that oil companies had to pay the state for windfall profits from 50 percent to 99 percent.

"Ecuador sees more claims than most countries, and a significant number have come out of the oil sector," said Gus Van Harten, an international contracts professor at Osgoode Hall Law School in Toronto.

In his first campaign for president in 2006, Correa said that his political project, which he calls the "Citizens' Revolution," would reassert the supremacy of human labor over capital. His government has increased spending on housing, health care and other popular social programs. He invoked his project again Thursday in an address to supporters from the balcony of the government palace following his rescue, pledging an even stronger effort.

"We're going to forge ahead with even more willingness, more hope and more conviction in our citizen's revolution, like never before," he said.

Yet the austerity measures announced Thursday triggered civil disobedience throughout Ecuador. Police used burning tires to block a highway to Guayaquil, Ecuador's business center. The airports in Guayaquil and Quito were closed, looting was reported, and workers and students were dismissed early.

Peru closed its northern border with Ecuador "until the authority of President Correa is re-established," President Alan Garcia said Thursday afternoon during a news conference at the government palace in Lima.

Garcia joined Chavez and other South American leaders in a unanimous show of support for Correa in an emergency meeting in Buenos Aires late Thursday.

The Andean country exports about 305,000 barrels of crude oil a day, about half of which goes to the U.S., according to the U.S. Department of Energy. Oil is contributing a higher share to the nation's budget at the same time oil revenues are declining.