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As citizens of Ecuador prepare to elect a new president, attention now is focused on the perceived differences between the leftist populist and right-wing populist candidates. However, the real issue at stake is that, regardless of who wins the election, Ecuador is heading in the same economic direction as debt-hammered Argentina. And as in Brazil, the next president will face political and economic constraints -- including stiff resistance to needed reforms and a lack of means for reconciling social goals with policies needed to keep the economy stable.

Analysis

Ecuador will elect a new president in a Nov. 24 runoff between a populist former army colonel, who is supported mainly by leftist and indigenous groups, and a populist right-wing banana tycoon, who recently was pilloried by international human rights groups for employing children at slave wages on his plantations. The Economist recently described the contest as a choice between Venezuela’s Hugo Chavez and Italy’s Silvio Berlusconi.

However, the attention being lavished on the alleged ideological beliefs of both candidates misses the real issue confronting Ecuador: Regardless of who wins the election, the country’s dollar-anchored economy is following the same disastrous path blazed previously by Argentina. Moreover, Ecuador’s next president will face the same economic and political constraints that now confront Brazilian President-elect Luiz Inacio "Lula" da Silva -- namely, stiff resistance to needed reforms and an inability to reconcile social goals with policies necessary to keep the economy stable.

Three years after adopting the U.S. dollar as its national currency, Ecuador is losing international competitiveness at an accelerated rate as trading partners devalue their currencies. Although inflation has been tamed and interest rates are dropping, labor, raw material, utility and other costs have increased tremendously. Meanwhile, the political and business classes have bitterly resisted all reforms meant to make the economy more efficient and productive.

However, neither of the two candidates -- former army colonel Lucio Gutierrez and banana tycoon Alvaro Noboa -- so far have offered anything remotely resembling a coherent plan to jump-start growth and investment in Ecuador, where nearly 70 percent of the 14 million inhabitants are poor, 15 percent are unemployed and more than half are under-employed.

The adoption of the U.S. dollar in January 2000 enabled Ecuador to slash inflation from 92 percent to less than 10 percent in 2002. It also boosted growth from a negative 7 percent in 1999 to 5.6 percent in 2001, with growth between 3.5 percent and 4 percent projected for 2002 -- one of the highest rates any Latin American country will experience this year.

However, Ecuador’s next president faces some formidable economic challenges. These include maintaining price stability, reducing public-sector debt, balancing the budget and developing a program to increase exports and foreign direct investment (FDI). The new president also must reduce corruption substantially; Ecuador recently was rated one of Latin America’s most corrupt countries by Transparency International.

In order to meet the economic challenges ahead, the next president must slash public spending -- which implies selling state-owned enterprises, laying off thousands of public workers and eliminating subsidies. However, both Gutierrez and Noboa have been ambiguous and contradictory when confronted with tough questions about their proposed economic policies.

For instance, both have pledged to maintain the U.S. dollar as the national currency, although Gutierrez also has promised to introduce a parallel Ecuadorean currency. He also says he would open up Ecuador’s oil industry to more private investment by foreign energy firms but simultaneously stressed that PetroEcuador, the national oil company, would have a greater role in developing the country’s oil resources.

Gutierrez also said recently that he would end the privatization of state-owned enterprises, give the state a greater role in the economy and place more emphasis on agriculture as a source of export earnings. Additionally, the candidate said Ecuador’s government could not continue spending more than 40 percent of its annual budget on servicing external debt and also spend more on social programs for the poor.

The contradictions in his economic policy pledges may reflect Gutierrez’s lack of experience as an administrator and elected public official, but they also illustrate the real economic constraints he would confront as president. Gutierrez’s promises of expanded social programs to create jobs and redistribute wealth -- like those of Brazilian President-elect da Silva -- are fundamentally incompatible with the need to pursue the fiscally orthodox economic policies that international lenders, investors and multilateral agencies would demand before they commit any capital to Ecuador.

Moreover, Ecuador has few if any prospects to significantly develop agriculture exports as a source of foreign exchange earnings, given the sector’s extremely low productivity.

Little can be said about Noboa’s proposed economic policies: He has been even less forthcoming than Gutierrez. However, as Ecuador’s wealthiest businessman and majority owner of more than 100 companies, Noboa presumably understands the policies he must implement in order to grow the economy.

The problem facing both candidates is that no matter who wins the runoff, the next president will confront a highly fragmented and atomized Congress, where some opposition leaders already have vowed stiff resistance to whichever candidate is elected.

Recent polls show Gutierrez with a 20-point lead over Noboa. If that lead holds through election day, Ecuador soon will be led by a former military officer who led a coup against an elected president in January 2000, became an instant popular hero as a result and was backed during his presidential campaign by some of the country’s most market-unfriendly and anti-American groups. Those include the Communist Party, the Confederation of Indigenous Nationalities of Ecuador and its political arm Pachakutik, and the Maoist Democratic Popular Movement.

Gutierrez, who wears his military uniform at political rallies, justifies his coup against then-President Jamil Mahuad as a "popular rebellion." However, he strongly rejects all suggestions that he is Ecuador’s answer to Venezuela’s Chavez. "I am a Christian, not a communist," he recently told Quito’s El Comercio daily.