Gridlock On The Streets

Just six months ago, proud ecuadorans draped their capital city of Quito with the national colors of blue, yellow and red. Their newly elected president, Jamil Mahuad, had just made peace with Peru after 50 years of border disputes. But last week the outlook in the capital was considerably darker, as taxi and bus drivers unfurled black flags bearing the words fuera [get out], jamil! Gridlock paralyzed major intersections as disgruntled drivers burned tires and effigies of the president. The source of their fury: a nearly 200 percent hike in gas prices that Mahuad implemented March 11 as part of an austerity package designed to curtail the country's staggering debt. Labor activists and students joined the demonstrations, throwing rocks and taunting soldiers brought in to keep the peace. "This is such a hard blow," says taxi driver Gonzalo Paredes over the increase from about $1 to $3 per gallon of high-test. "If the gas prices don't go down, we can't work, and the bank will take my car. Then what do we do?"

Last Thursday, Mahuad sought to defuse the crisis by scaling back gas prices to $2 per gallon and lifting the state of emergency he had imposed. In return, his political opponents vowed to approve a plan to raise money through higher taxes. That eased tension on the streets. But it also highlighted the gravity of Ecuador's economic ills. The Andean nation, with a $5 billion annual budget, has a $1.2 billion deficit and a national debt of $16 billion. Its troubles stem in large part from El Nino, which caused $2.6 billion in flood damage last year, as well as from tumbling world prices for oil, Ecuador's chief export. And as one of the weakest countries in Latin America, Ecuador has been susceptible to the "samba effect," the creeping contagion of Brazil's financial crisis. At 45 percent, Ecuador's inflation rate is the highest in the region. Nervous investors have been withdrawing their money since the sucre, the national currency, began plummeting against the dollar earlier this year.

None of this is Mahuad's fault. As the popular mayor of Quito, he earned a reputation as a hardworking administrator. But his presidential predecessors left him quite a mess to clean up. President Abdala Bucaram, known as "El Loco" or "The Madman," was kicked out of office in 1997 for "mental incapacity." His interim successor, Fabian Alarcon, was arrested last week on charges of corruption. Desperate to salvage the country's economy, Mahuad was forced to implement some harsh measures, including freezing half of most bank accounts. Critics have blasted the austerity plan as "inhumane" and called for Mahuad's resignation. But the president maintains he was "elected to do what is correct, not what is the most comfortable." For now, most Ecuadorans are reluctantly going along.