1942: Ecuador

A protocol signed at the Rio de Janeiro Conference on Jan. 29 (see BRAZIL) ended the long and troublesome boundary dispute between Peru and Ecuador which settled the last major dispute in the American hemisphere. The two countries agreed at Rio on a survey of the boundary and a procedure for adjusting the controversy. The frontier as finally settled meant large concessions on both sides. Ecuador yielded more territory than Peru but retained a greater part of the section bordering the Andes, a potential oil area. Peru got sovereignty of the upper Amazon and its major tributaries in the disputed area, although Ecuador retains the right of navigation on all tributaries rising in the section accorded to it. Although the agreement was ratified by both legislatures, and in the Ecuadorean Congress by a large majority, there was resentment within the country at the loss of so much territory, and the protocol became a political issue. Dissatisfaction over the frontier settlement led to an unsuccessful coup on May 28.

At the Rio Conference, Ecuador made its acceptance of any inter-American resolutions contingent upon an acceptable solution of this border dispute. At the same time that the protocol was concluded Ecuador signed the principal Act of the Conference and severed diplomatic relations with the three Axis powers. On Feb. 9 the Government froze the funds of Axis nationals and blocked foreign exchange transactions with firms on the United States blacklist. It also announced a number of measures to curb local Nazi agents and Nazi propaganda. Moreover, in March and again in September, permission was accorded the United States to construct air and naval bases at Salinas, on the Santa Elena peninsula at the entrance to Guayaquil Bay, and on the Galápagos Islands, which bases shall be turned over to Ecuador after the war. United States forces are now guarding these sites, which are very important in hemisphere defense; since located as they are, one 800 mi., the other 950 airline mi. from the Panama Canal, they protect the West approaches to the Canal. The Galápagos, which are 600 mi. off shore, put Ecuadorean territory nearer to the Solomon Islands than any part of continental United States. Bases located there may have, therefore, a distinct significance in the war in the Pacific. The whole-hearted cooperation with the United States which these measures suggest has been achieved by President Carlos Arroyo del Rio, who had to overcome strong pro-Nazi sentiment within the country.

Economic collaboration between the United States and Ecuador is indicated in (1) an exclusive rubber purchasing agreement, similar to those concluded with a number of Latin American countries, which removes the competition of Argentine bidders; (2) a $5,000,000 exchange stabilization agreement, signed Feb. 27; (3) a loan of $1,000,000 each to Guayaquil and Quito for sanitation purposes and the aid of a United States scientific and technical mission, sent in March as part of a widespread Latin American program of 'defense sanitation'; (4) another loan of $1,000,000 for rehabilitation of El Oro Province, once an important cattle-raising province, which had been devastated during the hostilities with Perú; and (5) finally, in the general agricultural and industrial development of Ecuador through the Ecuadorean Development Corporation, a joint venture of the two governments, backed by $10,000,000 which the Government of Ecuador was authorized to accept from the United States. Moreover, $900,000 loaned previously to Ecuador by the Export-Import Bank is being used to complete 75 miles of a 290-mile stretch of the Inter-American highway, the only unfinished part of the all-weather route from Buenos Aires to Santiago and north to the Caribbean.

Economic conditions in 1942 have been little changed, in spite of shipping difficulties. Customs receipts were higher than in 1941; the combined foreign exchange and gold holdings of the Banco Central have risen 60 per cent over the figure for August 1941 (in April 1942 they rose to 139,510,000 sucres), and both the coffee and cocoa situations seem to have improved. The war has created a demand for balsa, an Ecuadorean wood which is badly needed for airplane parts, life rafts and other war purposes. Oil exports were hit by the closing of certain markets but demand for petroleum has been created by the new United States naval and air bases. Moreover, under an inter-American pooling scheme designed to meet the problem of limited tanker space, Ecuador's oil now goes to Chile.

1941: Ecuador

Boundary Dispute.

The century-old boundary dispute between Ecuador and Peru, involving the large tropical territory of Oriente, again reached the point of open hostilities in July 1941, when Peruvian troops, far superior in numbers and equipment to those of Ecuador, successfully invaded Ecuadorean territory. A mediation offer which had been made in May by Argentina, Brazil and the United States, was accepted by Ecuador, the weaker party, but only grudgingly and with reservations by Peru. Military observers of the three mediating powers were sent to the scene of the fighting. A military agreement, effective Oct. 5, establishing a demilitarized zone in the area in question, led to the cessation of fighting, which had practically been at a standstill since August. In December it was rumored that Chile would be admitted as a mediator and that a peace conference would be held in Buenos Aires. Peru fears that if Chile is permitted to join the mediators, Mexico may be included as well, which would be embarrassing to the Peruvian Government since it firmly rejected a Mexican proposal for joint Pan American mediation of the dispute early in the fall. Peru is also adverse to a general peace parley, preferring direct negotiations with Ecuador (See BRAZIL).

Foreign Relations.

Ecuador has been a center of active Nazi propaganda, which has caused anxiety to the United States because of the country's proximity to the Panama Canal. The administration of President Carlos Arroyo del Río has, on the whole, pursued a cautious policy regarding foreign affairs, although, in the fall, it pledged its full cooperation with the United States. This has not gone the length, however, of permitting a naval base to be established on the Galápagos Islands, 800 miles west of Ecuador and strategically placed with relation to the Canal. The operations, in September, of an Axis raider in waters near these islands, resulting in the sinking of at least one ship, a Netherlands' vessel, gave urgency to such a measure of continental defense. In August both houses of Congress approved a resolution endorsing the eight-point Atlantic doctrine formulated by President Roosevelt and Prime Minister Churchill. Following the entry of the United States into the War, Ecuador discontinued the contracts of Japanese petroleum technicians employed in the northern coastal region of Esmeraldas and shut down on Axis propaganda. It also declared sections along its Pacific coast military zones and ordered all aliens to leave them. The services of Sedta, a German-controlled air line in Ecuador, had already been suspended in September (see also BOLIVIA and PERU). All of Sedta's service had been duplicated by Panagra, a North American line.

Internal Affairs.

The military crisis with Peru had an unstabilizing effect on internal politics, which are chronically disturbed, as the rioting in early January at a public demonstration against the President and his policies indicated. The grant of 'extraordinary powers' to the Executive, now a common practice in Ecuador, was extended twice during the year. Congressional elections held on May 11, were a victory for the 'official wing' of the Liberal party, which is badly split. A new party, the Unión Nacional Ecuatoriana, represents all leading factions except the Conservatives. Its most prominent members are political enemies of the President, who is very unpopular both with the masses and the Army.

Economic Conditions.

General economic conditions improved somewhat in 1941, due to the recovery in coffee prices and the increased yield of cacao, which is Ecuador's main crop. Heavy trade balances favoring Japan led the President to put Japanese-Ecuadorean trade under strict government supervision in October. A new trade agreement was concluded with Canada, providing most-favored-nation treatment and tariff reciprocity. One step towards correcting the faulty economy of the country is the improvement of transportation facilities. The Export-Import Bank credit of $1,150,000, designed, in part, to promote completion of the Pan American highway, will contribute to the fulfillment of this need. A basic problem is the stimulation of agricultural production and stockraising in the sierras, to abolish the heavy dependence on imported foods and the subsequent drain on foreign exchange. See also PAN-AMERICAN AFFAIRS.

1940: Ecuador

Economic Conditions and Politics.

The inaugural address, Sept. 1, 1940, of President Carlos Arroyo del Río, who was elected in January, constituted a practical analysis of the Republic's situation. The new President, an ex-corporation lawyer, has the support of big business but is generally mistrusted by the average citizen. Expanded powers for the Executive, to meet economic difficulties, are the keynote of a new plan of government prepared by the administration party's Central Committee. The government was conceded emergency powers in January, following the unsuccessful revolt of the supporters of the defeated presidential candidate, José Marfa Velasco Ibarra, and these were extended in April in the face of rumors of further revolt and political friction, caused by the economic plight of the country resulting from excessive government spending and the loss of European markets for coffee and cocoa. Velasco Ibarra won a majority of votes in the chief cities, where he directed a special appeal to the workers and, though now in exile, he is still a force to be reckoned with in Ecuadorean politics. The general amnesty extended March 21 to those involved in the January uprising did not apply to him. Ecuador has had seventeen changes of presidents and dictators in ten years, and the two recent dictatorships, in a period of about four years, drained the treasury.

Foreign Relations.

After Italy entered the European War, the contract of the Italian military mission, which had a strong influence with earlier administrations, was cancelled. A four-year arrangement was completed in December for a United States naval and military aviation mission to advise the defense forces. This makes the eighth Latin American country with an advisory United States aviation mission. Moreover, a series of conferences of military and naval officers of the United States and Ecuador regarding cooperative measures for Canal and Western Hemisphere defense were held in May.

The two principal airlines of Ecuador are Panagra, which is North American-owned, and Sedta (Sociedad Ecuatoriana de Transportes Aereos), which is indirectly controlled by Lufthansa and operates with German personnel. Sedta has been accused of Nazi activities in Ecuador in a new pro-British propaganda sheet. La Defense, edited by Senator Filemón Borja, who has also led the anti-Nazi and anti-totalitarian campaign in the Senate. His proposal not to recognize the new Spanish Minister until Spain's policy regarding the European War was clearer was rejected by Congress but served to stimulate anti-Franco feeling in Ecuador. An anti-Semitic campaign has been started in two papers controlled by Nazi funds. Voz Obrera and Intereses Comerciales. La Defense is being published to counteract the propaganda of the latter. A Congressional investigation of German radio activities and of the Transocean News Service was launched in August.

Ecuador-Peru Boundary Dispute.

The clearer single threat to inter-American solidarity comes from the unsettled boundary dispute between Ecuador and Peru. During the year menacing frontier incidents have recurred, such as have become periodic since negotiations in Washington were broken off several years ago. The Foreign Minister, not a member of the administration party, has been widely attacked for his failure to act regarding the alleged Peruvian advances in the disputed area.

Finance.

On June 4 the Export-Import Bank announced a $1,500,000 credit for highway construction, especially the completion of the Ecuadorean section of the Pan American highway, the purchase of railway equipment in the United States, and research into means of restoring the disease-ridden cocoa industry. A Congressional decree has authorized the government to contract an additional loan up to $30,000,000 for rearmament. The sucre, which in April fell to 4.5 cents, has been pegged to the U. S. dollar at 6.7 cents. In June, in order to check the fall of the currency, following a six-month's trial of unrestricted exchange operations, the government adopted a drastic system of exchange and import controls. The shutting off of foreign markets has very seriously affected the exchange situation. A special body, the Council of National Economy, was formed as a result of the economic crisis, but solution of the Republic's difficulties is complicated by a conflict of interests between it, the Cabinet and the private Banco Contral, as well as between the divergent interests of the port city of Guayaquil and the interior. The ordinary budget for 1940 estimated revenues and expenditures to balance at 113,050,000 sucres, which is 14 per cent below the 1939 budget. Drastic economics in the latter part of 1939 reduced considerably the heavy deficit with which the government was confronted. Extraordinary budgets for 1940 were also authorized, one of 7,405,000 sucres for public works and one of 530,000 sucres for rural schools. For data on the Archeological Survey in Ecuador see ARCHAEOLOGY.

1939: Ecuador

Political Situation.

The death of President Aurelio Mosquera Narváez on Nov. 17 left a vacancy to be filled by a new election called for Jan. 12-13, 1940. The results of this election must be approved by the Congress, meeting regularly in August, and the new president will then be inaugurated Sept. 1. Dr. Narváez's provisional status at the close of 1938 was altered when the new Congress, chosen in January 1939 by an electorate that for the first time included women, elected him President. The new Constitution under which this election was conducted, granting universal suffrage to all citizens over 18 years of age, was destined to be short-lived, for on Feb. 1 it was rejected by the new Congress and the Constitution of 1906 was reinstated. A difficult political situation followed, termed in Government circles an abortive 'Marxist revolutionary attempt.' in which striking students and workers participated. In March President Narváez was given extraordinary powers for sixty days to deal with it. A number of political agitators, including former dictators General Alberto Enríquez and Colonel Luis Larrea Alba, were imprisoned. These were both rumored as implicated, too, in a Leftist army rebellion in July which ended without bloodshed. Leaders of the Socialist and Revolutionary Vanguard Parties were arrested in connection with this uprising. It is this latter party that led the opposition to the Liberal administration of Narváez. This is the situation which his successor, Provisional President Arroyo del Rio, inherits.

German Propaganda Investigated.

Rumors of German interference in Ecuadorean politics were denied by the Foreign Minister in May. Charges of espionage were made in the Guayaquil press against Herr Alfredo Cunhe, German chief of the secret police under the former dictator, Federico Paez. These charges were made the occasion for investigations during the summer of the dictatorial régimes of Paez and of Alberto Enríquez, to whose extravagance and inefficiency, if not dishonesty, is attributed the present economic plight of Ecuador.

Financial Matters.

In a message to Congress in November, President Narváez said that these military dictatorships had cost the country 500,000,000 sucres and an empty treasury, as well as a mass of bewildering banking and financial laws. After discarding the fiscal regulations installed by the North American economic expert, Professor W. W. Kemmerer, a 'trial and error' system of economic legislation had been followed. Business has been reported at a standstill since the death of Dr. Narváez, the banks' refusal to extend credit and the lack of foreign currency preventing recovery. Efforts to obtain a loan in the United States, announced by the President in August, seem not to have been successful. The budget for the next fiscal year, signed by President Narváez in November, amounts to 113,050,000 sucres. The critical financial situation resulting from the European War is to be met by economies due to the discharge of Government employes and other reductions in expenses.

1938: Ecuador

Political Situation.

The confused political situation in 1938 reflected not only the economic stress indicated by Ecuador's depreciated currency, increased unemployment and agricultural and business depression but certain internal political difficulties as well, to which is related the crisis in the border controversy with Peru. Gen. Alberto Enriquez and his military Cabinet resigned in June, and a civilian Cabinet was requested to conduct the election of a Constitutional Congress. On Aug. 10 such a Congress elected Dr. Manuel Maria Borrero, a Liberal, Provisional President to succeed General Enriquez. On Dec. 1 Borrero resigned, and the day following the Constitutional Congress gave its final approval to the new Constitution and elected as President Dr. Aurelio Mosquera Narvaez, titular head of the Liberal party and a physician with a distinguished record as Director General of Sanitation. The new President soon became engaged in a controversy with the Congress over the restoration to active service and promotion of Col. Larrea Alba, a former dictator, who had resigned as leader of the radical Vanguardia Revolucionaria party. A presidential decree dissolving the Congress led to a threat of armed hostilities, which were finally avoided by the President's acceptance of a provisional status and his agreement to the election of a new Congress on Jan. 15, 1939, which will choose a Constitutional President. A number of Leftist members of the Congress, including its Vice-President, Antonio José Borja, were arrested during the controversy. Extradition of the former President, Federíco Paez, whose arrest was ordered in May, was requested of Colombia, where he had taken refuge.

Border Dispute.

The century-old border dispute with Peru, the last major boundary controversy in Latin America and the only real threat to peace in the Americas, became critical in June over an unimportant frontier incident, said to have been fomented by General Enriquez to distract attention from his political difficulties. Negotiations in Washington, which have been going on since September 1936, reached an impasse in October and were 'suspended.' The disputants have been unable to agree on the scope of the questions to be arbitrated by President Roosevelt, Peru desiring only to delimit inexact boundaries, Ecuador wanting to reclaim certain provinces. Following the breakdown of the negotiations, Ecuador proposed mediation by the five nations that effected the Chaco settlement. Peru must advance a similar invitation before the United States will act. The unsatisfactory status of this dispute made it questionable for a while whether Ecuador would attend the Lima Conference.

Trade Agreements.

A reciprocal trade agreement with the United States was signed Aug. 6, and became effective on Oct. 23. This is the eighteenth such trade pact to be signed under the Hull program and the tenth with a Latin-American country. A barter treaty was signed with the Reich, during the year providing unlimited exports to Germany, with payment in Aski marks. A surplus of compensation marks, whose price Germany is now planning to control, according to instructions issued to local banks in November, led the Central Bank the following month to remove the official exchange rate for Aski and offer to sell them in the open market. A surcharge of 50 per cent on import duties from countries with which Ecuador has an unfavorable trade balance, especially affecting Japan, was decreed in August.

Internal Affairs.

Nationalistic measures involving foreign investments and properties in Ecuador indicate a growing hostility to foreign capital exploitation and 'Yankee imperialism.' The South American Development Company, a North American enterprise which operates gold mines in Ecuador, has had to accept a doubling of the tax on gross production, from 6 to 12 per cent, and the forfeiture of the privilege of importing materials for the mines duty-free, in settlement of the controversy over revision of its concession. General Enriquez. President at the time, declared that the gold and petroleum companies had never paid 'a percentage corresponding to the needs of the government,' and justified the tax increase as a measure to stabilize the sucre and increase the country's gold reserves. Other measures adopted this year include the creation of a government monopoly to control the sale of petroleum for domestic consumption (the government already had a monopoly on the sale of salt, matches and tobacco); a law requiring that foreign concessionaries exporting minerals and fruit invest 20 per cent of their proceeds in Ecuador; a decree providing that contracts with the Government for the exploitation of Ecuador's natural wealth do not have the same effect as civil contracts and can be revised when they injure national interests; and, finally, a recent act of the Congress forbidding anyone to assume the presidency who is legal counsel or agent of a foreign corporation in Ecuador. Due to increased living costs, an increase in the wages of all private employees receiving 500 sucres or less a month was decreed in January.

The budget for 1938 contemplated a balance of receipts and expenditures at 120,000,000 sucres, an increase of 50 per cent over the original budget for 1937.