Ecuador - Domestic policy

After several years of political instability, Ecuador adopted the U.S. dollar as its domestic currency, a move that helped to drastically reduce inflation and diminish uncertainty about the government economic policies. Yet, it also took away the government's ability to print its own currency to finance social spending. Thus, Gutiérrez will be forced to depend on taxes or foreign indebtedness to finance his ambitious social programs. Because of the downturn in the global economy in the 2002–03, Ecuador's economy is expected to grow slowly in the first two years of Gutiérrez's term. That will deprive the government of much-needed new tax revenues and will increase the burden on poorly financed social programs. Unless the government improves its tax collection—or borrows abroad, piling up more foreign debt—the Gutiérrez government will be unable to deliver on most of its campaign promises, especially those aimed at improving the living conditions of the dispossessed indigenous population. Because the business elite will likely receive support from Congress to block new taxes, claiming that it will further hinder economic recovery, Gutiérrez may be hard-pressed to reallocate government funds from other areas to finance social programs. Populist governments often rely on reductions in defense spending to finance new social programs, but because Gutiérrez is a retired army colonel and has named several former military officers to top posts in his government, that will be a difficult path to choose. Moreover, most analysts believe that Gutiérrez will try to develop a tighter grip on the military by replacing unfriendly high-ranking officers. In fact, rather than reduce the military budget, Gutiérrez will likely need to increase it if he wants to maintain tight control of the military. Forced to choose from among difficult options—picking a fight with the business elite (the faction that indirectly commands majority support in the legislature), abandoning his plan to control the army, or reneging on some of his populist campaign promises— Gutiérrez will likely have to alienate some of those who supported his presidential campaign. Because he strongly campaigned as an outsider—as a friend of the large indigenous population and foe of the political and financial establishment—Gutiérrez will need to reduce tensions and heal wounds from the presidential campaign period. Having campaigned as a divider, he will need to quickly transform into a consensus builder if he wants to avoid social tensions similar to those that toppled Jamil Mahuad, the last democratically elected Ecuadoran president.