Ecuador could be described as the quintessential banana republic. As a matter of fact, bananas themselves actually account for around a quarter of the country's exports, even more than petroleum. The United States dominates the economy of Ecuador, through the control of U.S.-based multinational companies on all major aspects of production and trade. And recent events underline U.S. control of the country's polity as well. Ecuador's population is ethnically mixed. The largest ethnic groups are indigenous (mainly of the Quichua tribal groups) and mestizo (mixed Indian-Caucasian), which together account for more than 85 per cent of the population. Yet these groups form the poorest and most disadvantaged sections of society, and have benefited little from even the meagre economic growth that the country has experienced over the past few decades.
 
As for much of Latin America, the external debt problems Ecuador experienced over the 1980s made it a "lost decade" in terms of growth and development. Per capita incomes fell by nearly one per cent per annum - an enormous cumulative decline over the decade. Since then, the much-acclaimed "revival" in Latin America has been relatively weak in Ecuador: per capita incomes up to 1998 have risen by only 0.8 per cent per annum on average. Real wages got back to their 1980 level only in 1995. The past year (1999) was marked by very severe economic contraction, with real gross national product (GNP) falling by around 8 per cent.
 
Ecuador's economy falls into the classic pattern of underdevelopment: dominated by primary production for export, which is controlled by multinational companies, and heavily dependent not only on the import of most manufactured goods but also on meagre foreign capital inflows, and prone to a high degree of volatility. The country continues to face chronic and severe problems of high unemployment, rampaging inflation and high poverty incidence. One estimate suggests that currently only one in three of the labour force has a full-time job. Inflation has averaged around 50 per cent over the decade, and is currently running at around 60 per cent. The proportion of people below the poverty line in the urban areas has been doggedly above 50 per cent through the 1990s, and it should be noted that well above half of Ecuador's people live in urban areas. Those in extreme indigence account for around 20 per cent of the population. Although there are no reliable estimates of rural poverty, the general feeling is that rural poverty is likely to be higher, even though extreme indigence may be slightly less.
 
Almost all of the absolutely poor population of Ecuador is composed of indigenous and mestizo groups, and the highland Quichua (around one-third of the total population) are among the most desperately poor. While lack of development in general has meant that their condition did not improve much even in periods of growth, they have been especially hit by government "austerity" measures which have cut what little was provided by way of public services. These cuts have also adversely affected the condition of the poor in the urban areas, who increasingly face not just unemployment and rising prices but also growing inadequacy of the most basic infrastructure and public services.
 
Inevitably, Ecuador has been under several International Monetary Fund (IMF) adjustment programmes over the past decade, which have prompted these "austerity" measures affecting most of the population. And there are no prizes for guessing which major U.S . economist has been advising various governments in Quito in the run-up to the present extreme crisis: Jeffrey Sachs. (The extraordinary career of this footloose economic policy adviser may deserve even more attention than it gets. Despite an alarming track record of policy advice across so many continents - think, for example, of Poland, Russia and Indonesia, to name just a few of his more spectacular failures - he seems to retain his appeal for many developing country governments, including our own.)
 
The general mismanagement of the economy over the 1990s, for which the foreign advisers must surely take the blame along with the government, resulted in yet another debt crisis last September, when Ecuador was unable to fulfil its debt-servicing commitm ents. The international financial community did not make much of a fuss about it at the time, mainly because the small size of Ecuador's economy and its external debt meant that it was not very important in overall financial portfolios. In consequence of the effective default (subsequently converted into yet another "debt rescheduling") the currency - the sucre - plummeted in value in the foreign exchange markets, and inflation spiralled. Also, stringent economic measures were sought to be imposed on the government headed by Jamil Mahuad, which was the sixth such government since 1996.
 
The scheme proposed by Mahuad early in January this year involved the dollarisation of the Ecuadorean economy, which is a system even more extreme than that of Argentina's Currency Board. This would have meant adopting the U.S. dollar as the principal cu rrency of the country, and forcing the government to spend only on the basis of the dollar resources available to it. The fiscal deficit was proposed to be met by breaking up and selling off major public sector assets, including in the oil, telecommunica tions and electricity sectors, mainly to foreign buyers. Much public expenditure would be further curtailed. The Opposition - some in Congress, but many outside, including trade unions, peasant groups and others - protested that this scheme would not create a sustainable solution to the economic problems, and would further impoverish millions of people living below the poverty line.