Society for Latin American Studies (SLAS)

Cocoa, Finance and the State in Ecuador, 1895-1925

Author(s): Paul Henderson
Source: Bulletin of Latin American Research, Vol. 16, No. 2 (1997), pp. 169-186
Published by: Wiley on behalf of Society for Latin American Studies (SLAS)
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 Bull. Latin Am. Res., Vol. 16, No. 2, pp. 169-186, 1997
Pereamon ? *9^7 Society for Latin American Studies
Published by Elsevier Science Ltd. Printed in Great Br
0261-3050/97 $17.00 + 0.00

PII: S0261-3050(96)00011-3

Cocoa, Finance and the State in Ecuador,

1895-1925

PAUL HENDERSON

School of Humanities and Social Sciences, University of Wolverhamp

Castle View, Dudley DY1 3HR, UK

Abstract?In 1895 liberal forces, dedicated to the modernisation of their co

economic, social and political structures, came to power in Ecuador. T
transformation was to be brought about on the basis of income from the pro
cocoa trade. Closely linked to the agro-mercantile elite of Guayaquil, the
embarked upon an ambitious programme of reform. By the early 1920s, h
their hopes had been shattered by the decline of the cocoa trade and the im
the First World War. Heavily indebted to Guayaquil banks and facing mou
domestic opposition, the liberals were overthrown by the military in July
1997 Society for Latin American Studies
Key words?cocoa, finance, Ecuador, liberalism, banking, debt

'Seldom has a single product for such a long time dominated the economic li
did cacao in Ecuador', observed Ivar Erneholm in 1948 (Erneholm, 1948:59).
American countries, Ecuador's integration into the expanding world ec
nineteenth century was characterised by a high level of dependence on
product.1 The buoyancy of Ecuador's cocoa trade was the sine qua non
functioning of its economy. Income from cocoa exports largely determined t
and, as import duties constituted the major source of ordinary state revenu
underpinned government income and expenditure (Rodriguez, 1985: 53). Th
oro provided an 'embarrassment of riches' for many producers and exporter
rendered the Ecuadorian economy vulnerable to a number of external
changing patterns of demand and price fluctuations. The capitalist transfo
Republic and its emergence as a modern state liberated from its colonial her
varying degrees, of successive regimes from the mid-nineteenth century
therefore, on decidedly shaky foundations. Nevertheless, with Ecuador
world's leading cocoa producer at the turn ofthe century, optimism aboun
the difficult early months of the First World War the British Charge d'A
maintained his initial impression that Ecuador'... if properly administered
richest ofthe West Coast South American states' (Jerome and Grey, 1914).
Mr Jerome was, as it turned out, unduly optimistic. Yet such optimism
confined to Ecuador. Throughout Latin America, foreign and domest
faced little opposition to their view that, in spite ofa number of temporary
Baring Crisis, the region's natural resources and comparative advantage in
primary products guaranteed a highly prosperous future, enabling i

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 170 Paul Henderson

achievements of the industrialised

impressive rates of growth of the l
1890-1914 appeared to confirm the s
the mid-nineteenth century onwards
This belief in the certainty of prog
shattered by the Great Depression
development, the export of prim
manufactured goods and a reliance o
1988; Thorp, 1984). Latin Americans
their vision of development and seek
Latin America's export-led orient
economies has, as is well known, attracted considerable historical attention and
controversy. Yet in the Anglophone Latin American historical community, research has
to a great extent been concerned with the larger and arguably more dynamic economies of
the region. This is not unsurprising given the influence wielded in them by Britain and the
United States. The economic history ofthe smaller republics, notwithstanding the efforts of
scholars there, has, however, been neglected. Such neglect is unfortunate for a study of
these countries can provide the basis for useful comparison with their more well researched
neighbours and add to our understanding of some of the central features of economic,
social and political change in Latin America as a whole during a crucial period of its
history.
In the case of Ecuador, pioneering work on the cocoa trade was carried out in the 1960s
by the US scholar Lois Weinman, whose doctoral thesis anticipated further work
undertaken by an emerging group of Ecuadorian historians and social scientists concerned
with the wider impact of the dominant cocoa sector on Ecuador's economy and social
structure (Weinman, 1970; Chiriboga, 1980; Guerrero, 1980). In 1985 Linda Alexander
Rodriguez provided a detailed analysis ofthe republic's public finances in the context of its
long history of regional political conflict (Rodriguez, 1985). At the same time Ecuadorian
scholars were publishing the fruits of their research on previously neglected areas, most
notably the sierra, and regional studies have continued to add a further dimension to our
understanding of the country's economic and social history (Trujillo, 1986; de la Torre,
1989; Palomeque, 1990; Maiguashca, 1994). It is impossible to summarise briefly the
progress made in research in Ecuador but this is perhaps best reflected in the publication of
the fifteen volume Nueva historia del Ecuador under the general editorship of the prolific
Ecuadorian historian Enrique Ayala Mora (Ayala Mora, 1983-).
This article, by synthesising the results of recent scholarship and drawing on some ofthe
author's own research, aims to provide an analysis of the development of Ecuador's cocoa-
dominated economy and an examination of how governments and business interests
attempted to come to terms with the adverse circumstances confronting the country's
leading export sector in the period 1914-1925. This was a troubled time for Latin America
as a whole and Ecuador provides a good case study ofthe efforts made by the region's elites
to adapt to a changed international economic environment. It was during this period that
the Ecuadorian cocoa trade, already facing strong foreign competition, went into terminal
decline. The ensuing crisis was to have major repercussions as government finances became
increasingly chaotic, inflation stoked the fires of working class unrest and, at the end ofthe
period, a military coup ended the succession of liberal administrations and the leaders of
the so-called July Revolution hired foreign experts to sort out the mess (Marchan Romero,

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 Cocoa, finance and the state in Ecuador 171

1987; Drake, 1989; Almeida, 1994). The vision of Ecuadorian prosperity enter
Majesty's Charge d'Affaires lay in ruins.
Though cocoa was consumed by the Toltecs and Aztecs of Mexico and the I
with the Spanish conquistadores introducing it into Europe in the 1620s, it
late nineteenth century that cocoa products became items of mass consumpt
and North America (Wickizer, 1951: 303-304). Technological progress in a
Europe enabled manufacturers to produce a more palatable beverage a
confection, milk chocolate (Othick, 1976: 81-83). As Tables 1 and 2 dem
period 1870-1910 witnessed an almost eight-fold increase in Britain's net im
and the increase in annual per capita consumption of cocoa, despit
outstripped that of the nation's preferred beverage, tea, with coffee
apparently in decline.
It was in response to this growing demand from Europe and the Unit
Ecuadorian cocoa production expanded significantly (Wickizer, 1951: 26
exported cocoa to Acapulco during the colonial period but Spanish tradi
together with the limited demand for what was then a luxury item, served t
of the trade (Hamerly, 1973). Nevertheless, by the end of the eighteenth ce
easing of Spanish control, production and exports increased greatly a
Guayaquil came to be dominated by the cocoa trade.
Though productivity gains were not wholly insignificant, the boom o
primarily based on a more extensive cultivation of available land (Contr
Much of this was carried out by a relatively small group of hacendad
Laviana Cuetos has shown that 97 hacendados were responsible for th
cultivation in the major cocoa producing districts of Babahoyo, Baba, Ya

TABLE 1 Annual Imports ofRaw Cocoa

into United Kingdom (m. Ibs)

Source: Othick (1976: 78).

TABLE 2 Annual Per Capita Consumption of

Tea, Coffee and Cocoa in United Kingdom (Ibs)

Source: Othick (1976: 78).

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172 Paul Henderson

and Palenque. Of these, just five o

1987: 177). Such concentration of
pronounced in the second half of th
feature of the extension of cocoa cu
areas of production, however, small
role (Contreras, 1990: 56-57).
Independence from Spain gave little
and the pattern of trade remained lar
ofthe Republic's exports of cocoa sti
ofthe nineteenth century, however,
rose markedly, despite often quite s
certainly capable of responding to the
of the simple, yet efTective, transpo
obstacles facing them would have bee
river by raft or canoe since colonial t
cope with the demands ofthe transatl
transport improvements should not b
Railway, commencing in 1872, soon f
interior regions of the littoral as th
linked by rail and the number of
Furthermore, by the end of the cent
network in the cocoa producing zone
least in the dry season (Rodriguez, 1
By the turn of the century, Ecu
accounted for between a fifth and
demand rising steadily the future
increased foreign competition dislodg
the new century, the volume of coco
an average rate of growth of 3.82 pe
experienced marked annual fluctuati
sucres and dollars over the same per
and 77 per cent of total exports (see

TABLE 3 Ecuadorian Cocoa Export

Source: Compaiiia Guia del Ecuador (1909:

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 Cocoa, finance and the state in Ecuador 173

TABLE 4 Ecuadorian Cocoa Production as a Percentage of World Production,

1894-1925

Year Percentage Year Percentage

1911 15.2
1912 14.4
1913 15.4
1914 15.3
1915 11.1
1916 14.7
1920 11.7
1921 10.9
1922 10.8
1923 6.7
1924 6.5
1925 6.8

Source: Rodriguez (1985: 100).

TABLE 5 Ecuadorian Cocoa Exports, 1900-1925

Sources: Rodriguez (1985: 191); Carbo (1953: 68); Weinman (1970: 360).

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174 Paul Henderson

less impressive as the Ecuadorian econom

decline and it became clear that the we
secure foundations for the long-desired
One of the major characteristics of
twentieth century Ecuador was the high
domination of the country's leading expo
This in turn permitted these families
activity and in Ecuador's political life as
the origins ofthe cocoa planter elite. Lois
ownership dated back to colonial times. T
family's Tenguel, the country's largest s
(Weinman 1970: 54). John Forrest Uggen
some holdings, has, on the basis of a c
province of Guayas, put forward a now m

... a majority of the nineteenth century

acquisition of unclaimed lands or to pur
any concentration dating as far back as

The new planter elite, who acquired their

post-Independence migrants. Consisting o
about 70 per cent of the land in th
Prominent amongst them were the f
Seminario (Peruvian), the latter, with som
properties as 'the cocoa kings of the w
comprise the whole of Ecuador's incr
Cueva as an agro-mercantile bourgeoi
consisted of an agglomeration of busin
Ecuador reveals that at the heart of the
and merchants with a clearly identifia
Ecuador, 1909). The hacendado Lautaro
director of the Banco del Ecuador, on var
on the boards of firms involved in insura
telephones, lighting and match manuf
860). Miguel Seminario enjoyed a similar
supreme importance to most of those inv
Banco Comercial y Agricola. It was this b
together the members of the coastal e
Guerrero, demonstrates.
As will be seen, it was their close links
association with successive liberal admini
to speak ofthe existence of a Guayaquil p
such an extensive network of influenc
business interests endowed this group
outlook. Linking them all was the profit
of government, itself reliant on revenue
Such a situation was by no means unc
Peruvian agro-exporters became the m

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 Cocoa, finance and the state in Ecuador 175

TABLE 6 Business Interests of Principal Members ofthe Ecuadorian Exporting/Ban

Early Twentieth Century

a Number of shares of 5000 sucres; b Number of shares of 8000 sucres; c Number of firms in w

Source: Guerrero (1979: 65).

Londres and were described by the supporters of President Leguia, in term

those employed in Ecuador, as an 'oligarchic trust' (Quiroz, 1993:
Nevertheless, the Ecuadorian planter-financial elite, given the domin
government finances of the Banco Comercial y Agricola, enjoyed a deg
denied to their Peruvian counterparts. It was hardly necessary for the
influence crudely or corruptly as the interests of government and elite ov
Cain and A. G. Hopkins could have been describing the Ecuadorian rather th
elite when they argued that

This degree of coherence or like-mindedness explains why, at the t

gentlemanly order, the barriers between business and government were n
mobile Chinese walls (Cain and Hopkins, 1993: 28).

In attempting to explain the failure of Latin American export secto

widespread, progressive economic and social transformation, social scien
and politicians have often argued that the influence of foreign business int
such a transformation (Platt, 1977). Whilst it is true that foreign fact
features of the economies of the larger Republics (Miller, 1993), an anal
appears to be of limited use in explaining Ecuadorian cocoa's inability to sti
self-sustaining growth and development. Ownership of the cocoa estates wa
Weinman, overwhelmingly domestic (Weinman, 1970: 55). Moreover, it
concentrated. There was little likelihood, then, ofa surplus being extracted
and accumulated in London, New York or Hamburg. Furthermore, Robe
argued that neither foreign intermediaries nor international commodity m
to exert an excessive degree of control over the trade (Greenhill, 1972). In f

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 176 Paul Henderson

argued that these were essential to th

country's fairly basic financial and
suffered no major fall in prices betwe
growing foreign competition, enjoye
cases of shipping and insurance could
foreign influence.4
It is necessary, therefore, to look els
a more far-reaching economic and
factors must be considered. It is appa
'primitive export sector' (Mathew, 19
of Argentina, which generated a rang
and light industry, Ecuadorian cocoa'
technology employed in the indust
economy. Cocoa was harvested simply
to dry in the streets and was then ba
export sector's natural advantages,
market, the immanent need to increa
forces of production?one of the mo
was far from strong in Ecuador.
This was clearly reflected in the a
displayed little interest in technologi
to be highlighted when disease ravaged
accruing to the planters was spent
Guayaquil. Many families in fact chose
instead to reside for long periods in t
their wealth was accumulated.6
It would be wrong, however, with the dubious benefit of hindsight, to attach all
responsibility for the frustration of Ecuador's development to the planters. They did, after
all, operate within the parameters of a poorly articulated nation-state and a weak and
unstable political economy. Ultimately, as income from cocoa declined, the question of
government finance came to dominate the Ecuadorian political agenda in the war and post?
war years. It is with the interaction of these factors in a crucial period of Ecuador's history
that the rest of this article is concerned.
On 9 July 1925, a group of young army officers, organised in the Liga Militar, overthrew
the government of President Gonzalo Cordova. By the time of the bloodless coup, the
Ecuadorian economy was deep in crisis. Though its origins can be traced to adverse
external factors, most notably the collapse of the cocoa trade, and the constraints which
these imposed on the government, the military conspirators, with the support of highland
conservatives based in Quito, chose instead to attribute responsibility for the country's dire
situation to the actions of the Guayaquil 'plutocracy' in whose hands, they claimed,
government had become a mere tool.7
Whilst much of the invective directed against the 'plutocracy' was rhetoric and
propaganda, it is nevertheless true that Guayaquil banking interests enjoyed ready
access to the highest echelons of successive liberal administrations in Quito. The
dominant interest was the Banco Comercial y Agricola, established in 1894 (Estrada
Ycaza, 1976). With the outbreak of the First World War in August 1914, the Bank
rapidly became the government's leading creditor. Under the management of Francisco

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 Cocoa, finance and the state in Ecuador 177

Urvina Jado, lel caudillo silencioso\ associates of the BCA, closely

family, social and business ties to other sections of the coastal elite,
producers and exporters such as the Aspiazu, Morla and Seminario fam
represent the dominant, arguably determining, force in the formation
policy. Indeed, Alfredo Baquerizo Moreno, a member of a prominent
major interest in the Bank, served as President of the Republic from S
to August 1920. His successor, Jose Luis Tamayo, had been the Bank's
1904. Whilst Oscar Efren Reyes, the author of a standard textbook o
Ecuador, offers no evidence for his assertion that Presidential, Ministerial and
Congressional candidates had to be approved by the Bank, the links were nevertheless
clear (Reyes, n.d.: 250).
As noted earlier, the hegemony of the coast owed much to the expansion of Ecuador's
cocoa trade. In response to growing demand from Europe and North America, Ecuador
accounted for 28.3 per cent of world production in 1894 (Rodriguez, 1985: 100).8 In the
following year, that hegemony was confirmed by the liberal revolution of Eloy Alfaro who
was committed to a programme of modernisation under the auspices of an interventionist
state.9 Coastal planters and banks were soon to profit from the policies ofthe new regime.10
In response to the fall in the value of silver during the 1890s, the Ley de Monedas,
recommended by the Guayaquil Chamber of Commerce, placed Ecuador on the gold
standard in 1898 (Carbo, 1953: 7). This had the effect of stabilising exchange rates and
thereby Ecuador's international financial transactions, from which both export sector and
government benefited. Moreover, it entailed a revaluation of the gold reserves of the
Guayaquil banks which resulted in the virtual doubling of the value of their liquid assets
(Chiriboga, 1988: 94-95). The export sector received further support from government in
that throughout the liberal period duties on its products were significantly lower than those
on imports. Exporters of the pepa de oro itself were favoured by a system of specific rather
than ad valorem duties which, according to Weinman, supported public works in Guayaquil
or other projects in the direct interest of the producers. Import duties, on the other hand,
were used to service the foreign debt (Weinman, 1970: 147-148).
There was, however, much more to the Alfarista triumph than a convergence of interests
between government and the coastal elite. The revolution of 1895 has traditionally been
seen as a major turning point in Ecuador's history (Cueva, 1982: 6). Though it ultimately
failed to generate a profound transformation of the country's underlying economic and
social structure and in this respect should not in fact be seen as constituting such a decisive
watershed, it nevertheless ushered in a period of noticeable change. Attracted by the
opportunities offered by the flourishing commercial economy of Guayaquil and its
environs and seeking to escape the miserable conditions, low pay and abuses inflicted on
them by hacendados, poor, indigenous serranos flocked to the coast in search of work and a
degree of liberty denied them in the highlands. On the large cocoa estates they found that
old methods of coercing labour, such as debt peonage and the extension of expensive credit
at the company store, were declining as estate owners competed for scarce labour, especially
at harvest time. A system of free wage labour, in which labour was in short supply, meant
that relatively high wages were available. Furthermore, planters had managed to secure the
passage of laws which exempted their workers from military conscription and service in
road gangs (Pineo, 1994: 259).
Migration from the sierra was the key factor in the growth of the population of
Guayaquil, a desperately unsanitary city where the death rate regularly exceeded the birth

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 178 Paul Henderson

rate (Pineo, 1990). In 1894 the city

120,000 (Pineo, 1994: 285). Manuf
consumer goods for the growing
number of workers' mutual aid soci
1977: 26-28). As the cocoa trade b
multiplied, as did the demand for t
1994: 264).
Wealth generated on the coast facilitated a range of progressive policies whose
achievements were not confined solely to Guayaquil. In Quito and other urban centres
improvements in public health were made and electric lights, telephones and trams made
their appearance. Social reform received due attention from liberal politicians intent on the
modernisation of their country. Efforts were made to improve educational provision and
the 1906 Constitution brought about the separation of Church and State, a central
commitmentof liberal philosophy (Spindler, 1987: 174-179; Ayala'Mora, 1988: 143-146).
The abolition of concertaje (debt servitude), a mainstay of the rural serrano economy, and
imprisonment for debt had long been a demand of Ecuadorian liberalism. Delayed for
many years by the opposition of sierra landowners, abolition was finally effected in 1918 by
President Alfredo Baquerizo Moreno.11 The liberal commitment to progress, however, was
perhaps most clearly demonstrated by the completion ofthe Guayaquil and Quito Railway
in 1908, an astonishing feat of engineering which significantly improved communications
between the coast and the highlands.
Such progress, however, came at a high cost. Ecuador was a country long torn by
regional conflicts, most notably between costa and sierra. Despite their achievements in
certain fields, the liberals were unable to overcome the regional disarticulation of the
country and in order to ensure the stability of their regime they were forced to enter into
what Enrique Ayala Mora has described as a pact or at least a cease-fire with the highland
landowners and clergy. Thus there were limits set to the extent of secularisation and the
Church managed to find legal means to maintain and even extend the influence of its
educational institutions (Ayala Mora, 1988: 153). Moreover, government employment, to
the annoyance of many in Guayaquil, continued to be dominated by Quitenos (Pineo, 1994:
284). Provincial politicians, in return for guaranteeing some degree of stability, had to be
rewarded with government-funded public works projects. As late as 1922, Dr Agustin
Cueva Garcia, the Deputy of Esmeraldas, complained to the President of the Asamblea
Nacional that

Each one of us comes here Mr. President, be it as Deputy for Pichincha, Esmeraldas
or Guayas; each one of us brings a briefcase full of projects and so much is extracted
for Guayaquil, Manabi or Esmeraldas; but for the Nation, for Ecuador? That is
secondary (Ecuador, 12 August 1922: 16).

Much ofthe discussion in Congress, therefore, was concerned with the building of roads
and railways (Oleas Montalvo and Andrade Andrade, 1985). The finance for such projects,
after authorisation by Congress, was channelled through autonomous agencies and
inefficiency and corruption were rife. The failure of successive liberal ministers of finance to
centralise and control the expenditure ?of government funds attested to the great strength of
regionalist sentiment and influence.12 Military expenditure also remained at a high level
throughout the liberal period, since in a nation-state as fragile as Ecuador, insurrections,
border disputes and even civil war (1912-1916) were not uncommon. When this latter

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 Cocoa, finance and the state in Ecuador 179

conflict was at its most intense in 1914, the military accounted for 37. 6 pe
government spending (Rodriguez, 1985: 225).
Given the country's history of a weak and inefficient state apparatus and
of regionalism, direct taxation was a virtual impossibility in Ecuador.13 Fur
of the country's liquid capital was found on the coast. Land was the do
wealth in the highlands and the state left this well alone (Rodriguez, 1985: 5
sustain politically necessary expenditure therefore, liberal government
fluctuating income from customs revenues and largely denied access to
consequence of Ecuador's poor history of debt servicing, increasin
borrowing from domestic banks.14
The steadily mounting internal public debt was for the most part f
Guayaquil banks, the Banco del Ecuador and the Banco Comercial y Agri
of the century roughly half of the debt was owed to these two insti
proportion continued to rise in subsequent years, with the BCA assumin
role in 1911 (Rodriguez, 1985: 113-118). The relationship between liberal
and coastal banking interests was an intimate one. During the First Wo
troubled post-war years, the BCA in particular came to play a central role i
finances (see Table 7).
By 1914 Ecuador had lost its dominance in the world cocoa trade as th
Brazil increased production. Although 1914 saw a particularly large Ecuadori
nevertheless accounted for only 15.3 per cent of world production (Rodrigu
The war and post-war years were to bring further decline as the plant
Broom and Monilia Pod Rot took their toll (Fowler and Lopez, 1949: 1
government of Leonidas Plaza fighting a bitter and costly civil war against th
Colonel Carlos Concha based in the northern coastal province of Esmeraldas,
hardly have come at a worse time.15 Though access to the important US
cocoa exporters to survive the initial convulsions of the war,16 a shortage o
freight rates and, from 1916, world over-production, which ultimately led to
ensured that the war years remained troubled for exporters and governmen

Source: Rodriguez (1985: 218-219; 224-226).

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180 Paul Henderson

As happened elsewhere in Latin Am

the banks as the public rushed t
particularly threatened by this as th
reserves. Faced with the prospect o
BCA Congressional bloc, the govern
Moratoria' suspended convertibility
were to be issued
Comercio, 1 A {El
effective until 1925, soon permitt
proportion to the amount of gold
pressures that this introduced, t
financing.18 Its most prominent sou
Moratoria had effectively saved, th
The passage of this legislation th
wielded considerable influence ther
emergence of the BCA as the 'ba
government's indebtedness to the B
borrowing abroad, already a remote
difficult wartime situation, was f
investors in the Guayaquil and Quit
of Foreign Bondholders (Corporat
period was also
hostil to see growing
its apparent control over governme
In addition to the government and
events of these years, the Asociac
cocoa exporters in what proved to
attempt to control the price of E
Agricultores, 1914: 3), the Asociacio
half in cash and half in vales (i.o.u.s
on consignment. By 1916 the Aso
Ecuador's cocoa (Carbo, 1953: 472
Similar attempts to raise or at leas
elsewhere in Latin America. The mo
with state and eventually Fede
valorisation schemes in the early
Chile, Nitrate Combinations proved
Even when Chilean nitrates faced se
First World War, the Nitrate Produ
until 1925 (O'Brien, 1989: 133). A pr
however, was a dominant share of t
Brazil and Chile at the time enjoy
fighting a losing battle against rival
intervention of the Asociacion de A
The Asociacion enjoyed close ties
y Agricola. It was the governmen
(raised in September 1916 to three
purchases. Luis Napoleon Dillon,
Asociacion as '... mitad institucio

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 Cocoa, finance and the state in Ecuador 181

institution, half private institution] (Dillon, 1927: 46). The war-induced

the cocoa trade, marketing difficulties and the severity of the post-war
Asociacion a key role in Ecuador's economy, at the same time driv
clutches of the BCA.
In purchasing an ever increasing proportion of the country's cocoa, the Asociacion was
forced to borrow in order to finance its operations, the costs of which far exceeded the revenue
obtained from the export tax. The BCA had been lending to the Asociacion since 1913, when
3,518,225 sucres were advanced. By July 1917 thishad increased to 6,150,000 (Weinman, 1970:
208). As a guarantee for the loans the three sucre export tax was pledged to the Bank.
Furthermore, as the Asociacion's financial situation deteriorated, the foreign drafts that it
received for its cocoa were also handed over to the BCA, which thereby came to control a
substantial share of the country's foreign trade, a fact that did not go unnoticed by sierra
regionalists. Criticism ofthe Asociacion was not, however, confined to such obvious sources.
Dissatisfaction with its virtual monopoly of cocoa exports and its links with the BCA were even
voiced by the Guayaquil Chamber of Commerce, which noted in its 1918 memoria that

The Asociacion has been frantic to maintain the price of cocoa at all costs, in spite of
market conditions, even if it meant monopolizing all the cocoa that entered the port,
and this has led to a monopoly of .all imports, since they have handled all foreign
exchange drafts. Now it is to the point where the Asociacion has obliged itself to sell
the foreign drafts to one buyer (Weinman, 1970: 211).

Those cocoa planters not directiy involved in exporting also joined in the criticism ofthe
Asociacion's monopoly position.
There was one other institution which had a claim on the Asociacion's funds. In
December 1916 the Mercantile Bank of the Americas had begun representing th
Asociacion in New York, advancing to it 80 per cent of the market value of the cocoa i
received.19 With the closure ofthe British and French markets in 1917 and the imposition o
higher taxes in the US, cocoa prices fell from 12.31 US cents per pound in 1916 to 7.83 in
1918 (Rodriguez, 1985: 103). The Mercantile Bank then began selling the Asociacion's
cocoa at a loss in order to recoup some of its debts. For years the Bank pressed the
Asociacion to settle its outstanding debt, as did frustrated Ecuadorian planters. What funds
the Asociacion had at its disposal, however, went instead to the Banco Comercial y
Agricola. Such preferential treatment is perhaps explained by the fact that serving on the
Asociacion's board in 1922 were at least three prominent BCA men, including th
seemingly omnipotent Francisco Urvina Jado (Weinman, 1970: 215).
In the 1920s the prospects for Ecuador's economy were distinctly gloomy. Ravaged by
the diseases Witches Broom and Monilia Pod Rot (Fowler and Lopez, 1949: 18-20) and
neglected by estate owners (Erneholm, 1948: 91), Ecuadorian cocoa accounted for onl
6.5 per cent of world production in 1925. As both the quantity and value of exports
declined, the exchange rate of the sucre depreciated markedly, from an average of 2.25 to
the dollar in 1920 to 4.35 in 1925 (Carbo, 1953: 106, 110). The inflation that resulted
affecting not only imported goods but also domestic products, led to growing discontent
with the government and the emergence of serious social unrest, exemplified by th
Guayaquil general strike of November 1922. The strike, described by the American
Consul General in the city as ' ... the worst socialistic upheaval that has ever occurred in
Ecuador ...' (US Dept of State, 1922) was, however, a largely spontaneous protest on th
part of Guayaquil workers against the hardships they were being forced to endure. It was

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 182 Paul Henderson

brutally ended by troops who left

Armas et aL, 1982). Yet despite their
the younger officers, came increa
country's ills. Supported by socia
lambasting the government, the
Agricultores at every opportunity
Cordova government in July 1925
Provisional, of which Dillon was a
exile of Francisco Urvina Jado and t
the imposition of fines, was to lea
Though the links between succ
financial elite, especially the BCA,
charge that the 'tirania bancarid h
thereby wrecked the country's eco
Eloy Alfaro's revolution of 1895
Ecuador's past and bring about a
break would have entailed, inter a
and rationalise the woefully inade
the only significant generator of w
made a much more significant an
expenditure regularly exceeded or
redress the country's poor intern
challenge the interests of the exp
on whose wealth they ultimately
domestic banks with which they ma
see a limited transformation of E
manner reminiscent of Peru at
dramatically exposed the fundame
military and civilian administration
their country with the help of Nor
the Princeton 'money doctor', Ed
hopes, however, were to be dash
struggle to overcome its heritage co

Acknowledgements?Research in Ecuado
grants from the Twenty Seven Foun
Wolverhampton. I would like to thank
referees for their helpful comments on

NOTES

1. Between 1880 and 1898, for example, income from cocoa exports never fell below 62 per cent o
export earnings (Ortiz Crespo, 1988: 188).
2. It is worth noting that the Guayas river flowed in both directions during the course of a day (
1994: 253).
3. The BCA and the BE have long been seen as representing the interests of exporters and importers
respectively (Carbo, 1953: 69-70) and Rafael Quintero has argued that they constituted rival blocs
within the elite (Quintero, 1980; Quintero and Silva, 1991: 255-268). Ronn Pineo, however, maintains

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 Cocoa, finance and the state in Ecuador 183

that as a third of the executives of the BCA and its related mortgage bank, the
Hipotecario, served on the boards of the BE and its mortgage bank, the Banco Te
versa, the Guayaquil banking elite was largely homogeneous (Pineo, 1994: 270-27
4. All of Ecuador's cocoa was shipped by foreign companies. During the Fir
consequences of such dependence were to be highlighted as the cost of shipping a t
from $17.50 in July 1914 to $45 in September 1916 (Carbo, 1953: 487).
5. 4The energies of the owners or management are chiefly bent on collecting the fruit th
and only a minimum of attention is given to the sanitation of plantations or the pr
(Imperial Institute, 1921: 22).
6. Weinman has found that'... more than fifty people each year left Ecuador and clos
members in group-living resided abroad.' She also shows that in the period 190
accumulated by Ecuadorians abroad equalled that required to service the nationa
1970: 75). Ecuadorians were not alone in favouring Paris. The French capital
important focus of wealthy Peruvian emigres . . .' (Quiroz, 1988: 66).
7. The leading opposition spokesman was Luis N. Dillon, a distinguished Qui
educationalist, diplomat and politician. His analysis of the crisis and his attacks
were published as La Crisis Economico-Financiera del Ecuador, Quito, 1927.
8. Coastal exports in the period 1900-1920 constituted at least 90 per cent of Ecuad
9. Alfaro's supporters had high hopes for the future of their country. In 1895 th
periodical El Pichincha published an article entitled Posteridad by Miguel Aristizaba
outlines his utopian vision of Quito in the year 1975. He describes a progressiv
inhabitants, where an Opera House, an Academy of Sciences, a Stock Exchange a
buildings stand on the sites of former monasteries and convents. Church land has b
the local indigenous population and education is secular, free and compulsory. Visit
the opulence of the city, express their gratitude to Eloy Alfaro, 'el Gran Caudil
demoledor de 1895' (quoted in Robalino Davila, 1968: 160). For a useful surv
liberalism see Penaherrera Padilla (1991).
10. The implementation of mutually beneficial policies remained a feature of liberal ad
Ley Moratoria of 1914 demonstrated.
11. The main highland agrarian pressure group, the Sociedad Nacional de Agricultur
against the abolition of concertaje, though it accepted that its abuses should be addre
being of the worker as well as for the progress of agriculture' (Sociedad Nacional de
40).
12. As the British Charge d'Affaires in Quito noted, The Government . . . persists in such a course
principally for political reasons. Each province demands attention, and clamours for improvements
and publicworks, especially railways, to the utter disregard of the welfare of the country as a whole; and
should the government attempt to abandon some of such works for reasons of economy, it would have
to deal with a formidable revolution.' (Wilson and Balfour, 1918).
13. After the abolition of diezmos in 1891, direct taxation contributed barely 3 per cent of government
income during the rest of the decade (Union Panamericana, 1954: 7).
14. Such was Ecuador's lack of international credit worthiness that the US Consul in Quito was of the
opinion that*... the only conditions under which ... it would be safe to lend money to Ecuador would
be for this to be done by the establishment of a virtual protectorate over the country ...' (Jerome and
Grey, 1914).
15. The little studied civil war of 1912-1916, which spread from Esmeraldas to the provinces of Manabi,
Los Rios and Carchi, caused enormous destruction. As the Ministro de Hacienda reported in 1915,
4(The war).. .has brought about the most barbarous of triumphs: the sterilization of those fertile fields,
yesterday the location of private and public wealth, today of desolation and ruin.' (Ecuador, 1915: vi).
16. Consumption of Ecuadorian cocoa in the United States had risen from 168,000 quintals in 1911 to
212,000 in 1914 and 247,500 in 1916 (Carbo, 1953: 482).
17. In Argentina and Brazil inconvertibility was also introduced. Various kinds of moratoria on debt were
imposed in these countries and in Peru and Chile (Albert, 1988: 42). Ecuador's Ley Moratoria did not
meet with universal approval. Dillon, a prominent critic of the 'plutocracy', later wrote that The
belligerent European nations paid this war tax in order to fight for their political existence, we
Ecuadorians paid it to save the Banco Comercial y Agricola and enrich its shareholders and speculators
. . .' (Dillon, 1927: 32).

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 184 Paul Henderson

18. By 1918 the cost of living index in Quito

post-war years, it rose again to 245 in 1
19. This collaboration was viewed with som
OfTice official commented in 1918 that 'T
America which are so much in evidenc
PRO, F.O. 371/3196).

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