Nathan Gill and Alex Emery
September 30, 2010, 9:00 PM GMT-5

Ecuador declared a state of emergency as hundreds of police protesting wage cuts blocked roads, shut the airport for several hours and sprayed teargas on President Rafael Correa.

Venezuelan President Hugo Chavez backed Correa’s claim that he was the target of an organized coup attempt, even though none of the protesters or members of the opposition have demanded he step down. He and other regional leaders traveled to Buenos Aires to show support for the embattled leader.

The president was taken to a hospital after scuffling with the police and was holed up as officers surrounded the facility, refusing to let his personal security forces escort him out of the building. Looters ransacked banks, supermarkets and shopping malls in the port city of Guayaquil, the country’s largest, and 51 people were injured amid the violence, the Red Cross said.

“Here I am. If they want to kill me, go ahead,” Correa said after protesters hurled a tear-gas canister at him and doused him with hot water. “I won’t back down.”

Ecuador, which has defaulted on $3.2 billion of international debt since 2008, has seen three presidents ousted in the past 13 years. Correa, a 47-year-old economist who took office in 2007, brought a modicum of stability to the politically-tumultuous nation of 14 million, becoming the first president to win two terms when he won re-election last year.

Police and soldiers began rebelling after congress last night passed measures that would delay automatic promotions and slow salary increases. Correa defended his policies, which he says are part of a drive to eliminate government waste.

‘Protest Gone Wrong’

Correa’s claims his presidency is at risk may be an attempt to drum up support among his allies, said Andres Ochoa, a researcher at the Washington-based Council on Hemispheric Affairs.

“There is no clear leader trying to topple Correa,” Ochoa said from Quito. “This is a protest gone wrong.”

Correa had a 67 percent approval rating in Quito and 59 percent approval in Guayaquil, according to Habitus poll of 800 adults published Sept. 15. The survey had a margin of error of 4 percentage points.

The opposition in recent weeks has stepped up its attacks as economic growth trails its neighbors and Correa’s threats to expropriate assets in the oil industry, the country´s biggest, deter private investment. Correa also angered opponents by pushing through an oil law by decree and ignoring lawmakers’ objections to his plan to broaden the state’s control over universities and local budgets.

South America’s seventh-biggest economy grew 1.9 percent in the second quarter from a year earlier, the worst performance except for Venezuela, which is in recession.

Chavez Weighs In

Chavez, who spoke with Correa by telephone before traveling to Buenos Aires, said the life of his ally in the eight-nation Bolivarian Alliance for the Americas is in danger.

“It would be very naive to think that this is motivated only by salaries,” Chavez said in comments broadcast on Telesur. “We are facing a new attack from the fascist beasts — it’s a coup attempt.”

Colombia and Peru closed their border in a show of solidarity, and the Washington-based Organization of American States adopted a resolution to “defend democracy.”

The U.S. State Department, while staying away from regional leaders’ warnings of a coup attempt, said it “fully supports” Correa and the peaceful restoration of order. The U.S. Embassy in Quito urged Americans to stay home and postpone travel.

Regional leaders are flying to Buenos Aires for an emergency summit of the Union of South American Nations to discuss the political crisis.

Risky Debt

The extra yield investors demand to hold Ecuadorean dollar bonds instead of U.S. Treasuries was little changed at 10.36 percentage points at 5:28 p.m. New York time, according to JPMorgan Chase & Co.’s EMBI+ index. Ecuadorean debt is the second-riskiest after Venezuela’s among 15 emerging markets tracked by JPMorgan.

The yield on Ecuador’s 9.375 percent bonds maturing in 2015 rose 1 basis point to 11.78 percent, according to Bloomberg prices. The bond’s price fell 0.29 cent to 90.82 cents on the dollar.

Troop Loyalty

Jaime Nebot, the mayor of Guayaquil and Correa´s fiercest opponent, denounced the protests or any attempt to topple the government.

Gen. Luis Ernesto Gonzalez, commander of the armed forces, reaffirmed troops’ loyalty to Correa even while calling on the president to reconsider the pay and benefit cuts for the protesting cops.

“We emphatically request that the law be revised or left without effect so that the rights of public service workers, military and police aren’t affected and so that the Ecuadorian state can return to normality,” Gonzalez said in comments broadcast on state television.

About 300 members of the armed forces stormed Quito´s airport, blocking the airstrip and closing the facility for nine hours.

PetroEcuador, the South American country’s state-owned oil company and biggest source of export revenue, said operations were normal as the military guarded refineries and oil fields.

Ecuador is the smallest member of the Organization of Petroleum Exporting countries. The country pumped 1.6 percent of OPEC’s total output this month, a Bloomberg News survey showed today. Ecuador accounts for 2.1 percent of U.S. oil imports, according to the most recent monthly data from the Energy Department.

Ecuador has a Caa3 long-term foreign currency credit rating from Moody’s Investors Service, eight levels below investment grade, while Standard and Poor’s rates the country’s debt B-, according to data compiled by Bloomberg.

Ecuador’s credit rating shouldn’t be affected by the protests because it “already implies a high possibility of default,” Erich Arispe, a New York- based analyst at Fitch, said today in a telephone interview.

Published originally by Bloomberg News.
Image: El Telegrafo