investigations and discussions of 1922, Tamayo might have been lauded as one of the country’s greatest leaders: the head-of-state who spearheaded an expeditious and rewarding transition from the cacao era to the banana boom.
By no means was a transition along these lines beyond the realm of possibilities. U.S. imports of bananas, which were much higher after World War I than they had been at the turn of the twentieth century, continued to go up during the 1920s. At the same time, United Fruit and other producers were having difficulties in Central America, as already noted. Ecuador’s currency was losing value; worth forty-four cents in 1920, the sucre was equivalent to twenty-three cents five years later.17 However, this devaluation improved the country’s competitiveness in international markets, to the benefit of the fruit industry and other sectors with tradable output. In addition, the need to purchase land, rather than receiving real estate free from the government, was not an insurmountable obstacle given that United Fruit would end up buying old cacao farms in the southern costa in 1934—a decade after Tamayo had left office and, more to the point, at a time when the U.S. market for bananas was weak due to the Great Depression.
The chances for what might have been Tamayo’s crowning accomplishment, not to mention a watershed moment in the economic history of Ecuador, were not improved by the waning influence of the venturesome businessmen who had founded United Fruit. Neither Lorenzo Baker (born in 1840) nor Minor Keith (born in 1848) was as active in the company as he once had been, and Andrew Preston (born in 1846) passed away in September 1924. The following month, the same executive who had corresponded with Castillo and had sent Sinners to Ecuador became president of United Fruit, in spite of minimal time spent in the tropics. For the next several years, the firm was run out of its Boston headquarters by Cutter and other men whose understanding of the production end of the business was second-hand for the most part. Their lack of direct experience helps to explain why earnings stagnated and then declined after peaking at 44.6 million dollars in 1920,18 and why opportunities in Ecuador were passed up when they first presented themselves.
Political tensions, which rendered Ecuador unattractive to investors and worsened as the national economy deteriorated, also undermined Tamayo’s initiative. Tax receipts, which consisted primarily of tariffs on trade, diminished as cacao exports declined. Regardless, public expenditures were not cut significantly.19 To cover the difference between spending and tax revenues, the government borrowed more from the BCA, which in turn issued more currency. This monetary expansion had the normal result, which was to accelerate inflation. Rising prices, especially for food, helped spark civil unrest, including a general strike in Guayaquil that the military suppressed in November 1922 with more than 300 lives lost.20
Tamayo was able to complete his four-year term. Forgoing the pension that he was entitled to, he returned to Guayaquil, where he was respected enough to win local office in 1940. Tamayo was honored two years later as the port city’s outstanding citizen, thanks to his steadfast public service and his refusal to accept a salary. However, his successor as president, Gonzalo Córdova, fared poorly, holding onto office for less than a year. In July 1925, military officers with strong backing in Quito forced their way to power.21 They blamed Ecuador’s economic difficulties on the BCA, which soon went out of business because the government reneged on its debts and confiscated all banks’ metallic reserves.22 After a brief detention, the BCA’s director fled to Chile. Other business leaders and a number of political figures also left Ecuador for a few years during this tumultuous period.
The closure of the BCA left Ecuador with no agency for administering the supply of money, which crippled the financial sector. In 1926, Edwin Kemmerer, an economics professor at Princeton University who previously had advised other Latin American governments on banking and monetary matters,23 was brought to Quito together with a supporting group of experts. Based on the recommendations of Kemmerer and his colleagues, a central bank was established and the gold standard was adopted in 1927. Warning against expecting quick results from these and other measures, Kemmerer emphasized that they were really the first in a long series of reforms needed to revive the economy of Ecuador,24 which during the 1920s had one of the worst credit ratings in the Western Hemisphere.
In fact, fiscal discipline was not maintained and the gold standard was honored in the breach. Reluctant to cut employment or levels of compensation in the public sector, Ecuador’s new leaders also constructed roads and other infrastructure. Just as had happened in the past, spending consistently ran ahead of tax revenues. One effort to close the fiscal gap involved the appointment of William F. Roddy, who had been a member of Kemmerer’s team, to administer the customs service. Given a mandate to reduce corruption and enhance government revenues, Roddy took his assignment seriously and was largely successful. Not coincidentally, he also became hugely unpopular, especially among importers and exporters, so his tenure was brief.25 Once the meddlesome foreigner had been shown the door, business-as-usual returned in Guayaquil and other ports and tariff collections fell back to customary levels. Old habits of monetary management made a comeback as well, with the central bank printing money not in proportion to its metallic reserves, but rather on the basis of its holdings of government bonds—exactly as the BCA had done before the July 1925 coup d’état. The impact of monetary expansion was the same: ruinous inflation.26
Macroeconomic conditions in Ecuador worsened once the United States and other leading nations tightened monetary policy and raised barriers to trade after the October 1929 crash of the U.S. stock market. The collapse of international commerce brought on by protectionism largely explains why the Great Depression was so long and severe. As happened throughout the world, Ecuadorian exports declined precipitously, from fifteen million dollars in 1928 to a little over four million dollars in 1933, which among other things resulted in a dwindling of metallic reserves in the central bank.27 The country went off the gold standard officially in 1931, by which time currency was being issued with abandon because of chronic fiscal deficits. The ensuing inflation and high unemployment fueled political instability, which manifested itself frequently as angry demonstrations and military takeovers. During the 1930s, the Ecuadorian presidency changed hands fourteen times, never because of an orderly succession from one elected head-of-state to another.
United Fruit Acquires Ecuadorian Real Estate
Even though United Fruit proceeded slowly after Tamayo left office and especially after the 1925 coup, Ecuador’s capacity to supply the United States with bananas was not forgotten. Of particular interest to the company was an old cacao estate named El Tenguel, which took in nearly 45,000 hectares a little north of Machala. Rumors that Sinners might be negotiating on United Fruit’s behalf for the property had reached the U.S. consulate in Guayaquil in December 1924. The company, however, was not yet ready to put money down for farms in Ecuador, so El Tenguel, which had been mortgaged several years earlier, was foreclosed in 1926.28
Three years later, in 1929, a U.S. businessman, Clarence L. Chester, began pursuing an exclusive license to ship Ecuadorian bananas to the United States for the Pacific Fruit Company, which he served as vice president. Chester promised growers higher prices in order to win them away from SAFCO—the Chilean company that had been the leading exporter of bananas harvested in the costa since the early 1900s. However, a bill in the Ecuadorian Congress to grant Pacific Fruit a monopoly on exports to the United States was defeated after the revelation that a legislator who had sponsored the bill was also a member of the firm’s board of directors. Chester left Ecuador for good in 1933, when his employer went out of business.29
Just at this time, the country’s banana sector was beginning to stir, in spite of the Great Depression. The U.S. consul in Guayaquil, Harold B. Quarton, reported in April 1933 that Ecuadorian merchants intended to sell 350,000 stems overseas in 1934—a projected increase of more than 50 percent in just one year. Neither Quarton nor anyone else doubted that millions of stems could be produced annually in the costa, although he was skeptical about the projected increase in exports owing to the region’s poor infrastructure.30
Roads,
