History of Ecuador (1990–present)

In 1992, Sixto Durán Ballén won his third run for the presidency. His tough macroeconomic adjustment measures were unpopular, but he succeeded in pushing a limited number of modernization initiatives through Congress. Durán Ballén's vice president, Alberto Dahik, was the architect of the administration's economic policies, but in 1995, Dahik fled the country to avoid prosecution on corruption charges following a heated political battle with the opposition. A war with Peru (named the Cenepa War, after a river located in the area) erupted in January–February 1995 in a small, remote region, where the boundary prescribed by the 1942 Rio Protocol was in dispute. The Durán-Ballén Administration can be credited with beginning the negotiations that would end in a final settlement of the territorial dispute.

In 1996, Abdalá Bucaram, from the populist Ecuadorian Roldosista Party, won the presidency on a platform that promised populist economic and social reforms. Almost from the start, Bucaram's administration languished amidst widespread allegations of corruption. Empowered by the president's unpopularity with organized labor, business, and professional organizations alike, Congress unseated Bucaram in February 1997 on grounds of mental incompetence. The Congress replaced Bucaram with Interim President Fabián Alarcón.

In May 1997, following the demonstrations that led to the ousting of Bucaram and appointment of Alarcón, the people of Ecuador called for a National Assembly to reform the Constitution and the country's political structure. After a little more than a year, the National Assembly produced a new Constitution.

Congressional and first-round presidential elections were held on May 31, 1998. No presidential candidate obtained a majority, so a run-off election between the top two candidates - Quito Mayor Jamil Mahuad of the DP and the Right Wing Álvaro Noboa - was held on July 12, 1998. Mahuad won by a narrow margin. He took office on August 10, 1998. On the same day, Ecuador's new constitution came into effect.

Mahuad concluded a well-received peace with Peru on October 26, 1998, but increasing economic, fiscal, and financial difficulties drove his popularity steadily lower. However, the coup de grace for Mahuad's administration was Mahuad's decision to make the local currency, the sucre (named after Antonio José de Sucre), obsolete and replace it with the U.S. dollar (a policy called dollarization). This caused massive unrest as the lower classes struggled to convert their now useless sucres to U.S. dollars and lost wealth, while the upper classes (whose members already had their wealth invested in U.S. dollars) gained wealth in turn. Under Mahuad's recession-plagued term, the economy shrank significantly and inflation reached levels of up to 60 percent.