Snap analysis: Alienating investors haunts Correa, Chavez

SAO PAULO (Reuters) - An eruption of protests by Ecuadorean police and soldiers on Thursday, which President Rafael Correa said was a coup attempt, highlights how some of the socialist policies of left-wing Andean leaders are coming back to hurt them.

The protests, in which Correa was himself assaulted, came just days after Venezuela's opposition parties made big gains in legislative elections.

* Correa's decision to default two years ago on $3.2 billion in global bonds, which he called "illegitimate," led directly to the fiscal problems causing unrest in Quito on Thursday. With private foreign credit largely cut off, Correa has tried to increase state revenues by renegotiating contracts with oil companies but those talks have moved slowly. He has had to instead move to cut pay and benefits for Ecuador's powerful armed forces and police, leading to the police protests. Correa described them as an opposition coup attempt.

* Chavez's antagonism of private capital and his nationalizations are partly responsible for a recession in its second year. The economic woes have pushed his approval ratings lower and contributed to opposition gains in legislative elections last weekend.

* Although Chavez remains Venezuela's most popular politician, the Democratic Unity opposition coalition has become more unified and now feels it has a chance of defeating Chavez in 2012 presidential elections.

* Correa, first elected in 2006, has succeeded in marginalizing Ecuador's traditional political parties but the protests on Thursday clearly weaken his position.

* For Correa to survive this crisis, he may have to dissolve Congress -- an option he says he is considering but which could backfire and lead to further civil unrest.

* However, neither leader is likely to reverse direction and begin catering more to private capital. Both Correa and Chavez have responded to challenges in the past by pushing on with socialist policies.