Snap Analysis - Wild police protests weaken Ecuador's Correa

BOGOTA Fri Oct 1, 2010 1:32am EDT

BOGOTA (Reuters) - Ecuadorean President Rafael Correa survived the most serious challenge of his four years in office when troops rescued him from a hospital surrounded by renegade police, but his position has been weakened by the crisis.

Correa, who was attacked on Thursday when he tried to speak to police protesting against bonus cuts, accused rivals of plotting a coup against his left-wing government.

While it was not clear whether there was a real coup attempt or whether police protests simply ran out of control, Correa looked vulnerable to the OPEC nation's endemic volatility for the first time since he was elected in 2006.

Following are some possible implications of the protests:

* Correa has had a mixed relationship with the armed forces since he assumed office, and Thursday's unrest could force him to take a more delicate line in handling the military, which has previously played a role in toppling governments. Army troops rescued him from the hospital, but at least one group of soldiers had earlier joined the police protests, shutting down Quito's main airport.

* In the early part of his presidency, Correa won over military chiefs with salary hikes and appointments to cushy state jobs. If Thursday's protests blow over, Correa will likely be forced to negotiate to keep the ranks calm.

* The protests erupted just as Correa considered dissolving Congress and ruling by decree because of a deadlock over some of his legislative reforms. He might now seek a deal on some form of popular elections to end the impasse if the protests linger and intensify.

* Correa is still popular among the poor for spending oil cash on welfare programs and taking a firm stance with foreign investors. The protests could spur him to boost public spending and seek alternative sources of credit, as Ecuador was shut out of global capital markets following a 2008 default on around $3 billion in global bonds.

* Major oil companies operating in Ecuador, the smallest member of OPEC crude-producing countries, have until November to sign new contracts aimed at boosting government control over the sector, or leave the country. Persistent political turmoil could delay the process, or encourage the government to take a more conciliatory tone.

* The protests have not yet affected oil output. However, more turmoil could start to hurt crude shipments and trade, slowing the nation's recovery from the global economic crisis.

(Reporting by Patrick Markey in Bogota)

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