After two swift juntas, the military handed power to Isidro Ayora in 1926, who quickly embarked on a programme of reforms, including the creation of the Banco Central in Quito to smash the influence of la argolla . However, the new bank couldn't temper the rate of inflation, and popular discontent forced Ayora's resignation in 1931. Fuelled by the woeful economic condition at home and the Great Depression worldwide, any political cohesion that the country had finally crumbled away. In the 1930s, a total of fourteen men took the presidency, and from 1925 to 1948, Ecuador had twenty-seven governments.

 

Out of the turbulence of this era emerged a figure whose strident populism, firebrand rhetoric and magnetic charisma gave him unprecedented appeal across the political spectrum, and a career that was to last into the 1970s. The first of José María Velasco Ibarra 's five presidential terms, however, began in 1934 and lasted less than a year, before his removal by the military when he tried to assume dictatorial powers. He went into exile until the 1940s, and chaos reigned.

In 1941, while government troops were tied up in Quito defending the presidency of Carlos Arroyo del Río , Peru invaded, quickly seizing much of the Oriente and occupying the provinces of El Oro and Loja in the south. The occupation only ended after the nations signed the Rio Protocol of January 1942, guaranteed by Argentina, Chile, Brazil and the US, but 200,000 square kilometres of Ecuador's eastern territory - almost half of the whole country - were ceded to Peru. Although the land was largely unexplored and uninhabited, the loss was a huge blow to national pride in a country that had identified itself with the Amazon since Francisco de Orellana navigated it 400 years earlier.

The exiled Velasco, mouthing promises of "national resurrection" and social justice, forged an unlikely alliance between Conservatives and Socialists, and ousted the disgraced Arroyo in 1944. However, Velasco soon ejected the leftist composition of his alliance, and his high-minded promises dissolved as he squandered government reserves on the pet projects of his coterie. By 1947, he had lost his support and was deposed. A flurry of three presidents came and went before Galo Plaza Lasso took the helm in 1948, injecting some much-needed stability into the republic.