The Spanish were quick to consolidate their victories, with the Crown parcelling out land to the conquistadors in the form of encomiendas , grants that entitled the holders, the encomenderos , to a substantial tribute in cash, plus produce and labour from the indígenas that happened to live there. In return, the encomenderos were entrusted with converting their charges to Christianity, a task that was only a partial success; in many cases the indígenas merely superimposed Catholic imagery onto their existing beliefs, a syncretism that can still be seen today.

 

The encomienda system grafted easily onto the old Inca set-up, and the encomenderos were soon the elite of the region, which became the Audiencia de Quito in 1563. Roughly corresponding to modern-day Ecuador, the audiencia had rather vague boundaries, but included a huge swath of the Amazon following Francisco de Orellana's voyage . It also enjoyed legal autonomy from Lima and direct links to Madrid, even though it was still a part of the Viceroyalty of Peru. During the early 1600s, there were more than five hundred encomiendas in the audiencia , run on the labour of about half the region's indígenas , who were effectively serfs on these estates, their labour often badly abused despite laws that were supposed to protect them.

Another quarter of the area's indígenas deserted the productive encomienda lands for the undesirable páramo and lowland forests, but they were rounded up at the end of the century and resettled in purpose-built "Indian towns", or reducciones , where the colonists could more easily collect tribute and exploit their labour. The Spanish also borrowed - and corrupted - another Inca institution, the mita , a system that required these supposedly free indígenas to work for a year according to the needs of the colony. These workers, the mitayos , received a small wage but it was invariably less than the amount they owed their employers for subsistence purchases. Soon, the mita system descended into debt slavery, as the mitayos worked indefinitely to pay off their unending deficits - debts that their children would inherit, so trapping them too. The audiencia had such poor mineral resources - the small gold and silver deposits around Cuenca and Loja were exhausted by the end of the sixteenth century - that the mitayos were spared the agonies of working in mines: millions of their contemporaries had died in the silver and mercury mines of Peru and Bolivia. Instead, most of the audiencia' s indigenous labourers were involved in agriculture (particularly the farming of introduced wheat, cattle, sheep and chickens) and textiles, an industry that boomed throughout the seventeenth century with the opening of hundreds of sweatshops ( obrajes ).

Events of the 1690s, however, saw an abrupt halt to the economic success, as another wave of epidemics wiped out half the native population, droughts destroyed harvests, and severe earthquakes shook the region. This triggered the demise of the encomiendas , which were replaced by large private estates, or haciendas , but for the indígenas , the new system of huasipungo that the changes entailed brought little relief. In return for their labour on the haciendas, they were entitled to farm tiny plots of land in their spare moments, where they were expected to grow all their own food.

The last quarter of the remaining indigenous population escaped the rule of the Spanish altogether, by living in the inaccessible tropical forests of the lowland Oriente or the north coast, the latter area under the control of a black and zambo (mixed black and indigenous) population, largely the descendants of escaped slaves, brought to work on the coastal plantations or fight in the Spanish army. The south coast had only a tiny workforce available, as more than ninety-five percent of the natives had been wiped out by disease, but even so, Guayaquil , founded by Benalcázar in 1535, was developing into an important trade and shipbuilding centre.

In the early 1700s, the Bourbon kings of Spain, who replaced the Hasburg dynasty at the beginning of the century, were determined to tighten their grip over their enormous American territories. They embarked on a strategy of economic and administrative reform intended to boost productivity, such as transferring the audiencia to the newly established Viceroyalty of Nueva Granada, with its capital at Bogotá, Colombia, in 1717 (an arrangement that lasted three years), and then again in 1739. The expulsion of the Jesuits in 1767 by Charles III, however, only damaged the weak highland economy further. The Jesuits - as well as teaching Christianity to the indígenas - had run the best schools and most productive and profitable workshops in the audiencia , but their very success had made them unpopular with the Crown. Yet while the highland textile economy suffered severe depression, the cacao industry on the coast was flourishing, with the commodity becoming the colony's largest export and plantations springing up all over the countryside north of Guayaquil. Employers were even willing to pay a proper wage for indigenous labourers to work on them, as it was still cheaper than importing slaves.

By the middle of the eighteenth century, a combination of developments brought about a general change of attitude in the Spanish colonies. The criollos - Spanish people born in the colonies - were nursing a growing resentment that wasn't helped by the economic situation. High taxes, continual interference from Spain, and the fact that all the best jobs still went to the peninsulares - Spanish-born newcomers - only added to the discontent. At the same time, the Enlightenment was opening up new lines of political and philosophical thought which filtered down from Europe into the upper-class households of the audiencia , fostering ideas that sharply contradicted the semi-feudal organization of the colony. Scientific expeditions, too, were a source of new knowledge, such as Charles-Marie de La Condamine 's mission (1736-45) to discern the shape of the Earth, which he did by measuring a degree of latitude on the equator north of Quito.

One of the first to articulate the new influences was Eugenio de Santa Cruz y Espejo , an exceptional man who, despite being born of indígena and mulatto parents in a deeply racist society, obtained a university degree and became an outstanding doctor, lawyer, essayist and satirical writer. His outspoken views on republicanism and democracy cost him his life - he died in jail in 1795 - but he's still honoured as the main progenitor of the country's independence movement.