A committed revolutionary and Liberal, Eloy Alfaro had been involved in guerrilla skirmishes with García Moreno's Conservative forces since he was in his early twenties. He'd already had to flee the country twice before Liberal cacao lords sought his return and funded a military coup that brought him to power in 1895. Fervently anti-clerical, Alfaro immediately set about undoing García Moreno's work and began a series of measures that would permanently weaken the Catholic Church in Ecuador. In his two terms as president (1897-1901 and 1906-11), Alfaro defined the radical Liberal position, secularizing the state and education, expelling the foreign clergy, instituting civil marriage and divorce and cutting the links with the Vatican. He ploughed money into public works and saw through the completion of the Quito-Guayaquil railway with the help of US investors.

 

He was under heavy attack, however, from both the Conservatives and factions within the Liberal party that were sympathetic to his rival General Leónidas Plaza (president from 1901-05 and 1912-16). To fend off a constant string of revolts, largely instigated by Conservative rebels with the backing of the Church, Alfaro allocated forty percent of his entire budget on military expenditure. The split within the Liberal camp worsened, and when Alfaro's chosen presidential successor, Emilio Estrada, died suddenly just after his inauguration in 1911, the country erupted into a bloody civil war . A year later, Plaza's forces defeated Alfaro, and he and his supporters were transported on the new railway to Quito, where they were murdered, dragged through the streets and burnt in the Parque Ejido.

During the remaining years of the Liberal era, there was one ray of light in the darkness of political instability - the scrapping of imprisonment for debts in 1918, which ended the system of debt peonage against the indígenas that had been lingering on since colonial times. The civil war had severely drained the state's cash supply and power shifted from the cash-strapped government to la argolla , a "ring" of Ecuador's wealthiest cacao merchants and bankers, all underpinned by the private Banco Comercial and Agrícola in Guayaquil. The bank provided loans to a succession of ailing administrations at the expense of rocketing inflation rates, and became so influential that it was said that any politician would need its full backing in order to be successful.

In the 1920s, Ecuador descended into an economic crisis , a symptom of this arrangement, crippling inflation and a bad slump in cacao production. A devastating blight had damaged the crop, and cacao prices plunged as the market was swamped by new producers, especially the British colonies in Africa. The poor were hit very badly, and uprisings - one in 1922 by workers in Guayaquil and another in 1923 by indígena peasants on a highland estate - were suppressed with massacres. Matters came to a head in the bloodless Revolución Juliana of 1925, which effectively marked the end of the old Liberal-Conservative tug-of-war and ushered in a disoriented era of coups and overthrows.