By 1996 the state had already been dismantled by several years of privatizations; there was no way to control corruption, also, there was no desire of Bucaram's officers to help in this matter. "The Tequila effect" severely affected the Ecuadorean economy; however, no economic measures were taken due to the scandals in which the former President Duran-Ballen's family (Flores y Miel) and his Vice-president Dahik (embezzlement of public funds) were involved. In addition, Duran-Ballén's Cenepa War against Peru exhausted the already disassembled state.
During the Latin American economic crisis, Ecuador was not the exception; the private banks and financial institutions took advantage of the false "bonanza," and the bankers ended up acquiring much state property. Bankers felt the shortage and started to loan money to themselves to maintain their recently acquired properties. The cash flow started to decrease abruptly. The superintendency of banking, controlled by bankers, authorized the issuance of currency without support; this fired up a rapid currency devaluation.
Bucaram had no alternative but to take economic measures which affected people on lower incomes. Bucaram was a populist, so he had no defined political tendency. He decided his economic plan to be very neo-liberal; it was designed by Argentinian economist Domingo Cavallo, and included ending subsidies, regulation of banks and financial institutions, and a strong currency devaluation ("Un sólo toque" would replace the sucre).
Massive protests against the proposed economic plan left Bucaram isolated. The indigenous and social movements who helped raise him to power now were against him. The indigenous Pachakutik Movement, left-wing Democratic People's Movement (MPD), PSC and Popular Democracy were the main parties organizing the protests.
This protest led to his dismissal from the Ecuadorian presidency. He was dismissed by the congress on grounds of alleged mental incapacity. Bucaram's assumed insanity was never officially diagnosed; it was more a political maneuver of the PSC and Popular Democracy who were in control of the legislative and judicial power, also, Pachakutik and MPD supported the decision in exchange for political representation. Congress passed the measure (44 votes in favor and 34 against) with a simple majority instead of the two thirds required by the Constitution, and appointed congressional leader Fabián Alarcón in his place, bypassing the sitting Vice President Rosalía Arteaga.
The constitutional court determined the congressional resolution to be anti-constitutional and rejected it. The congress ignored the constitutional court resolution and proceeded to confirm Fabian Alarcon as interim president. Finally, Congress, illegally, requested that the army assert Alarcón's power.
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