By Alonso Soto and Frank Jack Daniel

28 September 2008

QUITO (Reuters) - Millions of Ecuadorians from the Galapagos islands to Indian mountain villages vote on Sunday in a referendum that leftist President Rafael Correa is expected to win, tightening his hold on the oil-exporting nation.

Like fellow South American socialists Venezuelan President Hugo Chavez and President Evo Morales of Bolivia, Correa wants a rewritten constitution that gives him more power to regulate the economy and increase spending on health and education.

If approved, the new constitution will erode the power of Congress and the army, which helped topple three presidents in a decade in the poor nation of 14 million people.

“Really, I believe this is the last opportunity for peaceful change in Ecuador,” said Correa, 45, who contrasts his socialist plans with the crisis in global capital markets.

Critics say the former Roman Catholic missionary is amassing too much control. He frightens investors with threats to stop paying debt and pay more scrutiny to foreign oil and mining companies.

Opinion polls in recent days give Correa a comfortable lead in most of the country, although he may lose in the opposition bastion of Guayaquil, a wealthy port. A close result there could lead to disputes between government supporters and critics.

Exit poll results are expected by late afternoon on Sunday.

Correa is less radical than Chavez, who has nationalized industry and is a declared foe of the U.S. “empire,” and Correa says he wants to lure more investment, but on his own terms.

On Saturday, he softened his tone by saying he would not make “irrational” moves over the nation’s $10 billion debt.

Correa, who once taught in a Quechua Indian village, is popular with Ecuador’s majority poor for sharing oil income via handouts and credits to small businesses.

The Catholic Church opposes an article in the constitution that allows civil unions for gay couples and says the measure would soften Ecuador’s ban on abortion. Correa, who opposes abortion, denies the charge.

FEARS FOR THE FUTURE

Eager to diversify the economy away from oil and farm products like bananas, Correa plans to use momentum from a referendum victory to pass a mining law that would tighten regulations on mining companies but offer conditions designed to attract investment in gold and silver projects.

Elected nearly two years ago on promises to wrest power from an old political class, Correa needs a referendum win to overhaul the country’s top courts and legislature.

A new constitution will allow him to run for re-election twice more, potentially keeping him in office until 2017.

He faces considerable challenges even if he wins the referendum. His effort to force tough new terms on oil companies has encountered industry resistance. If that effort fails, it could lead to a stagnation in already falling oil output.

A global economic slowdown could mean lower prices for Ecuador’s natural resources, making it hard for Correa to meet high expectations on social spending and job creation through ambitious public works.

Such problems could also encourage the president to default on some debt to avoid social spending cuts.

(Editing by Peter Cooney)

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