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Four years ago when we were in Banos, Ecuador, we were on a tighter budget. Accordingly, we had our $1 lunches, and splurged every other day for the $1.50 lunch at the better restaurant. Both were decent meals (usually soup, chicken, rice, beans, salad and juice). This time (October 2007) we spent as much as $6 for a meal and tried seven or eight different restaurants in five days. It was some of the best food I have eaten.
Here are a few examples of places we ate. Sorry for the lack of addresses, but everything is within walking distance of almost any hotel. Just ask around.
Chez Robertos
This may be one of the more difficult restaurants to find. It is on the backside of the town, close to the hills. The owner (Roberto) also owns the bar "Jack Rock Cafe," on Alfaro Street, so you can get directions there. It is worth finding. We had fantastic trout dinners for about $5 each, and the woodwork in the building makes it very cozy.
Dulce Refugio Cafeteria
This was our breakfast stop. I had never heard of "arepas" before. They are Venezuelan corn tortilla "pouches" that are filled with cheese, pork, or chicken. The cheese ones were wonderful, and the chicken arepas were one of the best meals I have had in a while. An arepa, a cup of coffee, and a tall glass of "Mora" (raspberry) juice cost $1.25 total.

Pancho Villas
I wasn't thinking that I would have to go to Ecuador to find some of the best Mexican food I have had, but there it was. While you wait for your meal, check out the post cards sent back from satisfied customers all over the world. Like most of the restaurants in Banos, this is a very clean place, and very comfortable. The margaritas need some work, though (my opinion based on a sip from my wife's drink).
Cafe Hood
This one is a classic that has probably been written up in many of the guides. It is decorated with Hindu gods and other eclectic wall hangings. It serves a variety of different meals, including many vegetarian selections. We ate there several times, and everything we tried was good. For a light meal one night, we had delicious fresh-baked bread toasted with cheese and tomato on it, and a glass of wine. It cost $2.50. Tell Ivan that Steve and Ana sent you. (I'm the chess player if he forgot my name.)
Casa Hood
Check out the collection of books here. You can exchange your novel for a new one if you like. A nice environment, candlelight, and many vegetarian selections on the menu. I had a gluten-burger and salad, Ana had fresh bread with humus and a vegetarian soup. We really liked this place.
We were in Ecuador, but in Banos we had Venezuelen, Mexican, French and Italian meals- and these are just what we got to in the five days we were there. There are also Chinese, German and other ethnic restaurants to try. Of coure, there are always many restarants that have the basic $2.00 Ecuadorian lunches and dinners, and these are almost always delicious.