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El Campesino: 

El Campesino is a great bar for local flavour.  Just go to the top of the hill on Calle Guanapay, turn right and walk about 100 yards.  It is on your right hand side.  A little off the standard track, but well worth the walk.  Two local musicians (plus the entire bar) sing and play guitar.  The bartender plays some funky kind of stick thing...   A fun evening is guaranteed .  Really nice, friendly staff.