Well, what
Raghar suggested is clearly impossible. Who gets to decide what such threat scores would be and how would they be counted? Threat also lowers in-game if a country is acting peaceful.
Paradox can decide threat scores. Would it be arbitrary? A bit. But so is the IC and research levels they choose for many of the countries, and even which provinces belong to which country. For instance, the disputed provinces in this conflict were given to Ecuador in HOI2, doubling the size of the country. In HOI3, they're given to Peru. I don't think changing numbers for historical rivalries would be any more arbitrary. Hell, even though the current threat score isn't arbitrary (sine it uses a system), the system for scoring it is, and is probably less historical than arbitrary numbers.
Of course the threat level should change depending on the actions of the countries, and not all countries have to have certain threat levels scored. But the current system is silly, since the main rivals are scored at almost no threat while other countries with no connection on the other side of the world are considered the greatest threat. I don't know how prevalent this is since I haven't played the game much - does Iran, for instance, view Great Britain and Russia as a large threat? Do the Communist Chinese view the Nationalists as high threats, and vice-versa?
And the randomness was what players wanted - it is possible to have a peaceful game, like when the UK doesn't guarantee Poland's independence.
I think changing the system would open up even more possibilities. As it is, it seems that places like Latin America doen't tend to do much on their own.
EDIT: Just checked what the war was about and yeah, it should be a single event like Khalkin Gol as it was a very minor thing. Shame it's not in.
Minor in comparison to WWII, but major for the two countries. Keep in mind, Ecuador only starts with 3,000 troops in the game, and 10 IC. It was the most important war those countries fought during this time period, and if you're making a war game that lets players play these countries during this time period, you should let them fight it, or why even bother playing as Ecuador/Peru?
Another option would be to have certain provinces be disputed territories, allowing either country to invade it, but only giving the defending country the ability to declare war. So if I'm Ecuador I can march into Iquitos, but not other parts of Peru. Peru can decide to declare war on me and attack other areas, or focus on defending Iquitos. If they lose and I take Iquitos, the situation reverses - they can attack to try to take back the province, but in doing so I would get the choice whether or not to go to war. This would be useful for other territorial disputes like the French-Thai war.