Ecuador Applies the Concept of Self-Determination Or: “The spirits that I’ve cited…”

19 Jul

Truth has proven to be relative and is often modeled after those who are in the position of defining and shaping realities. Sometimes simply overpowered by, sometimes in comfortable alliance with those powers, Latin American countries have experienced long periods of political and economic dependency, predominantly linked to Western concepts of free market trade and governance.

It is a system from which these same nations are detaching themselves in many places–slowly but steadily–and by doing so, feeding into an ongoing process that might turn the world into more of a multipolar power system. However, this is not always met with appreciation from some of the traditional global players.  They are used to treating that region of the world as their proverbial “back-yard” for the extraction of important resources.

But interests and power federations are in flux. Some Latin American countries are now finding new business allies in Asia. Chile, for example, completed free trade agreements with China, Japan and South Korea. Mexico, Peru and Chile became members of the Asia-Pacific Economic Cooperation Forum (APEC), alongside with China, Japan, Russia, Australia and the U.S.  

Ecuador, a small Latin American country has quite regularly made the news for many different reasons over the past seven years. In particular for its new head of state Rafael Correa, thanks to his sometimes maverick but certainly charismatic style of leadership, and his seemingly undaunted sympathy for whistleblowers. The “charismatic leader” for better or worse, has become an approved concept in Latin America. Ecuador, the land on the equator, has been the setting for a string of unstable governments, combining a presidential democracy with a fragmented party system that often promotes corruption.

Author Jonas Wolff points out in his article, “About Ecuador’s most recent history,” for the German Federal Centre for Political Education (BPB), “The confrontation and mutual blockade of government and parliament dominate the political events since 1979, and the politicized judiciary is less a supervisory body as a tool in the ‘battle of state powers.’”

Immediately upon assuming office in January 2007, President Correa focused his attention on transforming Ecuador’s political system as the essential framework for a fundamentally better-functioning society.

At the core is a new Constituent Assembly, a crucial democratic tool for the implementation of a timely constitution, which Correa and his political allies were able to enforce against the resistance of the political parties of the center-right spectrum. The price the new government paid was a foreseeable clash of powers between the executive and legislative branches, which culminated in the dismissal of 57 opposition MPs.

In the past, inexperience in democratic procedures that facilitated instability in Latin American countries, in combination with outside influences and interests that often times favored authoritarian governments, lead to inadequate societies that were not able to serve its citizens appropriately.

Author John Perkins, the converted American “economic hit man,” wrote in 2005, “Ecuador today is in far worse shape than the country was before we introduced her to the miracles of modern economics, banking and engineering. (…) Since 1970, during this period known euphemistically as the Oil Boom, the official poverty level grew from 50% to 70%, under- or unemployment increased from 15% to 70%, and public debt increased from $240 million to $16 billion. (…) Meanwhile, the share of national resources allocated to the poorest segments of the population declined from 20% to 6%. The top 1% of third-world households accounts for 70-90% of all private financial wealth and real estate ownership in their country.”

Today, in year seven of Rafael Correa’s tenure as Ecuador’s President, his Defense Minister Maria Fernanda Espinosa proudly announced in an interview during her latest visit to New York City, “We are coming from fifty years of darkness in terms of the oil exploitation. If you go to the areas where Ecuador is extracting oil now, you will see the best services and best schools. People are feeling that they are recovering their dignity, and their condition as citizens.” Ecuador managed to renegotiate their oil contracts, significantly increasing the quality of labor for Ecuadorians involved, with oil still being the country’s main source of income, but not without upsetting powerful international interests.

“Between 1964 and 1990, Texaco — which merged with Chevron in 2001 — dumped more than 18 billion gallons of toxic wastewater while drilling in the Ecuadorian Amazon. The pollution caused local indigenous people to suffer a wave of stomach and mouth cancer, birth defects and spontaneous miscarriages. Besides having been found guilty by Ecuadorian courts, Chevron maintains its innocence and brought its own case against the prosecutors. The company was fined $19 billion by Ecuador in 2011 and has been fighting the verdict since”, describes the International Business Times.

Perkins points out in his 2004 book Confessions of an Economic Hit Man how he would talk lesser developed nations into accepting vast loans from institutions such as the World Bank or USAID. Once indebted to an extent they could not hope to pay back, nations such as Ecuador would have to accept political influence and pressure coming from the U.S. on a level that would fundamentally compromise national sovereignty.

The accuracy of Perkins’ descriptions has been questioned by major Western media outlets, such as The New York Times, The Guardian, or the German weekly Der Spiegel. At the same time however, it has left some authors with a glimpse of the possibility that Perkins accounts might not be far from the truth. Author Thomas Schulz wrote for Der Spiegel, “At the end of the day his ‘confessions’ about the entanglements of American politics and economy do not sound that unbelievable, if one remembers well documented historical incidences of the recent past.” Schulz is referring to the United Fruit case, the corporation better known today as Chiquita, as one example.

When in 1953, Guatemala’s President Jacobo Árbenz Guzmán expropriated a portion of the vast plantations of the U.S. company in the Latin American country and distributed it to small farmers, he was violently removed from his office through a coup d’etat, supported by the CIA. Or, as a document released by The National Security archive at the George Washington University depicts, “Arbenz was elected President of Guatemala in 1950 to continue a process of socio-economic reforms that the CIA disdainfully refers to in its memoranda as ‘an intensely nationalistic program of progress colored by the touchy, anti-foreign inferiority complex of the ‘Banana Republic.'” The first CIA effort to overthrow the Guatemalan president – a CIA collaboration with Nicaraguan dictator Anastacio Somoza to support a disgruntled general named Carlos Castillo Armas and codenamed Operation PBFORTUNE–was authorized by President Truman in 1952.”

Times seem to have changed. To the super powers’ and its allies’ big surprise, Ecuador’s President Correa, an American and European schooled economist, renegotiated Ecuador’s external debt of US $10.97 billion – unilaterally. In May 2007 author Gail Hurley published a paper, titled, “Ecuador in the spotlight as government seeks to renegotiate debt on its terms,” with the European Network on Debt and Development (Eurodad). Here she writes that “certain developed country governments” and “multilateral institutions” were sent into a “state of anxiety” when they learned about Correa’s perky proposal.

The Financial Times piece in February 2007, titled, “Ecuador threatens to become the first debtor with the ability to pay,” disregarded that the external debt service as a percentage of Ecuador’s government revenues used to be extremely high.

In 2006, a total of 38% of government revenues were paid to balance Ecuador’s external debt. The United Nations recommends that developing nations spend not more than 10-13% of revenues for external debt repayments. Correa, readily vilified as a “socialist” by many, an overused term that never fails to frighten, nevertheless seems to find his admirers in the West.

Reuter’s writer Felix Salmon pointed out in his piece “Lessons from Ecuador’s bond default” from May 2009, “But in the short term, Ecuador has elegantly managed to buy back a very large chunk of its debt at just 35 cents on the dollar. Old Ecuador hand Hans Humes, of Greylock Capital, summed up how spectacularly successful the Ecuador strategy was, calling it ‘one of the most elegant restructurings that I’ve seen’.”

Salmon explains further that Correa’s insightful economic incentive could not have been timed better. The default was implemented in December 2008, two years after Correa was elected President. At that point in time global debt markets had plummeted into chaos. “And Correa didn’t pull the trigger until he could see the whites of his opponents’ eyes: He announced that he was defaulting on the 2012 global bonds at exactly the time that three huge hedge funds, which held Ecuador’s debt, were being forced by their prime brokers to liquidate their holdings. As a result, the selling pressure on Ecuadorean bonds sent them tumbling from the 70s to the 20s almost overnight.”

Only last week Reuters announced that Ecuador now plans to return to international debt markets late this year or early next year.

Since the debt default in 2008, Ecuador has relied mostly on credits from China for financing needs. Ecuador’s Finance Minister Fausto Herrera announced in early July that Ecuador is seeking as much as $ U.S. 1.4 bn in order to bankroll this year’s budget. Detlef Nolte from the German Federal Centre for Political Education (BPB) describes China’s increasing interest in Latin America as follows. “Although China’s involvement in Latin America is primarily economic in nature, the Chinese government is also pursuing political interests. On one hand, Beijing is looking for allies for her vision of a multipolar world order. In this context, it considers Mexico, Brazil, Argentina and Venezuela as strategic partners. On the other hand, 12 from 26 governments in Latin America and the Caribbean still entertain formal diplomatic relations with Taiwan, in exchange for monetary favors. The Chinese government, which regards Taiwan as a renegade province tries to counteract this.”

The authors Mark Weisbrot, Jake Johnston, and Stephan Lefebvre published an analysis of Correa’s financial sector reform in February this year with the Center for Economic and Policy Research in Washington DC. The findings of their study point out that Ecuador’s new head of state is indeed a capable architect of financial frameworks for his home country by combining private investment initiatives with a healthy dose of government involvement, a concept that creates nearly hysterical public outcries in the U.S.  Ecuador’s central bank is now under government oversight and brought back about $2 billion of reserves from abroad. The money was used by Ecuador’s public banks to give out loans for infrastructure, housing, agriculture, and other domestic investment.

“The new constitution defined the financial sector as composed of the public, private, and popular and solidarity-based sector, which includes cooperatives, credit unions, savings and loan associations, and other member-based organizations.” The Ecuadorian government created the Programa de Finanzas Populares in 2008. A program that is supposed to expand the popular financial sector that is supposed to focus lending to smaller financial institutions that in return will lend to small businesses. “In January 2007 co-op loans stood at 11.1 percent of private bank lending; by July 2012 this percentage had nearly doubled, to 19.6 percent. Co-op loans have also seen a large increase in the absolute total amount, tripling in real (inflation-adjusted) terms during this period.” Conclusively, the authors explain, “Ecuador is a relatively small, middle income developing country with an open economy that does not even have its own currency, yet in five years it has accomplished some of the most comprehensive financial reforms of any country in the 21st century.”

While Ecuador’s Defense Minister, Maria Fernanda Espinosa recognizes the successes of her government, she admits, “It is a long process. We are trying to build a new society through a truly cohesive, comprehensive, integrative process. That will take time.”

Finding individualized economy and policy related solutions to secure national and regional interests independently, even if that means finding new partners, accepting failure at times, or possibly creating new dependencies long term, seems to work out for Ecuador at the moment. The concept of self-determination shouldn’t be perceived  as too alienating by Western states.

Lia Petridis Maiello

The article was originally published by The Huffington Post.

 

 

 

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