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Ecuador’s energy-fuelled politics

Guy Hedgecoe
27 June 2006

When Ecuador's government announced on 15 May 2006 that it was expelling United States oil firm Occidental Petroleum from the country for allegedly violating the terms of its contract, many observers of Latin American politics saw this as evidence that the Andean nation was jumping on a bandwagon driven by Venezuela's Hugo Chávez, Bolivia's Evo Morales and Cuba's Fidel Castro. But after a year of political upheaval and with presidential elections looming in October, it is still too early to know whether Ecuador will become part of that self-styled anti-US "axis of good" or pursue an altogether different path.

President Alfredo Palacio's announcement that his government was revoking Occidental's licence to operate in Ecuador was greeted with a collective roar of approval by the country's left, especially radical indigenous groups. The justification for the decision was that the US firm had farmed out operations in Ecuador to Canada's Encana in 2000, in alleged contravention of the terms of the contract with state company Petroecuador.

Guy Hedgecoe is deputy editor of the English-language edition of El Pais. He founded and edited the Ecuador Focus weekly bulletin, and reported the Andean region from Ecuador for CNN, National Public Radio, the Miami Herald and the Financial Times

Also by Guy Hedgecoe on openDemocracy:

"Losing Ecuador"
(26 April 2005)

At the time, more attention was focused on Bolivia's decision – two weeks earlier, on the symbolic date of 1 May – to nationalise its own, substantially larger, hydrocarbon resources. However, the situation in Ecuador turned out to be more dramatic than in Bolivia, albeit on a smaller scale. Petroecuador seized Occidental's assets and ordered the firm's employees off the fields it had been operating in the Amazon region, which produced about a fifth of Ecuador's 520,000 barrels per day of crude. One Occidental representative described the move as "the largest expropriation of assets in this hemisphere in the last thirty years".

Many rejoiced at this show of might against what they saw as multinational imperialism, especially as the Occidental decision had followed a controversial new law approved by Ecuador's congress in Quito weeks earlier, which effectively boosted the amount private companies had to pay the government to 50% of any windfall revenues.

The report of the left-leaning Ecuadorian webpage Altercom was typical of this current of feeling: "Without the mobilisation of the indigenous groups and other sectors, Ecuador would no doubt have caved in to Occidental ... as it has done on so many occasions before when faced with the blackmail of transnationals and their state: the US".

But the sight of Petroecuador employees exchanging punches as they fought over the luxury cars left behind by expelled Occidental executives is an apt reminder of how oil has so utterly failed to unite and enrich this country.

A political tightrope-walk

Ecuador is the world's largest banana producer and has extensive resources of shrimp, coffee and fruit. But its economy – which swapped its own currency for the US dollar in 2000 after an economic crisis – is unhealthily dependent on oil. In a situation where over half of export revenues come from that sector, the buoyant price of oil means that the government coffers have been in a healthy state recently. However, foreign-debt obligations, political clientelism and rampant corruption mean that ordinary Ecuadorians see little of the benefits. The country's eastern Amazon region, where almost all oil production takes place, remains pitifully underdeveloped, with the notable exception of the plush installations of multinational energy companies that are dotted around the jungle.

But if oil has not managed to stabilise the country socially or politically, Alfredo Palacio has, in a sense, been a beneficiary of Ecuador's recent political chaos. A left-leaning cardiologist, he was the running-mate of former army colonel and coup leader Lucio Gutiérrez in the 2002 elections. Gutiérrez won, but his lack of political guile and heavy-handed meddling in the judiciary eventually led to him being deposed by popular protests in April 2005. Palacio became the seventh president of Ecuador in a decade. But as his term draws to an end, his thinning political support reflects the modesty of his accomplishments.

Ecuador's indigenous movement minority that make up the country's Indians, played major roles in the uprisings which removed two of Palacio's predecessors. Therefore, when the influential Conaie indigenous organisation demanded that action be taken against Occidental, and other politicians – mindful of the capital to be gained by supporting such a move ahead of elections – joined the clamour, the president obeyed.

The responses to the Ecuador Occidental case seem to embody the polarisation that Latin American politics is experiencing in the Chávez-Bush era. The left applauded the move as a sign of self-assertive autonomy which will give Ecuador more control over its own raw materials; but many others, even inside Ecuador, see things very differently.

"Who is going to come and invest in Ecuador now? Occidental was the country's biggest investor and the government confiscated its assets and threw it out", says Fernando Santos, an oil-sector analyst and former energy minister. Moreover, he insists, the withdrawal of the company's licence was a decision taken with "absolutely zero legal justification".

The fallout of Occidental's expulsion, however, will probably not be limited to a drop in investment in the oil sector. In the wake of the decision, the Bush administration broke off talks with Ecuador over the renewal of a bilateral trade agreement which expires at the end of this year. Ecuador's dismayed negotiators have estimated that about 30,000 jobs will be lost per year as a direct result of the US preferring to trade with countries such as Colombia and Peru, which both have new accords already in place.

Palacio therefore bequeaths his successor a country which is showing signs of wanting to assert its independence in the face of US corporate and government pressure, but which has not yet made the full leap into the Castro-Chávez-Morales camp. The risks involved in taking the latter course are considerable, especially for a country which does not have the huge oil industry of Venezuela or the massive gas reserves of Bolivia.

Also in openDemocracy on energy politics and elections in Latin America in 2006:

Ana Carrigan, "Colombia's testing times" (29 March 2006)

Sergio Aguayo Quezada, "Mexico: a banana republic? "
(19 April 2006)

Celia Szusterman, "Latin America's eroding democracy: the view from Argentina"
(1 June 2006)

John Crabtree, "The return of Alan García"
(6 June 2006)

Phil Gunson, "Hugo Chávez's provocative solidarity"
(14 June 2006)

An Andean third way?

Whether Ecuador seeks to continue along its current, vaguely anti-US path will of course depend on who wins the elections this autumn. Currently leading the pre-campaign hopefuls is León Roldós, a business-savvy socialist whose charismatic brother Jaime led the country briefly until his death in an aircraft accident in 1981. Despite describing himself as a "modern socialist", Roldós has something of his brother's populist touch and has applauded Palacio's treatment of Occidental, accusing the oil company of "robbing" Ecuador.

Also expected to push hard for a place in the election run-off are two overtly business-friendly candidates. Cynthia Viteri of the Social Christian Party offers the novelty of being a young, female candidate and has the advantage of a powerful political machine behind her. However, many see Álvaro Noboa as a more likely contender.

The son of a self-made tycoon, Noboa made the run-off in 1998 and 2002, making up for lack of political skills and charisma by spending huge amounts on his campaigns. This banana magnate, who christened his son in New York's St Patrick's Cathedral and spends much of the year in the United States, is easily the most pro-Washington candidate. If he won, he would buck the trend in a region where the radical left and centre-left are increasingly in control.

However, the radical left can not yet be ruled out in these elections. The indigenous candidate Luis Macas may be an outsider, but there is still time for his nationalistic message to get across to voters. Similarly, Rafael Correa, who proved his leftist credentials by infuriating the IMF during a spell as economy minister before his resignation in August 2005, is conceivably the kind of dark horse – like Gutiérrez before him – who could rouse support by highlighting how much he differs from traditional political party figures. Moreover, he has expressed admiration for Venezuela's Chávez, whom many believe is financing his campaign.

The eventual winner may well be neither an adherent to the Latin American radical axis nor to US-style free-market doctrine, but he or she would nonetheless have to persuade Ecuadorians and the international community, as Alan García in Peru managed to do, that a third way is indeed possible in the Andes.

As León Roldós, who of all the candidates probably best embodies that moderate spirit, said recently: "I don't believe that we should have to opt between Chávez or Bush. I want to get along with Chávez and with the White House, even when it's in the hands of Bush, with whom I disagree on a lot of things."

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