"Fuera todos!" Ecuador crystallizes Hugo Chavez's Southern Strategy

The US Department of State needs to get their head screwed on straight about Latin America then radically revise their policy in the region. Enlightenment begins with acknowledging that Hugo Chávez and his copycats in Latin America have popular support for valid reasons.

With regard to democracy the stakes in understanding the situation couldn't be higher. Consider these comments by Emir Sader, the executive secretary of the Latin American Social Sciences Council and one of Brazil's leading intellectuals:

Should the [Latin American] social movements be circumscribed by democracy?

Sader: What would you say democracy is?

Government of the people by the people.

Sader: I would say that, interpreted that way, there are few democracies. The democracies have been governments of the elites to reproduce the power of the elites, so we must not limit ourselves to that type of State that is there, which was made by inertia, by the reproduction of the existing power relationships.

I think the social movements will have to do what they are doing in Ecuador or Bolivia, which is to reconsider their instrument of power, to become a transformer, not a reproducer of existing relationships, that smashes the private monopoly of the oligopolies over the media, over the ownership of energy resources, over the banks, the financing capacity, etc."(1)

I am reminded of Bill Cutting's remark in The Gangs of New York, after he lodges a meat cleaver in the back of a politician in Boss Tweed's machine: "That is the minority vote."

Sader's disingenuous excuse for subverting the democratic process is being used to great effect by Hugo Chávez, but both know that democracy is hard to defend when the democratic process has been used to trample the rights of a majority.

Eucador is a good case study for understanding conditions in Latin America that prompted a backlash against the richest nations and their multilateral lending/aid agencies and economic policies.

Just so we're clear at the start, 60% of Ecuador's 13 million citizens live in terrible poverty. Yet Ecuador has oil wealth. So why hasn't the windfall from high oil prices helped to raise the masses out of the worst of their poverty? For the answer, walk the cat backward:

January, 2000
Gustavo Noboa, the right-wing vice president who steps into Ecuador's presidency after a coup, signs off on all World Bank-IMF structural adjustment lending terms, including the decision to make the US dollar Ecuador's official currency. The radical dollarization plan leads to collapse of the export market, decimation of payrolls and a halving of real wages.

2003
The terms of the World Bank's Structural Adjustment Program loan for Ecuador are released to Ecuador's officials. The terms require Ecuador to pay bondholders 70 percent of the revenue received from any spike in the price of oil.

The result: Ecuador must give up the big bucks from the Iraq War oil price surge. Another 20 percent of the oil windfall is set aside for "contingencies" (i.e., later payments to bondholders). The document specifies that Ecuador may keep only 10 percent of new oil revenue for expenditures on social services.

[...] When the oil market went bust in the 1980s, so did Ecuador, and its bonds sold at dimes on the dollar. Now Ecuador's debt sells at a full face value, yielding windfall profits to speculators of as much as 500 percent for those who bought cheap.

[Constitutionally elected president] Alfredo Palacio doesn't object to paying off the bonds. The problem is that the World Bank and IMF want the principal of the bonds paid down early, a rare and financially suspect demand to make on any nation.(2)

2005
A United Nations official tells The Nation that the bondholders are the old oligarchs who originally stripped the nation's banks of assets in the 1980s, fled to Miami and now hold a mortgage on the nation. Palacio's plan to move some of the oil money to social services threatens these bondholders' windfall.

A closer look at the Structural Adjustment Program suggests that the World Bank may not be putting Ecuador's interests first. Paragraph III-2 requires electricity rates to rise to double the average price charged in the United States, far above production costs. This is quite a boon to the Ecuadorian electricity suppliers such as Noble Energy of Houston and Duke Power of the Carolinas.

Outside the presidential palace, indigenous women in bowler hats and pigtails chanted, "Fuera todos! Fuera todos!" Everyone out. As far as they are concerned, every one of the seven presidents who have entered office in the past nine years has sold them out to the bondholders, to the oil companies, to the World Bank and its austerity punishments. To them, Palacio is just another in a long line of disappointments.(2)

April 15, 2007

Eucador's President Rafael Correa said Ecuador was canceling a $9 million loan from the IMF. Along with Argentina, Brazil and Venezuela, Ecuador is promoting the creation of a Bank of the South to lower dependence on institutions like the World Bank and the IMF, which are dominated by Europe and the US.(3)

April 16, 2007
Brazil decides to join the Bank of the South to help create a development fund for Latin America.

Brazilian Housing Minister Guido Mantega made the announcement this Sunday at a meeting in Washington. Representatives from Brazil, Venezuela, Argentina, Bolivia and Ecuador met in Washington this weekend to discuss the formation of the new bank. The Brazilian minister said he hopes Argentina and Venezuela will formally invite Brazil to have full membership.

The Bank of the South, initiated by Venezuelan President Hugo Chávez, is being developed jointly by South American countries as an alternative to the World Bank and the International Monetary Fund. Since these organizations demand certain conditions from governments to which they lend money, Chávez and other leaders of the region accuse them of imposing policies that are damaging to their countries.

Chávez, who announced the complete payment of Venezuela's World Bank debt last weekend, has urgently pushed for the creation of the alternative fund in order to free the nations of the region from the IMF and World Bank. Unlike these organizations, the Bank of the South will be managed and funded by the countries of the region with the intention of funding social and economic development without political conditions. Among the first projects that they will fund is an 8,000 kilometer gas pipeline across South America.

Chávez has emphasized that the bank should maintain principles of solidarity and cooperation among the countries of the region, always keeping the control of the institution among the countries of the region. Chávez hopes to have the project will be launched by the end of June, and the Bank should begin operations sometime late this year.(4)

April 28, 2007

President Rafael Correa has expelled the World Bank's representative from Ecuador, accusing the institution of attempting to extort him when he was economy minister in 2005 [...](5)

1) Bolivia Rising. H/T: Latin American News Review

2) The Nation

3) WW4 Report

4) Venezuela Analysis. H/T Latin American News Review

5) Taipei Times