[R-G] Ecuador leader pledges radical agenda

[Anthony Fenton]

http://www.ft.com/cms/s/0/b5597338-3346-11de-8f1b-00144feabdc0.html

Ecuador leader pledges radical agenda

By Naomi Mapstone in Quito

Published: April 27 2009 17:25 | Last updated: April 27 2009 17:25

Rafael Correa, Ecuador’s newly re-elected leftwing populist  
president, promised to sustain his radical agenda in his pursuit of  
21st-century socialist revolution amid the euphoria of his victory.

The first Ecuadorean leader in three decades to win two successive  
terms in office has had an antagonistic relationship with the US,  
foreign investors and multilateral lenders since he first came to  
power in 2006.

A close ally of Hugo Chávez, president of Venezuela, Mr Correa  
introduced a new constitution that allows him to run in 2013 for a  
third four-year term. He defaulted on foreign debt he deemed  
illegitimate, threatened expulsion of investors such as Repsol of  
Spain and America Movil of Mexico to seek better terms and shut down a  
base used by the US for anti-drug flights.

“We’ve made history,” he told supporters as they celebrated the  
early results showing he was heading for an outright victory. “It is  
our pledge to eradicate misery and leave a more just, fair and  
dignified country – with greater solidarity.”

But economic reality may force him to take a more pragmatic path in  
his second term, particularly if he is serious about seeking the third  
term allowed by his new constitution.

“He is going to have less money, so the challenge for Correa is how  
to deal with the global financial crisis and at the same time maintain  
the social policies and reforms he has promised,” says Adrián  
Bonilla, a Quito-based political scientist.

Ecuador’s reserves have fallen by a third to $3bn (€2.3bn, £2bn)  
since it defaulted on its Global 2012 and 2030 bonds amid slumping oil  
prices and tax revenues.

Mr Correa’s ambitious public expenditure programme was largely  
predicated on oil wealth. The Opec nation relies on oil to fund 40 per  
cent of its budget, and Mr Correa has alienated many traditional  
sources of funding such as foreign investors, the US, and the  
International Monetary Fund.

As the global crisis bites, the flow of remittances from Ecuadoreans  
living in Spain and the US has also slowed significantly.

Although Mr Correa said on Sunday he respected Barack Obama, US  
president, and would seek cordial relations with his administration,  
he is unlikely to wind back public spending. He has also adopted  
protectionist trade policies, introducing import restrictions on more  
than 150 goods that broke trade agreements with neighbouring countries.

Ramiro Crespo of Analytica Securities says the government will be able  
to muddle through as long as the oil price holds at around $40-$45. Mr  
Correa may yet succeed in a buyback of foreign debt in which he is  
seeking to repay holders of Ecuador’s defaulted bonds as little as 30  
cents on the dollar. It was unclear whether bondholders would take up  
the offer, however, as Ecuador had defaulted out of an unwillingness  
to pay, rather than an inability.

Jaime Carrera, a Quito-based economist, predicts negative growth of -2  
or -3 per cent for the year, and says the growing number of  
unemployed, and those who work for as little as a $1 a day, is likely  
to cause growing social unrest.

“There is a very high level of poor people who know little of  
economics . . . they hate the bankers, they don’t want them.  
They hate investors, they don’t want them, they hate businessmen,  
they hate politicians, this is the populist rhetoric,” he says.  
“Correa is a great manipulator of the feelings of the poor.”

Mr Carrera says Mr Correa is almost certain to try to abandon  
dollarisation, although he acknowledges that “the dollar is more  
popular than Correa”.

Mr Bonilla believes Mr Correa will retain the dollar, however. “The  
dollar is not only a system of exchange in Ecuador, it’s a symbol of  
economic stability,” he says. “You cannot exit the dollar without  
causing suffering to the most vulnerable people, which would have  
dramatic political consequences.”

Copyright The Financial Times Limited 2009