Andean Group - August 2009 (ISSN 1741-4466)

President Rafael Correa was inaugurated on 10 August under the new constitution, for a second term, only 31 months after his first term began. His inaugural speech was a mixture of populism and revolution. What Correa will actually do over the next four years is far from clear, however. He is eligible for re-election under his new constitution.

On the populist side he promised higher wages and more public services. On the revolutionary side, he promised to construct an “inclusive, mutually binding and fair" society, elevating human capital over financial capital, fighting corruption, and reforming the state.

Correa is one of the most multi-faceted of the new generation of leftwing leaders in the region. He is a highly qualified economist, who clearly understands both how to use markets (witness the hugely successful “voluntary" foreign debt reduction deal he pushed through in June 2009) and where markets fail. He understands the US (he did his economics doctorate at the University of Illinois) yet appears to be repelled by the opportunities the US offers. (Some commentators suggest this attitude is the result of the US gaoling his father, when Correa was five, for three years for drug trafficking offences: Correa's father committed suicide soon after emerging from jail.) It is significant however that Correa's doubts about dollarisation, which were prominent in his first election campaign, have subsided.

What is obvious is Correa's political shrewdness. The prime example of this was his decision to devote the whole of his first term to reforming the constitution so that his second and third administrations could effect change. Unlike President Evo Morales of Bolivia who set out with the same objective, Correa paid enough attention to detail to avoid giving the opposition any opportunities to derail his project. Correa's only real setback came in the congressional elections at the end of the process when voters did not support his movement in the numbers he expected. Nevertheless he ended up in the strongest position of any president since the restoration of democracy 30 years ago.

Another, more recent example of Correa's shrewdness was that he was the first president to ask the seemingly innocent question about the Honduran crisis: what would happen if the forthcoming elections took place without President Manuel Zelaya being restored to the presidency? It has become clear, over the past couple of weeks, that the region's major powers will not recognise any new Honduran government elected in such a circumstance. Correa's question had to be answered, as he anticipated, and the answer substantially weakens the de facto government in Tegucigalpa, underlining Correa's alliance with radicals such as President Hugo Chávez of Venezuela and Morales.

Although Correa is a radical he seems to understand that abusive monopolies can establish themselves in public services as well as the economy. Correa's critics on the Right are impressed by his determination to break the lock the teachers' union (and its Maoist political allies) has on public education. Correa seems determined to introduce independent monitoring of teachers' performance and merit-based pay for teachers, undermining the authority of the union.

Correa is also shrewd about balancing the needs for economic development over the rights of indigenous peoples and the needs of the environment. He has stood up to pressure from environmentalists and indigenous groups to give them an effective veto on all mining and oil projects in Amazonia, but he is also using the US courts to chase Texaco for money to clean up the mess its oil business made in Amazonia. He is also challenging industrialised countries to put their money where their protests are and to pay Ecuador not to prospect for oil in a national park.

Coupled with Correa's shrewdness is his sense of mission. He underlined this by timing his second inauguration to coincide with the bicentenary of Ecuador's independence. He blatantly exploited the opportunities the bicentennial anniversary afforded. “We won political independence then," Correa said, “but we have still not won independence from tremendously unjust structures that have crushed our people." He promised a “new and definitive independence" through the radicalisation of his 'citizen's revolution'.

Correa's constitutional reforms strengthen the presidency at the expense of the legislature but it is still unclear to what use Correa will put his enhanced powers.

One of Correa's most striking commitments in his second inaugural address was to call on the region to do something about the press. Correa said that his fellow governments should “not be afraid" to rein-in “the excesses" of the largely opposition-controlled media. Correa said, in his inauguration speech, that he agreed with political analysts who argued that a free, independent and critical press is a key element in a healthy democracy. But, he asserted, a free press is not the same as a press with its own private agenda. He argued that since he took office his biggest enemy had been the press which had been playing an overtly political role without any democratic mandate. The implication is that the press represents the interests of big business and traditional ruling elite. Correa denied that he was against a hostile press: “That's wrong," he said. “We're against a corrupt and second rate press".

Correa's frank and disgusted reaction to the revelations about his elder brother, Fabricio's business dealings with his government [RA-09-07] demonstrates that his government will not suppress an investigation into a matter of public interest even when it is personally embarrassing.

The most immediate threat to the press is that Correa will strip radio and TV broadcasters of frequencies. On 3 August Correa said that the state would take over most broadcasting frequencies once a study of the allocation of broadcasting licences had been completed.

On the broader economic and social aspects of Correa's proposals, his critics pointed out that he tends to promise more than he delivers. They point to his policy towards the banking sector. Despite Correa's fierce rhetoric about lowering financial costs, real interest rates for individuals are substantially higher than they were three years ago.

Correa is trying to present his government as completely different from corrupt administrations of the past. Correa acknowledged that even his government was not free of the curse of corruption, alluding to his brother, Fabricio. Correa said during his inaugural speech that this “one case of corruption" in his government had been a bitter pill to swallow but had been “investigated".

It is difficult to get a reliable gauge on the public reaction to the scandal through opinion polls. One pollster, Market, said Correa's approval rating had fallen by as much as 19 points to 40% between May and July, but this company is run by a businessman critical of Correa and was only conducted in Guayaquil and Quito. Another poll, by Correa's own pollster, Santiago Pérez, gave Correa 66% support, only eight points less than when he took office in January 2007, but this poll did not take into account the east of the country, where he did poorly in April's elections. Even at 40%, Correa enjoys an unprecedented level of popularity since the return of democracy 30 years ago.

Immediate problems
The media is currently taking issue with Correa's assurance that Ecuador is over the worst of the international financial crisis and the economy will grow this year. Economic commentators also argue that although the price of oil is rising it is insufficient to sustain the social investment the government is promising.

The media have a point about oil production. In the first half of 2009 private-sector oil production was 6.3m barrels down on the first half of 2008 at 38.3m barrels. There is also some evidence that foreign oil companies sense that they can squeeze better terms from the government when they come to renew their current short-term contracts. Under the current contracts the government swipes 40% of the private companies' oil production and taxes windfall profits from higher-than- expected oil prices at 99%.

The three key contracts, all short term ones negotiated in Correa's first term, are with Andes Petroleum, Petrobras and Repsol and they all up for renewal by the end of 2010. The idea was that the government would come up with a new, longer term structure for managing foreign investment in the oil industry before these contracts expired. This may not happen. Until there is a longer term structure, oil companies are unwilling to invest much fresh money in the industry.

Private sector output has fallen from 239,000bpd in July 2008 to 203,000 bpd in June this year. Spain's Repsol, one of the largest oil investors in Ecuador, says its production will decline to 44,000bpd this year, from 53,000 bpd in 2008.

The long running row between the government and Perenco, which the government accuses of evading taxes culminated in Perenco suspending its operations in Ecuador in mid July.

The government's big card is that Andes Petroleum, whose contract comes up for renewal at the end of this August, could be used to show that the government has alternatives. Andes is owned by China's National Petroleum Corp. and China Petrochemical Corp. Both Chinese companies are controlled by the Chinese government, with whom Ecuador has close relations.

To be fair, production from the state oil company, Petroecuador is up by 7% in the first six months of 2009, but this rise does not compensate for the 14% fall in private sector output. In volume terms Ecuador exported 59.7m barrels of oil in the first six months of 2009 down from 66.2m in the first six months of 2008. Private companies operating in Ecuador exported 19.31m barrels, or 32% of the total sold by the country between January and June of 2008. Petroecuador exported the remainder. In barrel per day terms, the average export level in the first half of 2009 was 329,977, down from 363,786 barrels a day in the same period of 2008.

Congress: Although Correa's ruling Acuerdo Paí­s (AP) fell four seats short of a majority in the 124-seat congress, it has stitched up a deal with smaller parties and has secured the presidency of at least nine of the 13 legislative commissions.
The ruling Acuerdo Paí­s (AP) won the presidency and two vice-presidencies in the new congress, which convened for the first time on 31 July. Fernando Cordero will be the president of congress. He presided over the rump of the constituent assembly - the transition legislature, or congresillo. He was chosen by 74 of the 124 legislators. Only the Partido Sociedad Patriótica (PSP), the party of former president Lucio Gutiérrez, contested the positions. The nominally Maoist Movimiento Popular Democrático (MPD) and Pachakutik, the political arm of the umbrella indigenous organisation Conaie (which have nine deputies between them) abstained from voting.

• Inflation

The government has cut its inflation target for 2009 from 9% to 4% after inflation in July fell for the third consecutive month. Consumer prices in Ecuador fell by 0.07% in July compared with a year earlier, the national statistics institute (Inec) reported. Accumulated inflation during the first seven months of the year was 2.79%. The economic policy minister, Diego Borja, said inflation could be less than 3.5% by the end of the year.

• Farc

President Correa demanded that El Paí­s, a Spanish newspaper, apologise after it asserted that statements made by a leader of the Fuerzas Armadas Revolucionarias de Colombia (Farc) were true. The Farc leader, Mono Jojoy, claimed that the Farc had financed Correa's first election campaign. Correa and his government deny this and say that the Farc may have been duped by intermediaries into giving them money in the belief that these intermediaries represented Correa's campaign.

• Petroecuador

President Correa has pledged to invest heavily to boost the output of state-run oil company Petroecuador, which last month raised its 2009 investment budget by nearly 60% to US$1.7bn.