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February 18, 2013 5:41 pm
Around the shacks and shanties on the hillsides of Ecuador’s capital, the mood is joyous: “Four more years of Rafael!”, yells a local.
Rafael Correa secured about 60 per cent of the vote in Sunday’s presidential elections, according to preliminary results. The comfortable victory assures him a third term and an expanded power base in congress, allowing him to consolidate his self-described socialist agenda along with his regional allies, the ailing Hugo Chávez in Venezuela, and Evo Morales in Bolivia.
“I am 74 and I’ve seen I don’t know how many presidents. But mashi [companion] Rafael is the only one who has given poor Ecuadoreans dignity,” says Teresa Poveda, an impoverished pensioner.
A fierce critic of the US, Mr Correa took office in 2007 promising a “Citizens’ Revolution” to boost state revenue from the Andean country’s natural resources and redistribute it among the poor. His continued popularity has been fuelled by a rise in wages, a substantial decline in poverty and unemployment, and the fact that he has delivered on promises to enact a new constitution and close a US military base.
A surge in the price of Ecuador’s oil exports has come alongside a widened tax base, heavy government spending on social programmes, education, health and infrastructure.“Nothing, nobody, can stop this revolution,” the president said from the balcony of the presidential palace in Quito, as he claimed victory on Sunday night.
Most of all, the president has brought political continuity and relative economic stability to one of Latin America’s most volatile countries.
“Correa could be politically ideological but could also be economically pragmatic,” said Mauricio Argüello, an analyst with Pragma Consulting in Quito.
But despite the president’s pledge to diversify the economy, the country remains dependent on its oil exports. Increased tax collections spurred by a surge in the oil price have resulted in a tripling of government revenues in the past six years. Mr Correa, a US-trained economist, has acknowledged that the country could suffer if crude prices fall.
According to Capital Economics, a consultancy, “there are reasons to question whether Correa’s ‘socialist revolution’ is built upon sustainable economic foundations.” Ecuador’s government spending has almost doubled as a percentage of gross domestic product – from being the lowest to the highest in Latin America – deepening the budget deficit to more than 7 per cent of Ecuador’s $76bn economy.
As Opec’s smallest member, Ecuador’s oil output has been stuck at around 500,000 barrels of oil equivalent per day in recent years as foreign investment has slowed to less than $1bn a year. Mr Correa has squeezed extra revenue out of oil companies by forcing them to sign new contracts.
To improve production, the government hopes to attract investments worth around $1bn in oil exploration for some 16 blocks in the Amazon – most of which will be offered in auction this year. China is also pondering taking a 30 per cent stake in the $10bn Pacífico refinery, a joint venture between state-run Petroecuador and Venezuela’s PDVSA.
Ecuador’s mining chamber of commerce values the country’s metals wealth at $220bn. A Chinese-owned company is already developing the first large-scale copper project; Canada’s Kinross is to develop a gold deposit, and Chile’s Codelco – the world’s largest copper producer – is in talks for access to a deposit in the north.
But while Ecuador has enjoyed rare stability under Mr Correa, the world’s main banana exporter still ranks among the riskiest investment destinations in South America. It has been virtually shunned by international debt markets since Mr Correa defaulted on $3.2bn in December 2008, calling bond holders “bond monsters”. Since then, China has stepped in to lend the Andean country over $7bn in exchange for oil.
“We cannot keep relying on high oil prices and China’s ‘generosity’,” says Ramiro Crespo, who heads Analytica Securities in Quito.
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