Monday, June 16, 2008

Ecuador's Government and International Oil Firms reach settlements... hope looms in the distance for reviving output for S.A's #5 oil producer

Thanks to a link from I discovered this morning The Economic Times of India, a relatively new news agency that so far looks pretty credible and I personally like the focus of what they choose to report / analyze.

Ecuador... thankfully has worked out the problems that have emerged between the government and foreign oil companies, which Ecuador as President Correa knows, can not afford to have abandon their Ecuadorian operations. The problems arose when the government, largely spurred by President Correa decided to levy a new oil tax on foreign companies which the government argued was fair in light recent record breaking prices of crude oil (Bloomberg LP article from June 16th, 2008 on oil prices).

Despite representing a "left wing government," Correa is no Chavez. Chavez, lush with money from his own countries oil exports, has been able to offer campaign (financial) assistance to many potential candidates running for high office in Latin America. Even if it is illegal to directly contribute campaign financing, he finds other ways to facilitate their elections, even if it means going in person to campaign as he did in Costa Rica (one country off the top of my head I recall him doing so in). The candidates tend to have characteristics such as being anti-US, socialist, anti-privatization, nationalistic, pro-nationalization of key industries, popular among the poor, and or a flashy ability for political rhetoric among the many.

The US media, however overplays the true relations which develop for many reasons, usually beginning with the fact the leader in question tends to have been elected in place of the candidate the US would have ideally desired to win the elections, and second because it's a way to "check" the capacity of Chavez's influence and power to further increase. This Washington Post Article does a decent job at showing readers the views held by the political elite of Washington.

Correa may share some of those traits, and was openly supported by Chavez during his campaign for president, but he for one lacks the passion and fever Chavez displays quite openly and most importantly his "golden tongue" for speeches. Second Correa is smart enough to realize Ecuador does not share the same luxury of being capable of completely implementing Chavez style reforms to the extent Chavez and to a certain degree Evo Morales have done in Venezuela and Bolivia respectably. Ecuador can not afford to miss out on the record high prices of many commodities they produce, and has already noticed total exports are decreasing, meaning the governments state revenues are also in decline.

Comparing Ecuador with Bolivia, which in reality lacks the economic resources to successfully build a new system with new and respected institutions, as Morales is trying to accomplish, is also difficult and unlikely to even be possible in Ecuador. Ecuadorian society is not as divided as it is in Bolivia between people of pure Andean decent and mixed and or people of foreign decent (predominantly European). An interesting fact Bolivians tell me, is that Bolivia is the only Spanish speaking country in Latin America where it is said you are a minority if you can ONLY speak Spanish. Most of society speaks either both Spanish and a native tongue, usually Quechua or Amyara, or, only speak a native language--that is they never learned Spanish, probably aren't Catholic, and definitely do not share the same cultural and social characteristics of the more mixed or European Bolivians. Ecuadorian society therefore in my opinion will not support a total overhaul of its countries institutions as Morales is attempting, and succeeding to a certain degree in doing so in Bolivia.

During a interview Correa said, "
Most of the companies have said yes" to the offer, meaning somehow a agreement was reached. No mention of concessions where stated, but since foreign companies could not be reached for immediate comment, some where probably made. Loosing the presence of foreign oil companies in the long run is not in Ecuador's best interest, as it has generally brought problems in other countries which have lost foreign investors, Venezuela being the obvious answer. Although, Venezuela might be able to create its own refining capacities, explore for its own oil, repair its degrading industry in the long run-- it will not come easily and many now argue (even those who support Chavez) if complete nationalization was a good idea after all... Ecuador will not be able to so and needs the presence of such oil companies which include; Spain's Repsol, Brazil's Petrobras, China's Andes Petroleum and France's Perenco.

The tax was viewed by foreign companies as a tactic for the government to fatten the state coffers. Unlucky for Ecuador, that such a move in some situations would be justifiable, and even with Western companies tendency to argue and fight them, as of recent there have been many situations in countries in Latin America, Africa and elsewhere, when foreign owned companies do concede to some if not all demands. The problem is this move comes after a great deal of anti-US, left-wing rhetoric, and general fear that has been factored into the markets originating from Correa's campaign for President; where he expressed interests of nationalizing Ecuador's oil industry.

Therefore, a great deal of uncertainty has been factored into the market but the foreign companies, and since expectations largely guide many aspects of how investors view and access investments, it was natural they would scale back their plans and operations in Ecuador. Correa, overall, from my perspective has done a poor job of making Ecuador look like a good place for foreign investors... allying himself too closely with Chavez and attempting reforms a bit too far to the left in economic and political theory.

Among the many factors that did not help Ecuador's image was the recent potential outbreak of war with Colombia. When Colombian troops entered Ecuadorian territory in search of FARC rebels who where hiding within Ecuador, along the countries Colombian border, Ecuador immediately as sovereign nations usually do in similar situations by asking for an immediate explanation and deeming the entry illegal.

It was at this point from my perspective, when Chavez and Correa from my analysis of the situation saw a opportunity to promote some anti-US fever and ignite nationalism in their own countries. The two countries instantly declared themselves allies, and threatened war against the "US puppet of Latin America," Colombia--sending troops to their respective borders with Colombia. (See Reuters Article here, written by Saul Hudson and Alonso Soto).

As I searched for articles to provide links for all readers to credible sources I realize Western media has almost forgotten this even happened, and some even predicted that if Chavez's threats came to be reality, the U.S. would attempt to convince countries it has friendlier relations with to help Colombia. Their first calls would probably go in my opinion (in ranking order) go to Panama, Peru, Chile and then to what the US knows would have been a very reluctant Brazil.

As nice as it is for South American countries to be spoken about on major US media, it is aggravating they do so mostly during times like these (war), or perhaps natural disaster (ex: 2007 summer earthquake in Peru), and or even when the daughters of president Bush get robbed while US secret service is supposedly accompanying them and protecting them as they shopped in Buenos Aires, Argentina (good work secret service!).

I personally disagree with many things Correa has done in Ecuador, and I think he has managed his international policy horrendously, but despite all this he is not a horrible president, especially when you look back on Ecuador's track record. From all my analysis, readings and opinions expressed by others to me about Ecuador, it seems the country is stuck as a Chavez ally and will be associated as one until until a change of government occurs, yet it realizing it would have been in the country's general best interests to have chosen a more neutral path in foreign policy such as Brazil or Chile's left leaning government have. Regionalism is something South America needs and should have, but as it stands now, Chavez is too strong a character, unpredictable and temperamental to lead the region which despite his calls for decoupling from the domination of Latin America by both the US and the old colonial powers which now compose the European Union, the region simply put... needs them (the US and EU).


Anonymous said...

dont know if you caught this article, but found it from ur side bar... as a worker at the CBME thought you should read it