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Ecuadors Political Mess

Ecuador has many world-class companies, but few world-class politicians. And that is a problem for foreign investors.


Sept.5, 2006  — AS ECUADOR PREPARES for presidential elections next month, there is little reason for  optimism.  Despite having many topnotch companies involved in everything from shrimp farming to banana exports, the Andean country can not boast similar standards when it comes to its political class.

Few countries in Latin America, or the world for that matter, have politicians as blind to reality as Ecuador. Despite the enormous damage the constant changes of presidents have had (seven the past ten years), there appears to be little support for creating stability in the country.

A recent debate among leading candidates hosted by Miami Herald columnist Andres Oppenheimer showed no support for reducing congressional power to force out presidents.  Just as bad as the constant changes at the presidential palace has been the frequent changes at key ministries such as energy and economy because of partisan or politically motivated reasons.

WHILE MOST ECUADORIAN politicians appear to live in denial on the damage these changes are having, there is also plenty of denial within the current government of outgoing president Alfredo Palacios. Case in point: the expropriation of the oil installations of U.S.-based oil giant Occidental in May  That action led the United States to stop negotiating a possible free trade agreement with Ecuador and damaged the country’s reputation among foreign investors.  Yet, the government claims total ignorance as to why. Instead, government officials insist the action was merely punishing a private company for a violation of Ecuadorean law.  This line of defense was used most recently by current energy minister Ivan Rodriguez Ramos in an interview published on Sunday in El Nuevo Herald in Miami. Asked if there hadn’t been room for negotiations over the alleged violation he simply stated: “No.“

In the end, Ecuador lost its top foreign investor, which had invested more than $1 billion in the country and was willing to reach a settlement over the latest dispute. Just as bad, the breakoff of negotiations for the U.S. free trade agreement will likely cost Ecuador more than $300 million, according to María Gloria Alarcón, president of the Guayaquil Chamber of Commerce.

Instead of trying to lure investors by implementing investor-friendly policies, Ecuador’s government is following outdated policies that will only reduce foreign investment, weaken the economy and increase poverty and unemployment.  

WHICH LEADS US to the October elections. According to a recent Bear Stearns analysis, no candidate will be able to win the first round, thus necessitating a second round.  The two most likely contenders for that round will be Leon Roldos, a 64-year old former vice president and Cynthia Viteri, a 42-year old lawyer and congresswoman. Viteri is the business favorite and would likely return investor confidence to Ecuador if elected. But even a Viteri victory would not guarantee a return to stability. The petty bickering among Ecuadorian legislators will likely continue, as will their destabilizing actions. Unfortunately, Bear Stearns is right when it concludes its analysis by stating that “the chance of the next president of Ecuador not finishing their term is high.“  

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