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Thanks to an angry and authoritarian president, Ecuador will see less private investment and more poverty.


Over the weekend, Ecuador's constitutional assembly delivered its formal draft for a new constitution.  It is heavily skewed towards socialism and follows the recommendations of Ecuador's angry and authoritarian President Rafael Correa.

If approved in a referendum in September, it will result in less private - local and foreign - investment and more poverty in a country that needs more of the former and less of the latter.

But Ecuador's problems don't stop there.  The appointment of Wilma Salgado, a member of anti-debt group Jubilee 2000, has raised renewed concern that Ecuador won't pay its foreign debt. 


Meanwhile, Ecuador now faces legal demands from 15 multinationals that may end up costing the country's government as much as its foreign debt, according to local newspaper El Universo. Nine of those demands alone equal $13.4 billion. Most of the lawsuits have been filed at The World Bank's International Center for Settlement of Investment Disputes (ICSID). The companies, which include Occidental, City Oriente and Repsol YPF, all claim unfair treatment in violation of local or international law.

But Ecuador doesn't only discriminate against foreign investors. Local investors are also in danger of unfair actions. Take the case of the 200 companies the government confiscated two weeks ago, allegedly because of ties to a decade-old banking scandal. However, in the case of at least two of the companies that were seized, the motivation appears to be political rather than judicial. TV stations Gamavisión and TC Televisión - two of the most popular, but independent, TV stations in Ecuador, were confiscated because their owner supposedly had ties to the Isaias Group. The owners of the two stations say they have no formal ties to the two bankers who were indicted in the banking scandal.


While Correa claims the take-over is not aimed at curtailing freedom of expression in Ecuador, the government's representative immediately changed the editorial line of the two stations. And the government's version isn't exactly bolstered by the fact that Radio Sucre, a radio station critical of Correa, also was taken over on the same day - allegedly for using a frequency it had not been allotted - a claim the radio station's owners denied.

"The Committee to Protect Journalists is alarmed by allegations that the actions were politically motivated," the New York-based watchdog said in a statement after the actions. Even within the government's ranks, the actions were denounced. Fausto Ortiz resigned as finance minister.

Blasco Peñaherrera Solah, president of Quito's Chamber of Commerce, calls the government "liars" and has expressed concern about the state of democracy in the South American country. "We are beginning to live what is common in Venezuela, what happened in Cuba and what has been experienced in all totalitarian countries in which the right to access to justice and the right to due process and the right to be protected under the rule of law does not exist," he told Ecuadorinmediato. "Here those who have the antipathy of the government are pursued immediately."


Then there's the constituent assembly. Thanks to Correa's antics, Ecuador currently has no national assembly. And since the constitutional assembly in theory has ended its work with its proposal, Ecuador has no legislature. Of course, that suits Correa fine, but it hardly promotes confidence in the country among anyone who believes in the rule of law.

As Peñaherrera points out, Ecuador is increasingly looking like Venezuela. The only difference is that Ecuador doesn't have the same kind of oil wealth. In fact, its state oil company Petroecuador is in even worse shape that PDVSA. It suffers from a combination of mismanagement, falling production and one of the worst environmental records in Latin America. "Petroecuador's poor environmental performance is solely due to that company's neglect, mismanagement and failure to maintain the infrastructure of the oil fields," Ricardo Reis Veiga, Managing Counsel for Chevron Latin America, said in a statement recently. Chevron is, as we have reported extensively in Latin Business Chronicle, unfairly targeted for oil spills that happened on Petroecuador's watch. The actions against Chevron are just another example of the increasingly difficult climate for foreign investors in Ecuador.

The only hope Ecuador now has of stopping Correa - or at least starting to stop him - is to reject the country's new socialist constitution in the September 28 referendum.  If not, Ecuador will only see a negative spiral of less private investment, more government interference in the economy and more poverty.  

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