The people of Ecuador are rising up to refound their country as a pluri-national homeland for all. This inspiring movement, with Ecuador's indigenous peoples at its heart, is part of the revolution spreading across the Americas, laying the groundwork for a new, fairer, world. Ecuador Rising aims to bring news and analysis of events unfolding in Ecuador to english speakers.

Sunday, October 07, 2007

ANALYSIS-Ecuador oil grab tracks Chavez leftist moves

By Alonso Soto

QUITO, Oct 5 (Reuters) - Ecuador's president has copied his ally Venezuelan President Hugo Chavez in grabbing oil company windfall revenues in a sign he will use a strong mandate from an election win this week to drive hard-line leftist policies.

Late on Thursday, President Rafael Correa issued a shock decree ordering foreign oil companies to hand over almost all of their "extraordinary" income from record high prices.

"Unquestionably, this represents a major deterioration of the business and investment environment in the country and shows how aggressive the government is prepared to be in dealing with the private sector and in pursuing its nationalist inward-looking strategy," Alberto Ramos, a senior economist at Goldman Sachs, wrote in a research note from New York.

"The sectors that in our view are now most at risk are: wireless telephone companies, banks, media groups, and the mining sector," he said.

The oil move will cost companies about $830 million in lost revenue, according to the government, hitting the profits of some of Ecuador's largest foreign investors such as Brazil's state-owned Petrobras and Spain's Repsol.

The decree raised the government's share of revenues to 99 percent from 50 percent above a set benchmark price, which the oil minister said was around $23 per barrel.

Correa's measure comes against a backdrop of worldwide resource nationalism, where governments from Kazakhstan to Russia to Bolivia, want to squeeze oil companies' profits as crude prices have soared to above $80 a barrel.

The decree also reflects a sharp turn to the left away from free-market economics in some Latin American countries.

Chavez has nationalized swathes of his OPEC nation's economy this year, including multibillion-dollar oil projects, and Bolivian President Evo Morales last year shocked investors by suddenly taking over the natural gas industry.

Correa, a U.S. trained economist, has spooked Wall Street with threats he will halt some foreign debt payments and he has repeatedly warned he could redraw the contracts of private companies in South America's fifth-largest oil producer.


But with his decree, Correa moved from rhetoric to action in by far his toughest concrete measure against the private sector since he took office in January.

Correa, who says he is promoting 21st century socialism, announced the decision only hours after official results showed his party won in a landslide Sunday's vote for a new assembly that will rewrite the constitution.

It was his third big win at the ballot box in a year.

He vowed to use the mandate to disband a Congress, which has slowed his moves this year to increase the state's role in the economy.

Correa repeatedly denies opposition charges he is a Chavez wannabe seeking to consolidate power around the presidency.

But in both substance and style, Thursday's move was an echo of Chavez -- a man Correa praises as his "revolutionary brother."

After an overwhelming re-election, Chavez this year wrong-footed the opposition and private sector by announcing he would use his fresh mandate to deepen his drive toward a socialist state with a decree ordering oil nationalizations.

Correa is also rushing through the creation of a new assembly that he wants to emasculate traditional political elites -- a move similar to one the Venezuelan used soon after he first took power in 1999.

Correa may be on a winning streak for now. But political analysts and economists say pallid economic growth and slumping oil production could stir discontent in a country where popular revolts have ousted three presidents in the last decade.

And while Correa is emboldened by his political success, his country of only 12 million people may not have the economic weight to face down big foreign companies the way Venezuela with the Western hemisphere's largest oil reserves can.

"Everybody is looking at Chavez right now and certainly the high oil prices make current oil contracts look silly, but Ecuador doesn't have the market power to force a renegotiation," David Mares, a political science professor at the University of California in San Diego, said by telephone.

"Ecuador is not Venezuela," he said.

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