Ecuador Seeks Non-payment of Illegitimate Foreign Debt

Helga Serrano Narváez | November 24, 2008 Translated from: Ecuador buscará no pagar la deuda externa ilegítima, corrupta e ilegal Translated by: Eliot Brockner	\
Americas Policy Program, Center for International Policy (CIP) americas.irc-online.org
Ecuadorian President Rafael Correa announced on Nov. 20 that his government "will seek to not pay the illegitimate, corrupt, and illegal foreign debt," while at the same time demanding sanctions for those guilty of a series of irregularities in the accumulation of the Ecuadorian foreign debt. He said that "its weight should be transferred in equal parts to those who were responsible for acquiring it with dishonesty, blackmail, and betrayal. Each person will have to take responsibility and pay the corresponding amount with their own assets." This was the Ecuadorian President's response after the official presentation of the final report from the Public Credit Audit Commission (Comision para la Auditoria Integral del Crédito Pública, CAIC) audit regarding Ecuador's foreign debt. It's important to note that this is the first official audit that has ever taken place to determine responsibility for the debt. Among the main conclusions, the Commission pointed out that an "incalculable fraud" was produced during the process of borrowing and renegotiation of the debt. President Correa informed sources that he would promote the creation of an International Tribunal for Arbitration of Sovereign Debt in the United Nations and a reform of the international financial framework, through which it will be possible to arrive at a comprehensive solution to the problem of foreign debt. Presently, Ecuador maintains the position that borrowing is an option only when it is absolutely necessary. Civil society organizations that have fought for decades have achieved an important result reflected in the CAIC's report, which allows for the establishment of responsibilities not only for the creditors but also for multilateral organizations and national authorities. The report was delivered by the CAIC to the government's fiscal authority. Future actions that will determine who is responsible in this report rests in the hands of Ecuadorian justice. Upon hearing about the Commission's report, representatives of social organizations, public employees, and citizens interested in the topic both inside and outside of the packed hall shouted in unison: "We won't pay any more, the debt has been paid!" Indignation grew among the public upon learning about the irregularities and irresponsibility of ex-finance ministers, managers of the central bank, presidents of the monetary reserve, diplomats, and other authorities who sold the sovereignty of the country and deepened the poverty of the Ecuadorian population. Along with the creditors, these people did not think about the greater good of the Ecuadorian people, but rather the payment of the debt. The audit of the debt, initiated by the Ecuadorian government with the participation of economists, lawyers, and representatives of social organizations from Ecuador and other nations is unprecedented, according to economist Franklin Canelos, the vice president of the Commission. For more than a year, the CAIC audited the borrowing processes of Ecuador from 1976-2006. The 172-page final report consists of a deep technical and legal analysis that shows one of the most sinister sides of three decades of neoliberal policies. Ecuador's foreign debt increased from $240 million in 1970 to $17.4 billion in 2007. Nevertheless, going into debt, instead of contributing to overcome poverty, inequality, and backwardness "has been a tool used by multilateral organizations to take away resources under the pretext of discussing questions related to attaining credit," according the CAIC's report. The commission's work shows the illegality and therefore the illegitimacy of the borrowing process. It highlights the "hateful" character of foreign debt, because it was contracted by a military dictatorship (1972-1979). From 1976-1982 Ecuador was made loans in the amount of $3.424 billion dollars, of which $984 million was set aside for defense. The National Defense Council, which was the largest beneficiary, declined the Commission's request to delineate details or the specific amount destined for different purposes. Ecuador's foreign debt has been the object of successive fraudulent renegotiation processes in which the governments accepted conditions such as contracting new debts to pay the old ones, delay penalties, high interests rates, the payment of interest on top of interest, and re-evaluating debt titles that were worth very little in the market, according to CAIC member Hugo Arias. These conditions were accepted in the 1993 Brady Plan for Ecuador, supported by the International Monetary Fund (IMF), in the Adam Plan (a pact for the exchange of the Brady pact for a Global pact established in 1999) and the exchange of Brady bonds and Eurobonos for Global bonds (2000). In this last instance, the disadvantage for Ecuador was enormous. The exchangeable bonds (Brady and Eurobonos) that amounted to $6.3 billion dollars were exchanged in the market at 30% of their value ($1.6 billion). Additionally, they were exchanged for Global 2012 and 2030 bonds for the sum of $3.95 billion dollars, with rates of 12% and 10%. As of August of 2008, Ecuador had paid $2.45 billion in interest as mandated by the Global Bonds. Future generations will have to forfeit all capital in 2012 and 2030 if they do not declare that these debts are illegitimate now. Alejandro Olmos, a member of the CAIC, expressed that the foreign debt has served not only to favor the creditors but also as a tool to implement neoliberal policies. The report says in one of its conclusions that "there is evidence that the borrowing process of Ecuador between 1976 and 2006 was developed to benefit the financial sector and transnational businesses, visibly affecting the nation's interests. The conditions imposed and the payment of the debt limited the fundamental rights of the people, thereby exacerbating poverty, increasing migration, and destroying the environment." It was evident, according to Olmos, that the intention of the multilateral organisms was to permanently increase foreign borrowing with ever-higher interest rates. Economist Karina Saénz points out that in one projection done by the Commission, it was determined that if the interest rate had been kept at the original rate of 6% the debt would already have been paid off. Olmos also explained that Ecuador ceded sovereignty, citing as an example the fact that the solicitor general simply signed onto the agreements for the contraction or renegotiation of the debt in the format and template designed by the creditors. He indicated that in various occasions the documents were drafted and signed in English, and if a translator was needed, they asked the creditors. According to the report, it was in this way that "the nation lost its autonomy and its constitutional rights became vulnerable." The audit also questioned that in certain cases the delivery of loans was "tied to the expansion of goods and services of the creditor nation that places restrictions on prices and quality." In a particularly disturbing case, in 1992, the ex-general manager of the Central Bank, Ana Lucia Armijos, Finance Minister Mario Ribadeneira, and the Ecuadorian consul in New York, Miriam Mantilla, signed an agreement unilaterally renouncing the commercial foreign debt, which had not been paid in six years. This would have allowed Ecuador to save close to $7 billion dollars. They also renounced the country's immunity to judicial prosecution and its right to defense and reclamation. For his part, Jamie Carrera, of the Fiscal Policy Observatory, looking forward, said that "an option would be for the regime to arrive at a consensus and not a unilateral decision with the creditors." Now those who maintained their silence when unilateral launches of exorbitantly high interest rates were announced from 1979 on or when the asymmetrical relationship of the contraction of debt was evident worry about "unilateral decisions" and about the "consensus." They even maintained their silence in the face of a violation of fundamental rights of Ecuadorian citizens as a result of the contraction and renegotiation of the foreign debt. In the coming days, the president will establish a commission for audits for the concessions of radio and television frequencies, according to the new constitution. The objective is to determine who is responsible in the event of irregularities to end the monopoly and oligarchy of the use of the frequencies. In a similar way, it will determine the property of radio and TV media. Representatives and shareholders from the financial system will not have access to participate in the media, having two years to transfer their holdings. The audit process will thus become an important tool that will assign responsibility to those who perhaps never thought that they would be judged for their actions that threaten the life and dignity of the people. Translated for the Americas Policy Program by Eliot Brockner. Helga Serrano is a member of the Global No Bases Network, No Bases Coalition Ecuador and the ACJ/YMCA in Ecuador. She is also a contributor to the Americas Program at www.americaspolicy.org. To reprint this article, please contact americas@ciponline.org. The opinions expressed here are the author's and do not necessarily represent the views of the CIP Americas Policy Program or the Center for International Policy.

Ecuador’s Tools to Challenge Debt Limited, Olmos Says

By Stephan Kueffner

Nov. 24 (Bloomberg) -- Ecuador would find challenging its foreign debt in U.S. courts difficult because the country signed away its legal rights in bond agreements over a 20-year period, a debt auditor said.

Halting debt payments without the support of a court decision would be a “catastrophe” for the nation, Alejandro Olmos, a member of a committee appointed by President Rafael Correa to review the debt, said in an interview after a speech today in Quito. Bondholders could seize Ecuador’s assets, including those of state-owned oil company PetroEcuador, he said.

“If he doesn’t pay, it will be because he has sufficient legal backing to do so,” said Olmos, an Argentine who previously investigated his home country’s foreign debt. “If no possibility exists for a legal contest, he unfortunately will have to accept that and he will have to pay.”

Ecuador on Nov. 15 didn’t make a scheduled bond payment, invoking a 30-day grace period even though it has the money to meet the obligation.

The price for the 2012 bond fell to as low as 14 cents on the dollar on Nov. 14 after the government’s most recent threats to default on about $4 billion in debt. The bond recovered to about 26 cents on the dollar last week.

Bond Rise

Ecuador’s debt paced gains among emerging market bonds today after Olmos’ comments, rising 0.75 cent to 27.25 cents.

Correa, a 45-year-old economist with a U.S. doctorate, has questioned the legitimacy of Ecuador’s foreign debt and vowed not to repay “illegal” and “illegitimate” bonds.

Still, he has framed the criticism around the chances of winning lawsuits against foreign banks that were counterparties in debt renegotiations from the 1980s.

“If Olmos is saying that Correa will stick to the legal chances, then the odds are that’s what he intends to do,” said economist Jaime Carrera, head of the Quito-based Fiscal Policy Observatory. “This, however, is a totally unpredictable government.”

The debt audit, published on Nov. 20, says that much of the debt is illegal because usurious rates were charged; bonds were issued without proper government authority and without registration with the U.S. Securities and Exchange Commission; and that numerous conflicts of interest existed among lawyers, lenders, and government officials.

Reviewing Options

Lawyers from Ecuador and the U.S. are reviewing the country’s options.

“I’m confident that the president’s advisors will be able to break this and that some legal action will be undertaken in the U.S.,” Olmos said. “It’s however my responsibility as a member of the committee to say that there are severe limits and that this will not at all be easy.”

In several contracts reviewed by the commission, Ecuadorean officials signed away all rights to a legal action, including a trial by jury, weakening its position under U.S. law, Olmos said.

“Unfortunately there are parts of the contracts that hold Ecuador hostage,” said Olmos, who said that his sole payment for the work on the audit was the payment of expenses.

The 172-page audit discloses so much “fraud” that it could embarrass bondholders into accepting a “substantial” cut to the debt load, he added. The 15 authors of the debt committee include Ecuador’s Politics Minister Ricardo Patino and Central Bank board member Karina Saenz.

Patino last week said that the government could seek renegotiation talks with creditors. The country’s three global bonds -- the securities due in 2012, 2015 and 2030 -- total $3.9 billion out of a total foreign debt of about $10 billion.

It’s not clear whether the government, which this year has pursued a hard line in negotiations with companies including Mexico’s America Movil SA and Brazil’s Petroleo Brasileiro SA, in fact wants to renegotiate the debt, Carrera said.

The government has painted itself into a corner by promising voters it won’t pay the unpopular bonds even though it will be cheaper to repay them than to default, he added.

“Whether it decides to default or decides to pay, the government will end up losing face in the decision,” he said.

To contact the reporter on this story: Stephan Kueffner in Quito at skueffner@bloomberg.net

Ecuador Legislators Talk Fiscal Law

Quito, Nov 24 (Prensa Latina) Ecuadorian Representatives that make up the Legislation Commission have Monday as deadline to present their observations to the new project of Supervision and Political Control Regulation, which should be discussed on Tuesday in a plenary session.

Interim president of the legislative authority Fernando Cordero e-mailed on Friday the document to the members of the commission for analysis, to give their considerations and approve it on Tuesday.

Cordero recalled the insittution's right to approve the project, according to the article 33 of the Constituent mandate 23.

This project defines supervision of public officials and political trials against ministers, the attorney general, comptroller, National Electoral Council members and other authorities that it decides during its mandate and up to one year after it concludes.

Tt was established that the Supervision and Political Control commission would be made up of seven members, appointed by the lagislature's plenary, and the procedure to request a trial against the country's president and vicepresident was explained.

Besides this project, the legislature expects to discuss and approve this week the law of Financial Security, while it will continue the process of dialogue and analysis on the government mining project.

It is expected that in the next 90 days, the legislative commission will approve five laws on Judicial Function, Judiciary Council, Electoral regulation, Food Sovereignty and Citizen Participation Council.

Ecuador: Mining, debt and indigenous struggles

Duroyan Fertl

Green Left Weekly, 22 November 2008


On November 17, thousands of indigenous and environmental activists rallied across Ecuador in protest against the introduction of a new mining law by the government of President Rafael Correa.

The protests, organised largely by the Confederation of Indigenous Nationalities of Ecuador (CONAIE — Ecuador’s largest indigenous federation), marked the beginning of a week of protests by social, environmental and indigenous movements against the potentially environmentally destructive consequences of a number of proposed new laws — including laws relating to mining, water and the introduction of large-scale shrimp farming.

Ecuador’s weak economy is heavily dependent upon mineral extraction — especially oil — and this has had a catastrophic effect on the environment and communities in affected areas.

A large part of the Ecuadorian Amazon is now being described as an “Amazonian chernobyl” after 18 billion gallons of polluted water were released into the water system by oil-giant Chevron Texaco. This has resulted in thousands of deaths, cancer, birth defects and massive environmental collapse.

Affected communities are currently pursuing Chevron in court.

Mining companies are also known to frequently employ tactics of intimidation and violence to silence local protest, including the hiring of armed thugs and occasionally killing people.

While Correa has condemned the action of the mining companies, he has also been critical of anti-mining groups that employ direct action tactics, attempting to shut down mining operations.

Correa, elected in 2006 on a promise to spend more on social need, has pledged to use money from mining on improving the well-being of the 50% of the country’s population living in poverty.

Nonetheless there is, however, a strong sentiment in Ecuador to have the country declared “mining-free”.

Alberto Acosta, who has been one of Correa’s closest advisors, has advocated a total ban on open-cut mining, and CONAIE have demanded that indigenous and other affected communities have a power of total veto over mining operations in their areas.

Correa, however, has opposed both a mining ban and the inclusion of a veto in the country’s recently adopted new constitution. He has declared that Ecuador will pursue only “sustainable” mining.

The new mining law increases government control over the sector, requiring companies to negotiate payment of royalties of at least 5% to the government, as well as placing stricter environmental safeguards on all mining operations, including regular site inspections.

However, CONAIE president Marlon Santi rejected the new law on the basis that social sectors did not participate in its design.

Jose Cueva, a community leader from Intag — a region heavily affected by mining — called for a delay in the mining law.

“The president needs to first pass a food sovereignty law, a water law and a biodiversity law. Then we can have a national dialogue over what to do about mining”, said Cueva.

On November 19, CONAIE led a further 10,000 people in a march from Ecuador’s northern highlands in protest against the draft water law, which they are worried could lead to privatisation and pollution by mining companies.

Activists invoked the country’s new constitution — approved by nearly 70% of the vote in September — in defence of water rights for communities. The new constitution specifically grants legal rights to the environment and protection from being spoiled.

The protests are already being seen as a resurgence of Ecuador’s social movements, which had fallen into disarray over the past few years.

While they have offered more or less critical support to Correa, especially in getting the new constitution passed, many social movements — especially CONAIE — are sceptical about getting too close to government.

However, the victory over the right-wing opposition in the constitutional referendum has emboldened the social movements to reorganise and demand more of the government.

Meanwhile, Ecuador, which relies on oil exports for almost half of its foreign exchange income, is already suffering from the recent fall in global oil prices as well as aging infrastructure in urgent need of replacement.

After a recent review into its foreign debt found that a significant portion is “illegal”, Correa delayed a US$30 million interest repayment on the country’s debt.

Ecuador’s total foreign debt is $10.3 billion, equal to 21% of Ecuador’s gross domestic product. This was all accumulated under previous administrations — when Ecuador was renowned for its systemic corruption.

Both Correa and finance minister Maria Elsa Viteri have refused to rule out a complete default on all debts. Only one fifth of them were taken out for development projects, with the rest used for debt refinancing.

Correa has also announced that Ecuador is seeking a $1 billion loan from the Inter-American Development Bank to finance key infrastructure projects.

Ecuador’s electoral council is expected to call the 2009 elections on November 23, the first elections under the new constitution. All 5993 elected positions in Ecuador will be up for re-election, including the presidency.

While Correa has maintained strong support for his policies, he cannot afford to further alienate the indigenous population in the lead-up to the elections.

CONAIE and other social movements have been responsible for overthrowing three presidents in the past decade. Their renewed strength means they are likely to demand meaningful change — and a break from the current economic system that is destroying their communities.

Ecuador cautiously studies refusal to pay debt

QUITO (AFP) — Ecuador is studying legal options available to refuse payment on "illegitimate foreign debt," leftist President Rafael Correa said Saturday.

Ecuador announced that it would contest 3.8 billion dollars, or about one-third of its foreign debt, saying corruption and illegal activity contributed to the bill, on Thursday.

"I will not have the country jump into the void," Correa said in his weekly Saturday radio and television address.

"We should be sensible in this but obviously we will search for all mechanisms that allow us to repudiate a debt that is absolutely illegitimate and corrupt," Correa said.

Correa based his reasoning on a 14-month government ordered audit that looked at Ecuador's finances from 1976 to 2006.

Ecuador's external debt amounts to 10.6 billion dollars, or about 20 percent of Gross Domestic Product (GDP), and international bonds made up 3.86 billion dollars of the international debt, the audit found.

Some of the bonds, with expiration dates in 2012, 2015 and 2030, originated as part of debt restructuring after Ecuador's economic crisis of 1999-2000, when the banking system collapsed and the South American country defaulted on its foreign debt.

Correa did not say exactly how the government would contest the portion of the debt.

"We have to see the pro and cons, and the consequences that this would have, we are looking at different scenarios but we will look into not paying this illegitimate debt," Corrrea said, adding that officials "are already consulting with attorneys abroad."

Ecuador earlier said it would use a 30-day grace period to decide whether or not to pay 31 million dollars on 2012 bonds due Monday.

Separately, Correa on Saturday said he was "very hurt" by Brazil's decision to recall their ambassador to Quito after Ecuador sought arbitration in the International Chamber of Commerce in Paris over a 243 million dollar debt to Brazilian credit bank BNDES.

Ecuador alleges it should not pay the debt because BNDES gave the money to the Brazilian firm Odebrecht to build a hydroelectric dam that stopped working one year after it was delivered.

In Sao Paulo, Brazil's Foreign Minister Celso Amorin told reporters on Friday that Brazil was "very concerned" over the decision, and that eventually they "will take other actions and we'll review trade cooperation with Ecuador."

Ecuador Contests $243 Million Brazilian Loan -- Brazil Recalls Ambassador

LAHT, Nov 23, 2008

President Correa is challenging Quito's obligation to repay loan from Brazil government's BNDES that underwrote construction of the San Francisco dam.

SAO PAULO -- Brazil recalled its ambassador in Quito after Ecuador said it would seek arbitration of a debt to Brazilian state-owned development bank BNDES, Foreign Minister Celso Amorim said here Friday.

"Everyone knows what that means," the minister said when reporters asked him for details.

Amorim, who is in Sao Paulo for a conference on biofuels, said that Ecuador's decision to contest the debt would lead Brazil to reconsider various joint projects with Quito.

"The Brazilian government received with much concern the news of the Ecuadorian government's decision to initiate an arbitration before the International Court of Arbitration of the International Chamber of Commerce with an eye toward suspending repayment of the debt," Amorim's office said in a statement.

The BNDES loan helped finance the construction - by Brazilian engineering firm Odebrecht - of the problem-plagued San Francisco hydroelectric dam.

Brazil complained Friday that Ecuador announced the loan arbitration "at a public event without full consulation or notification to the Brazilian government."

"The nature and form of the measures adopted by the Ecuadorian government do not correspond to the spirit of dialogue, friendship and cooperation in the relations between Brazil and Ecuador," the Foreign Ministry statement said.

President Rafael Correa's government is challenging Quito's obligation to repay the $243 million loan from BNDES that underwrote construction of the San Francisco dam, which opened in June 2007 and has been out of commission for the past six months due to structural problems.

"BNDES will comment about the allegations made by the Ecuadorian government about the financing contract," the Brazilian Foreign Ministry said.

Accusing Odebrecht of shoddy workmanship and bad faith in the San Francisco dam fiasco, Correa expelled the giant Brazilian firm from Ecuador a few months ago.

Ecuador Parliament Analyses Foreign Debt

Quito, Nov 21 (Prensa Latina) The Ecuadorian Legislative and Supervising Commission is holding a public plenary session to analyze everything that happened with the resources contracted by the country between 1976 and 2006.

Such decision was adopted by the institution's Chair Fernando Cordero, after presentation on Thursday of the Foreign Debt Audit Commission denouncing illegalities and irregularities in the renegotiation of debt tranches.

The members of this commission are expected to participate and explain their work in one year and 4 months, collecting documents related with the country's finance and debts.

It has not been ruled out that any legislator proposes approval of an agreement that demands investigation, and political and criminal responsibilities against the ex officials involved in mishandling of the economic duties in the last 30 years.

Previously, the Democratic Popular Movement bloc leader Jorge Escala sent a letter to Ecuadorian President Rafael Correa, demanding for indictment of ex head of State Gustavo Noboa and his ex Finance Minister Jorge Gallardo, said the national media.

His colleague Diego Borja, of the Poder Ciudadano Movement, highlighted theneed to shape a working group that monitors the denunciations against the ex government officials.

With this, they seek that everything that was denounced and presented to the public opinion by the Audis Commisison does not remain as just one more scandal, he said.

Besides this legislative authority, the Attorney General's Office announced that it would create a multidisciplinary group to investigate the ex officials involved in rigged negotiations of the foreign debt.

Attorney General Washington Pesantez confirmed that inquiries about the case would begin, but alerted to the need to have a National Court of Justice to solve the trial.

U.S. Congressman Finds "Humanitarian Crisis" In Ecuador's Amazon Rainforest

Amazon Defense Coalition

FOR IMMEDIATE RELEASE

2008-11-20

Karen Hinton
703-798-3109
Karen@hintoncommunications.com

Over 30,000 Ecuadorians Drink From Contaminated Water Sources

Washington, DC – U.S. Congressman Jim McGovern of Massachusetts, who chairs the House Human Rights Caucus, has released a letter written to President-Elect Barack Obama that describes a "terrible humanitarian and environmental crisis" in Ecuador's Amazon where Texaco operated a large oil concession from 1964 to 1990.

Download full letter
in PDF format

Medical studies estimate that more than 400 people have died from cancer and that Chevron, which bought Texaco in 2001, faces a potential liability of up to $16.3 billion for what experts consider the worst oil-related contamination on earth.

McGovern, who along with a team of congressional staff recently spent two days touring the area, requested in his letter that the President-elect task relevant federal agencies to provide technical assistance and other resources to bolster efforts by the government of Ecuador to clean up the contamination and to help the thousands of people living in the area, which include the members of five indigenous groups.

"It is past time for those responsible for this contamination to step up to the plate and be held accountable," wrote McGovern. "I...saw the infrastructure Texaco/Chevron created that allowed for the wholesale dumping of formation water and other highly toxic materials directly into the Amazon and its waters."

The full letter may be downloaded here.

The lawsuit, which was initially filed in 1993 in the U.S. but shifted to Ecuador at Chevron's request, is expected to conclude in 2009. Chevron's lawyers have said publicly they expect a significant "adverse judgment" and are planning for the appeals process.

The lawsuit asserts that Texaco deliberately dumped more than 18 billion gallons of toxic "formation waters" into Amazon waterways, abandoned more than 900 waste pits, and refused to clean contaminated soils and groundwater. The indigenous groups say their populations have declined and that they have lost most of their ancestral lands to the pollution.

Rep. McGovern underscored that he was not requesting that Obama or anybody else interfere with the trial, which began in 2003 in the town of Lago Agrio, Ecuador. The trial has included site visits and sampling at 94 of Texaco's former production sites.

"The drinking water for thousands of poor people is horribly unfit – even deadly," Rep. McGovern said in the letter. "Children are drinking and bathing in water that reeks of oil. In one village, I couldn't come across a family that hadn't been touched by cancer. Mothers brought their children to show me the terrible rashes and sores that covered their bodies."

###

About the Amazon Defense Coalition:
The Amazon Defense Coalition represents dozens of rainforest communities and five indigenous groups that inhabit Ecuador's Northern Amazon region. The mission of the Coalition is to protect the environment and secure social justice through grass roots organizing, political advocacy, and litigation.

Letter of WAORANI women to the Government of Ecuador

Via SOS Yasuní

Lago Agrio, 6th of November 2008

We, as women, made this document in paper and in your language. We cannot speak to you because we live far away and because you don't understand our language.
Look at this paper Mr. President, it contains our words, the words of the Waorani women.

We want to live in a large territory, our culture is based on a large territory, it is ours, not because the State decided so, but because God gave it to us, therefore we talk of our land, our children, our language. As our ancestors told us: without land, we cannot live.
We do not want that they continue to enter and continue to contaminate our land. The companies must leave our territory in peace, here lived our grandfathers and we want everything to be clean again like before.
Before, oil companies entered our land without us being aware, they provoked many problems and diseases, this cannot continue.

If oil exploitation is not stopped, the companies will continue to destroy our territory. The companies must leave us in peace, we want clean rivers and forests.
We want the government to tell these companies of foreign countries to stay away. We don 't want oil companies to enter in our territory, never again.
We want to live in peace and in good health. Oil companies shouldn't come here, negotiations with them should be stopped.
You, as the government, should recognize our territory and you shouldn't allow oil companies to enter in our territory.

We don't want oil, nor wood exploitation in the whole of the Waorani territory. We aren't a "Bloc" or oil concession, we are a territory where we live and where our grandfathers have lived.
Where will our children cultivate their crops when they reach our age? From what will they live?

For a long time, the Tagaeris and Taromenanes have had to live hidden from wood loggers, who have entered to steal the cedar. These people have asked our husbands to go into the forest with them to kill our own people, to kill our own race. The loggers want the Tagaeris and Taromenanes dead, so they can enter and steal the wood, because the Tagaeris defend their territories with their spears, like did our grandfathers. We want them to live in peace, nobody should bother them, nobody should want to kill them, no lumber companies should be allowed to enter our house.

We know that there are 3 oil blocs in Yasuní over which you are taking decisions: bloc 16, 31 and 43 (ITT). We want that the oil will not be exploited in these blocs. We want that in bloc 16, the company be obliged to clean what it has destroyed, we want them to leave the land as it was before.
Stop the contamination and the wood exploitation.

Many Waoranis negotiate with companies the things which the government should provide, the government should understand this. Many times, leaders meet with companies to negotiate while the community is not aware of that. The government should help the Waoranis to take care of their territory, they shouldn't help the companies to destroy it.

We, Waorani women, will continue to insist through our organization because we also claim for our children.
Signed by women from the following communities: Tarangaro, Miwaguno, Kacataro, Teweno, Batavoro, Kiguaro, Dayuno, Ñoneno, Nemampare, Bameno, Kewairuno, Gareno, Tiguino, Wantaro.

Ecuador audit recommends default on 40 pct debt

By JEANNETH VALDIVIESO

QUITO, Ecuador (AP) — A presidential commission on Thursday recommended that Ecuador default on almost 40 percent of its $10 billion foreign debt, accusing former officials and bankers of profiting from "illegitimate" bond deals.

President Rafael Correa, a leftist U.S.-trained economist, said he would seek to halt payment on the loans and hold foreign investment banks and ex-government officials responsible. He did not, however, declare a default.

He said he would seek to punish those responsible but did not say whether he wants criminal prosecution.

Correa made the announcement on a day he also said he'd impose import duties on 800 unspecified "luxury" goods — on which he said Ecuadoreans spend $1.2 billion annually — and ordered temporary tax cuts and emergency loans for local exporters.

An audit made public Thursday advises Correa's government to default on $3.9 billion in three types of bonds issued as part of debt restructuring in 2000 and 2005. It says the negotiations were opaque and caused "incalculable" damage to the economy.

The report accuses former Ecuadorean officials and investment banks including U.S.-based J.P. Morgan and Salomon Smith Barney, now part of Citigroup Inc., of mishandling the restructuring.

Correa said two sets of bonds, due in 2012 and 2030, were issued without presidential authorization and dates on the documents were altered.

He accused several former government officials of "treason," and said bankers "compulsively induced, threatened, bribed and pressured with all their might to push their loans and make their juicy commissions." Those ex-officials and banks — not Ecuador's government — should be the ones to reimburse bondholders, he said.

"We don't comment on ongoing investigations, but I can assure you that Citi has profound respect for the legal and regulatory environments in the countries where we operate," said Claudia Lima, Latin America spokeswoman for Citigroup, Inc.

A spokeswoman for J.P. Morgan declined to comment.

Correa won by a landslide in 2006 after threatening to default on Ecuador's foreign debt. He has not acted on the threat but he has spent heavily on social programs aimed at benefiting the poor such as monthly payments for single mothers, seeds for farmers and building materials for new homeowners.

Correa recently warned, however, that falling oil prices may force his hand. Oil is Ecuador's top source of foreign income, accounting for 40 percent of the national budget — and prices have dipped 64 percent since July.

He did not specify by how much tariffs on the luxury goods would increase. They are the first protectionist measures announced by a national leader since the global economic crisis began in September.

By presenting a credible default threat, Correa could force bondholders into restructuring, potentially saving his government billions of dollars when access to capital is tight worldwide, said Patrick Esteruelas, an analyst at the Eurasia Group in New York.

Ecuador delayed $30.6 million in interest payments last week, saying it would use a 30-day grace period to assess the results of the yearlong, 30,000-page audit.

The suspension sent Ecuadorean bonds plummeting, prompted Standard & Poor's to slash its long-term rating on the country's debt. Investment in the nation's oil and mining sectors will likely freeze up as well.

A default could affect Correa's leftist ally President Hugo Chavez of Venezuela.

Venezuela holds as much as $230 million in Ecuadorean debt in a national development fund. That investment represents less than 1 percent of Venezuela's $39 billion in foreign currency reserves, but its exposure could be greater, since Venezuela also holds an unknown amount of credit default swaps, or insurance contracts that guarantee against losses on Ecuadorean bonds, analysts said.

Should Ecuador default, Venezuela could owe additional millions to losing bondhonders.

The three bonds in question — due in 2012, 2015 and 2030 — were issued at a time when Ecuador's economy was collapsing and hyperinflation pushed the country to abandon its local currency for the U.S. dollar.

Finance Minister Maria Elsa Viteri insisted that Ecuador currently has the resources to service its debt, including $6.5 billion in foreign currency reserves.

Ecuador's foreign debt is down 29 percent from 2006 and accounts for 21 percent of gross domestic product.

Mass Indigenous Protest In Defense of Water Caps Week of Mobilizations in Ecuador

Written by Daniel Denvir for UpsideDownWorld

Thursday, 20 November 2008

Photo Courtesy of Comunicación CONAIE Over 10,000 indigenous people from hundreds of Ecuador’s Northern Sierra (highlands) communities gathered to present the native movement’s proposed Water Law. Protesters chanted, “Water is not for sale, it is to be defended,” as speakers excoriated President Rafael Correa’s draft Water Law, saying that it could lead to privatization and pollution by mining companies. The protest was organized by the Confederation of Peoples of the Kichwa Nationality (Ecuaranari), the Sierra regional block of the Confederation of Indigenous Nationalities of Ecuador (CONAIE). Marches left from the North, South and West to converge on the Pan-American Highway, blocking the country’s central artery for over six hours. The march also showed the indigenous movement’s capacity to mobilize large numbers of people, a sign that the CONAIE is recovering from past internal divisions and political defeats. Correa has regularly insulted indigenous leaders and anti-mining activists, claiming that they do not represent a real political base. But indigenous people at Wednesday’s protest were passionate about defending their access to clean water. Maria came to the march from the community of Santa Anita, in the Central Sierra province of Chimborazo: “We are here to defend the water. We take care of the páramos (Andean wetlands) to get our water. We don’t get our water for free. They say they’re going to take away our water, and we’re not going to let them.” The protest came two days after thousands of campesinos and coastal fishers staged nation wide protests and road blockades against Correa’s draft Mining Law and support for large-scale shrimp farms. Activists contend that the law would allow companies to undertake damaging large-scale and open pit mining in ecologically sensitive areas, contaminating the water supply with heavy metals. Fishers demanded that Correa overturn Decree 1391, passed on October 15th, which handed thousands of marine hectares over to large-scale shrimp farmers. This will lead to the further destruction of mangrove forests, critical habitat for the area’s fish, crabs and conchs. Participants in all of this week’s marches have emphasized the importance of natural resources to their communities. Five people were arrested during Monday’s protests, including Jorge Sarango, a former Constituent Assembly member from the indigenous party Pachakutik. While Sarango has been released, the other four activists remain in jail. Ceaser Quilumbaquin came to Wednesday’s march with over 400 people from San Miguel del Prado, a community in the province of Pichincha. Photo Courtesy of Comunicación CONAIE ”We’re fighting for our water because they want to privatize it. We are indigenous people and the majority of water comes from our páramos. Water is life, and the government wants to sell water to private entities,” said Quilumbaquin. This week’s mobilizations are an important demonstration of growing social movement unity and independence from the government of President Rafael Correa. Activists say that this week’s mobilizations are the beginning of a larger movement to confront Correa’s environmental policies. Correa scored a huge political victory in September when voters overwhelmingly approved a new constitution, weakening the traditional political parties and business elites. Social movements, and the indigenous movement in particular, were instrumental in mobilizing their members to vote “yes”—but they have in recent months increasingly distanced themselves from the government. Although the Left has been in conflict with Correa since he took office in January 2007, September’s defeat of the right wing has emboldened social movements in taking on government social and environmental policies. Indeed, water and anti-mining activists invoke the new constitution’s strict environmental provisions in demanding local control over community territory. Ivonne Ramos of Acción Ecologica, said, “The constitution prioritizes the use of water to ensure food sovereignty, for small livestock and agriculture, and for human consumption. Water for industry comes last.” And, in an interesting move, legislators usually close to Correa—from the Popular Democratic Movement (MPD) as well as Correa’s own party, Alianza País (AP)—showed up to speak in support of the Water Law. While the MPD has become increasingly critical of Correa in recent weeks, it seems likely that AP lawmakers’ presence has more to do with posturing than a real political shift. Indigenous delegates from Bolivia, Peru, Guatemala and Mexico addressed the crowd and, recounting their own struggles in defense of water, expressed their solidarity with Ecuador’s indigenous people. Daniel Denvir is an independent journalist in Quito, Ecuador, and a 2008 recipient of the North American Congress on Latin America’s Samuel Chavkin Investigative Journalism Grant. He is the editor in chief of caterwaulquarterly.com.

Ecuador withdraws mining concession from Canadian firm

Quito, Nov 20, 2008 (EFE) - The Ecuadorian government decided to withdraw the mining concession it had extended to Canadian firm Ascendant Copper S.A. because of failure to fulfill legal requirements associated with the deal, officials said.

The Regional Mining Directorate of Pichincha province, the capital of which is Quito, said that the company failed to fulfill several requirements before the concession was awarded.

Ascendant "did not carry out the prior consultation" with the residents of the communities where it was going to operate, The Mines and Petroleum Ministry said, adding that the "environmental impact study it presented to be awarded (the concession) was declared 'unable to be processed' in December 2006."

The statement released by the Regional Directorate "is based on Article 1 of the Mining Mandate" issued by Ecuador's Constituent Assembly last year.

The resolution withdrawing the concession establishes that the firm must "declare the extinction without any economic compensation of all mining concessions that, in the exploration phase, have not made any investment in the development of the project."

The areas Golden 1 and Golden 2 in which Ascendant Copper operates encompass nearly 5,000 hectares (12,500 acres), the ministry's report said.

The withdrawal of the concession comes as lawmakers are analyzing a controversial mining bill sent to them by the government of President Rafael Correa.

Environmentalists and Indian groups say that the new law will allow pollution and will privatize the lands, while the state asserts that the exploitation of mineral reserves will be carried out in a responsible way.

Ecuador files suit to suspend Brazil 'illegal' loan

By Alexandra Valencia

QUITO, Nov 20 (Reuters) - Ecuador filed an international lawsuit to suspend payment on a loan owed to a Brazilian government bank, charging that the credit's terms are unlawful, a top government official told Reuters on Thursday.

News on the lawsuit comes days after Ecuadorean President Rafael Correa raised the specter of default by threatening not to repay debt considered to be illegal or riddled with irregularities when contracted by past governments.

A popular leftist, Correa has often threatened measures against debtholders as part of his campaign to shore up state control of the economy and key industries such as oil and mining he says have been ravaged by foreign investors.

Correa is expected on Thursday to announce the results of a year-long debt audit that found indications of illegality in much of the country's $10 billion foreign debt.

Jorge Glas, head of a government fund handling the lawsuit, said the loan granted by BNDES, Brazil's state development bank, was linked to a construction company that was expelled from the country over a contractual dispute.

"We are asking (for) precautionary measures, which includes the suspension of the (loan) payment," said Glas, adding that the $320 million loan had indications of illegalities.

"This is not a diplomatic matter," he said in an interview with Reuters. "This is a financial matter on a contract from a bank in Brazil, which simply has illegal flaws."

As Wall Street braced for his debt announcement, Correa said his government will seek international credits, but doubts the financial markets will lend to his country since he has threatened to default on some bonds.

"Everybody knows that we are not going to get credits from the international financial sector," Correa said while announcing a package of measures to counter the effects of a global slowdown. "The financial sources that are open for us are the multilateral and bilateral."

In September, Correa threatened not to repay the BNDES, holding that the loan was granted to Brazilian top construction firm Odebrecht to build a plant and not to the government.

Ecuador's spat over the Brazilian loan has frayed ties with ally Brazil who is a potential source of credit as a world global crisis drags down oil prices.

WALL STREET WAITS FOR NEWS

The debt audit panel says it has found evidence of unlawful terms or practices in most of Ecuador's $10 billion foreign debt, including its dollar-denominated bonds maturing in 2012 and in 2030 .

Auditors told Reuters they did not have enough time to review the the 2015 global bonds, but could ask for an extension to probe them. The three global bonds -- maturing in 2012, 2015 and 2030 -- total around $3.8 billion.

The report does not recommend the suspension of payments of illegal debt, although, in preliminary findings the panel had called on the government to halt repayments.

Many analysts see Correa's debt threats as a bold attempt to renegotiate the terms of the global bonds.

OPEC member Ecuador is facing a rapid decline in revenues as the price of its main export, crude oil, slumps on world markets.

Pegged by Wall Street rating agencies as among the least credit-worthy nations in Latin America, Ecuador last default was on $5.8 billion in bonds in 1999, also amid a sharp fall in oil prices.

Ecuador Seeks to Sell Rainforest

By Christian Schwägerl

Speigel Online, Nov 20, 2008

Ecuador is the first country in the world to announce plans to leave the oil reserves beneath its rainforests in the ground. The country wants foreign businesses, including German companies, to compensate it for making this sacrifice.

There are as many different types of wood growing on each hectare in the Yasuni rainforest in the northwestern Amazon as there are species in all of North America. Even rare species of animals, like the mountain tapir and the brown-headed spider monkey, exist in the region. This paradise is also home to a number of native tribes now living in complete isolation from the outside world.

There is more biological diversity in the Yasuni rainforest than almost anywhere else in the world. The virgin forest is protected by its status as a national park and UNESCO biosphere reserve, but for how much longer? Several oil companies are pressuring the government in the Ecuadoran capital of Quito to finally issue drilling licenses for the biosphere.

The Yasuni region sits atop Ecuador's largest known oil reserve, consisting of several hundred million barrels. Oil is the country's most important export. And although oil has not made Ecuador rich, without petrodollars and petro-jobs the country would likely be even poorer than it already is.

This makes a proposal that Ecuadoran Environment Minister Marcela Aguiñaga has now advanced in Berlin and other European capitals all the more sensational. Ecuador is the first oil-producing nation to propose leaving crude oil reserves permanently in the ground.

"Not producing the oil in the first place saves the atmosphere additional carbon dioxide," explains Aguiñaga, who worked as a conservation guard on the Galápagos Islands before embarking on her career in government. "In addition, the rainforest is spared the development." Even if drilling technologies were used that protect the rainforest, loggers would likely descend on the area in the wake of the oil companies.

Until now, the West's appeals to developing countries to get involved in the fight against global warming and protect their biodiversity have fallen largely on deaf ears. The temptation to follow conventional paths to wealth is too great. And now one of South America's poorest countries is calling upon industrialized nations to pony up so that its fossil fuel wealth can remain in the ground.

"The crude oil under Yasuni National Park is worth many billions of dollars," says Aguiñaga. In the summer of 2008, Ecuadoran President Rafael Correa made a first attempt to protect the rainforest and resources. He proposed that Western and Ecuadoran taxpayers each foot half the bill for the decision not to tap crude oil reserves in the environmentally sensitive area. But the initiative never bore fruit.

Now Correa is under pressure to give in to the oil companies after all. Hoping to prevent this from happening, Aguiñaga submitted a new, and final, offer during a trip to Europe: that Ecuador be compensated mainly by Western companies, which could then sell the Yasuni oil in the virtual form of CO2 certificates.

Industrial companies and power plant operators in the European Union are now required to present such certificates in return for emitting carbon dioxide into the atmosphere. Supply and demand determine the price per ton. The Ecuadorians are proposing that the crude oil in the Yasuni region be incorporated into the CO2 trading system. The Yasuni reserves would be converted into equivalent tons of CO2 not emitted into the atmosphere as a result of Ecuador preventing production from moving forward.

"The revenues would be used to enhance the protection of 5 million hectares (12.3 million acres) of nature reserves in Ecuador, to promote more environmentally friendly rural development and to protect our native tribes," says Aguiñaga. The rainforest would remain untouched and the oil would stay in the ground, and yet the country would receive enough money for development. It sounds like an ideal solution.

But wherever Aguiñaga goes she faces the same tough questions: What happens if the Saudis start demanding compensation for oil they don't produce? And what if a new government in Quito permits drilling for oil after all?

The model, Aguiñaga argues, is only meant for regions where petroleum reserves are located beneath extremely biodiverse ecosystems. And the donors would be given the right to confiscate the oil if it does end up being produced.

Nevertheless, Aguiñaga has not fully convinced anyone yet, especially since a decision over whether such new forms of CO2 reduction are to be officially recognized, and therefore have monetary value, will not be reached until the 2009 UN Climate Conference in Copenhagen.

If she fails to win over governments and companies, Minister Aguiñaga sees only one alternative to opening up the Yasuni region to drilling: environmentally conscious citizens worldwide could ensure that the fossil fuel remains in the ground by privately buying CO2 certificates -- as a climate gift to their children.

"We will offer the opportunity, on the Internet, to buy the chance to keep the Yasuni oil in the ground with a credit card," says Aguiñaga. "It would be an ideal present for Christmas or for the birth of a child."

Translated from the German by Christopher Sultan.

Ecuador default-talk may force restructuring

By GONZALO SOLANO

QUITO, Ecuador (AP) — Ecuador's flirtation with a $10.3 billion foreign debt default may force bondholders into restructuring, potentially saving the government billions of dollars at a time when access to capital is increasingly tight.

Ecuador is going to "present a credible threat of default and force bondholders to renegotiate the terms of existing debts, winning savings and considerable benefits for the state," Patrick Esteruelas, an analyst at the Eurasia Group in New York, said Wednesday. "Bondholders are desperate for cash and ready to accept a significant reduction in nominal terms" to salvage their investments, he said.

Ecuador delayed $30.6 million in interest payments last week, using a 30-day grace period to assess the results of a 30,000 page audit of its debt contracts, to be made public on Thursday. Government officials have suggested the debt may be "illegitimate," and Finance Minister Maria Elsa Viteri on Tuesday refused to rule out the possibility of a complete default.

The move sent Ecuador's benchmark bonds plummeting.

President Rafael Correa won office in 2006 vowing to default on Ecuador's foreign debt to free up more money on anti-poverty programs. He has not acted on that threat, but recently warned that falling oil prices may force his hand. Oil is Ecuador's top source of foreign income, and prices have dropped 60 percent since July.

Viteri acknowledged that traditional credit flows may disappear if Ecuador does default, but said the country could turn to OPEC or even its own banking system to raise capital instead.

Ecuador rejoined the Organization of Petroleum Exporting Countries in 2007 and will take advantage of that membership, Viteri said without giving details. Local banks meanwhile have $4 billion in assets, and the government could in theory require them to use that cash to buy its bonds.

"The government seems to think it will access other sources of financing, but in a default situation, it's not that easy to negotiate," said Lisa Schineller, director of sovereign debt ratings at Standard and Poor's, which downgraded Ecuador's debt three notches to CCC- last week.

Correa has suggested that previous governments mishandled debt negotiations for personal financial gain, and ordered an audit of the country's debt contracts in July 2007. Investigators have since found evidence of abuses and irregularities tied to almost all Ecuadorean bonds, audit chair Hugo Arias said this week, justifying his committee's default recommendation.

Ecuador currently has the resources to service its debt, including $6.5 billion in foreign currency reserves. Budget shortfalls are expected next year though, as oil has slipped to less than half of the government's forecast.

"We have a range of possibilities," Viteri said. "You should be completely sure that we're going to evaluate each and every one of the risks."

Others see few options for Ecuador.

"Who is going to loan to Ecuador if it isn't reliable?" Ricardo Duenas, an economic analyst for consultancy Capital Management Solutions in Quito, told Quito-based Radio Democracia. Failure to pay "generates a brutal lack of legal security."

Scientists Say Global Warming Threatens Future Andean Glacier Runoff

By Brian Wagner Ecuador VOA News, 19 November 2008

Scientists say global warming is causing glaciers in the Andes Mountains to shrink at a faster pace than ever. In Ecuador, the pace of glacier melt threatens hydroelectric power plants and water systems that rely on water from the glaciers. With the help of the World Bank, local researchers are launching new efforts to track the decline and urge residents to preserve crucial water supplies. VOA's Brian Wagner reports from Ecuador's capital, Quito.

Antizano Volcano

Once a month, water utility workers make the difficult journey up the Antizana volcano. Technicians must visit more than a dozen monitoring stations, to gather data about a massive Andean glacier at the peak and the water that runs off of it.

Diego Paredes, who is a technician for the Ecuadorean utility, EMAAP explained, "It takes measurements every five minutes. We download that data to our computers and use it to measure the water flow."

Technicians want to know how much precipitation is added to the glacier, and how much rain water and melted ice flow down into the the Ecuadorean capital's water supply. Maintaining a balance is crucial to Quito's future.

"The glacier is a huge reservoir of water that supplies us every year. We have a lot of monitoring activity to make sure it never runs out," Paredes said.

Hydroelectric power plants generate energy from glacier-fed rivers and the water flows into the city's water system. Quito's growing population has put strains on the water utility. But a bigger concern is whether global warming could eventually do away with Antizana and other Andean glaciers.

"When glaciers melt, at first there is a surge in water supply from melting ice," said Bernard Francou, a glacier expert with France's Institute for Development Research. "So you have more water, but then the glacier grows smaller and you have the opposite effect: less water."

Members of Francou's team are working with local experts to study the impact of global warming on glaciers like Antizana and nearby Cotopaxi. Along with water measurements, teams are using satellite photos of the glaciers. The data show warmer temperatures are taking their toll.

Mr. Francou reported,"One glacier near Quito has shrunk 30-40 percent in the past 30 years, and other studies show the same has happened with Cotopaxi. Comparing photographs from 1956 and now, we see the glacier is retreating."

Diego Paredes takes measurement of water every five minutes

Studies show the same is true for glaciers in Bolivia and Peru. Some scientists warn the glaciers could disappear completely in 30 years.

In Ecuador, experts are concerned that warmer temperatures mean added dangers to high-altitude ecosystems. Areas that once were too cold, are now home to farming and livestock. The new agricultural activities may threaten delicate environments in the Andes, says Jorge Nunez, of Ecuador's Environment Ministry.

"Our priority is to conserve water resources, because without water there is no food," he said. "We need to protect the highlands ecosystems to ensure our water supply, on the glacier and in the city."

The World Bank is funding experts like Nunez to track the immediate impacts of global warming and glacier melt across the Andes. One goal is to educate both policy makers and the general public on the seriousness of the problem.

Mr. Nunez warns, "Ensuring our water supply is one of biggest problems that will result from climate change, affecting millions of people. It is really important to talk about education to prevent [water] abuse."

Nunez says conserving water is one thing people everywhere should do now to sustain the planet's limited resources.

In Ecuador, Mass Mobilizations Against Mining Confront President Correa

Written by Daniel Denvir, Jennifer Moore, and Teresa Velasquez for UpsideDownWorld

Wednesday, 19 November 2008

Photo by Ximena Warnaar In Ecuador, thousands of indigenous, campesinos, Afro-descendants and environmentalists took to the streets on Monday, protesting the pending mining law and government failure to fully apply a mining mandate passed by the National Constituent Assembly in April. With strong turnout in five different parts of the country, the day of action was an important demonstration of growing social movement unity and independence from the government of President Rafael Correa. Activists call Monday's mobilization the beginning of a broader movement to confront Correa's environmental policies. The Ecuadorian Left has increasingly distanced itself from the government after broadly supporting the approval of a new constitution in September. In Quito, hundreds of people from rural communities threatened by mining throughout Ecuador's Northern highlands, especially from the northwestern area of Intag, participated. Intag has blocked the entrance of mining companies since the early 1990s and is currently fighting the Canadian-financed transnational Ascendant Copper. Photo by Vicente Polit Jose Cueva, a community leader from Intag, said, "They need to shelve the mining law. The President needs to first pass a food sovereignty law, a water law and a biodiversity law. Then we can have a national dialogue over what to do about mining." Metal mining has been promoted in Ecuador since the early nineties, however, no large-scale project has yet to reach production. Photo by Jennifer Moore Growing alliances were in evidence as hundreds of coastal campesinos or montubios and Afro-Ecuadorians joined anti-mining activists in Quito, protesting Correa's support large-scale industrial shrimp farming. In the southern highlands city of Cuenca, the country's third largest, some 600 people participated. The march, which wove through the colonial city streets, was led by the Unified Community Water Systems of Azuay (UNAGUAS) and the Federation of Campesino Organizations. More than nine rural communities were represented. Water Ritual to Syrengthen River - Photo by Luis Manuel Claps These communities are directly affected by various mining concessions in the hands of companies such as Toronto-based IAMGOLD, as well as other companies listed on Toronto Stock Exchange, including International Minerals, Andean Gold and Channel Resources. A member of the rural water system from Victoria-Tarqui said, "We have come out in defense of water which is life for the entire country. It is Correa's fault that we are out here. We are defending the wetlands of Quimsacocha, our water."

Ecuador to jump-start economy, threatens default

By Alonso Soto and Alexandra Valencia

GUAYAQUIL, Ecuador, Nov 18 (Reuters) - Ecuador's president said on Tuesday he will jump-start the economy and limit the OPEC nation's capital outflows and imports to counter the impact of a spreading global crisis that has dragged down oil prices.

However, Rafael Correa's government continued to send mixed signals over its willingness to repay foreign debt by threatening to default on its bonds, but also staying open to market transactions.

In an interview with Reuters, Finance Minister Elsa Viteri said her government does not rule out buying back the country's sovereign bonds found by a government commission to have been contracted "illegally."

Producers of Ecuadorean goods are already feeling the pinch of a global economic slowdown that could particularly hurt Latin American nations dependent on commodity exports.

Governments around the world are spending hundreds of billions of dollars to support their economies and financial systems after the crisis spread quickly.

Rich nations, including those that make up the euro zone and Japan, have topple into recession.

"We are afraid of deepening problems in the external sector. That could generate a crisis on the balance of payments and credit restrictions," said Correa, speaking to businessmen in the country's industrial hub of Guayaquil.

The socialist economist, who until recently had played down the effects of the crisis on the world's top banana exporter, said in rare comments that his government could delay social programs as its fiscal position looks tighter next year.

The economic woes and tighter public spending could be a political liability for Correa, who is expected to run for re-election in late April for another four-year term. Still, the central bank maintained its 2008 economic growth forecast unchanged at above 6 percent.

Since he took office in 2007, Correa has bolstered his control over the economy and sought for banks to offer more loans to the poor.

He said the government will raise the tax on capital outflows to 1 percent from 0.5 percent and offer a fiscal stimulus to banks that offer more business loans.

MIXED SIGNALS

Correa also said his government is working to secure a $1 billion loan from the Inter-American Development Bank to finance key infrastructure projects.

His announcement comes only days after he raised the specter of default by threatening not to pay interest on one of his country's sovereign bonds. Government officials have said they are confident that ally countries such as Venezuela could help them if the market shuts down credit lines.

"This is peculiar because if you are thinking of not paying your debt that will be in detriment of negotiations to get such a large loan" said Enrique Alvarez, head of Latin America debt strategy with IDEAglobal in New York.

"With those measures Correa seems to be slowly trying to create the conditions to service its debt ... there are many mixed signals here."

Ecuador has not ruled out talks with bond-holders or a buyback to benefit from low market prices, Finance Minister Viteri told Reuters, but she kept the government's hard-line position on "illegal" debt by saying other options include an outright default.

"I doubt a bond-holder will show his face... but if it's done through the proper channels I have no problems in listening to what they have to say," said Viteri, adding no bond-holder has tried to approach her yet.

Economic Policy Minister Pedro Paez told Reuters earlier that bond-holders "now more than ever" should seek talks with the government to restructure "illegal" debt.

Viteri said Ecuador's decision will be based on advice from a group of legal experts and the findings of a government debt audit group that will deliver its results on Thursday.

In preliminary reports, the debt commission has found strong indications of "illegality" in the country's global bonds due on 2012 , 2030 and 2015 that amount to around $3.8 billion.

Top auditors have said the 2015 global bonds will be excluded from its recommendation to halt all commercial debt payments because its probe on them was limited.

The 2012 and 2030 bonds stem from a renegotiation of defaulted bonds that auditors say was riddled with irregularities, which included breaking national laws by overlooking required legal steps.

Ecuador has enough oil cash to make the debt payments, but analysts interpret the Andean country's debt threats as a bold bid to restructure the country's $10 billion foreign debt.

The prices of the global bonds have plummeted recently, and the country's debt is rated by Wall Street credit rating agencies as among the least creditworthy in Latin America.

In 1999, the country defaulted on about $5.8 billion in bonds amid the last major downturn in world oil prices.

Ecuador auditor urges debt default

By JEANNETH VALDIVIESO

QUITO, Ecuador (AP) — The official overseeing an audit of Ecuador's foreign debt said his committee found evidence of abuses and irregularities tied to almost all of the country's bonds and will recommend a default on $10.3 billion in national debt.

Auditors have uncovered "indications of illegality" in the debt contracts and negotiation processes, said Hugo Arias, coordinator of the Special Commission for Foreign Debt Audit, in an interview published Monday by the Ecuadorean newspaper El Universo.

Arias did not respond to telephone calls Monday.

If Ecuador defaults, one debtor left holding the bill will be the government of close Correa ally Venezuelan President Hugo Chavez, though it is unclear how much of the debt Venzuela holds.

Ecuador has delayed $30.6 million in interest payments that was due Saturday on 2012 bonds, using a 30-day grace period to assess the results of the audit scheduled for release on Thursday.

President Rafael Correa suggested that previous governments mishandled debt negotiations and abused privileged information for personal financial gain, ordering the audit in 2007. Finance ministers allegedly forced down the price of Ecuador's bonds by threatening to default, then bought them on the cheap before refinancing the nation's debt and restoring the value of their holdings.

Arias, the auditor, did not give names, but called the debt "a giant and unpayable monster" and said a default on the bonds — held by foreign governments, private investors and others — would be "a historic achievement for the country."

Suspending the interest payment already sent Ecuador's benchmark bonds plummeting and will likely freeze already tight credit flows and investor interest in the nation's oil and mining sectors.

Standard & Poor's has slashed Ecuador's long-term debt rating.

Correa ran for president in 2006 vowing to default on Ecuador's foreign debt and use the money to fund anti-poverty programs. He has not acted on that threat, but recently warned that falling oil prices may force his hand. Oil is Ecuador's top source of foreign income, and prices have dipped 60 percent since July.

Exactly how many Ecuadorean bonds Venezuela holds is unknown, but market speculation is that the country could lose up to $800 million in the case of a default, said Enrique Alvarez, head of research for Latin American financial markets at IDEAglobal in New York.

"At no time do I believe we are going to get a solid figure, these are mere speculations of the market born from parties with a stake in the matter," Alvarez told The Associated Press from New York.

Chavez and Correa have called for a new brand of "21st century socialism" and have agreed to develop joint oil and natural gas projects in Ecuador.

Alvarez said defaulting on the debt would be an unprecedented and isolating decision, though he does not expect Correa to go through with it.

Analysts say despite falling oil prices, Ecuador has the resources to make the payment due Saturday, including $6.5 billion in foreign currency reserves.

But budget shortfalls are expected for next year, as oil is now trading at less than half of what the government anticipated in its 2009 budget and the country's new constitution calls for more social spending programs.

Irregular activity was identified under every administration the country has had for more than 30 years, with the exception of Abdala Bucaram's six-month presidency in 1996-1997, which did not negotiate any debt, Arias told the newspaper.

According to the audit, the most troublesome debt is the country's so-called Global 2012, 2015 and 2030 bonds, which Arias called "the most expensive and the most corrupt."

The 2012 and 2030 paper was sold in 2000 in exchange for so-called Brady Bonds, which had been issued in 1994 to refinance the country's overdue loans.

Ecuador's total foreign debt reached $10.3 billion in August, or 21 percent of gross domestic product. Just one-fifth of those bonds were issued to raise money for development, while the rest correspond to refinancing costs, Arias said.

Ecuador's Correa May Burn Ally Chavez in Bond Default

By Lester Pimentel and Daniel Cancel

Nov. 17 (Bloomberg) -- Ecuador President Rafael Correa's looming default on $510 million of bonds may hurt his biggest ally, Venezuela President Hugo Chavez, more than anyone else.

Ecuador, hamstrung by a tumble in oil, its biggest export, said last week it will use a 30-day grace period to decide whether to make a $30 million interest payment that came due Nov. 15. Chavez's government owns structured notes tied to Ecuador's bonds that would force Venezuela to pay $400 million if Correa doesn't make the payment, according to estimates by Barclays Capital Inc.

Venezuela's potential losses may strain relations between two presidents who meet every three months and espouse the same socialist themes. During an Ecuador-Colombia border dispute in March, Chavez, 54, mobilized tank battalions in a show of support for Correa, 45.

``Chavez will have something to say'' about the debt payment, said Alejandro Grisanti, a fixed-income analyst at Barclays in New York. He ``will encourage Correa not to default.''

Grisanti said he revised his estimate to $400 million from an initial $800 million after meeting with Finance Ministry officials today. Venezuela has pared its holdings of the notes over the past year, he said. A spokesman at the Venezuelan Finance Ministry declined to comment on the government's holdings of the notes.

`Truly Horrifying'

The price on Ecuador's 12 percent bonds maturing in 2012 plunged to 14 cents on the dollar on Nov. 14, sending yields over 100 percent, as investors braced for the first sovereign default since the global financial crisis deepened in September. The bonds rebounded today to 24 cents at 6 p.m., according to JPMorgan Chase & Co.

Standard & Poor's cut Ecuador's rating to CCC-, three levels above default, on Nov. 14, hours after Finance Minister Maria Elsa Viteri announced the government's plan to withhold the interest payment. Fitch Ratings put Ecuador's issuer default rating of CCC on ``negative'' watch today, saying there was a ``reasonable probability of near term downgrades.''

Correa, an economist who earned his Ph.D. at the University of Illinois at Urbana-Champaign, has been threatening since the 2006 campaign to halt payments on debt he calls ``illegitimate.''

In his weekly radio address on Nov. 15, Correa called a debt auditing committee's preliminary report ``truly horrifying,'' echoing previous statements he's made that some of the obligations were fraudulent. He said he expects to receive a full report on the debt on Nov. 20.

Largest Creditor

``If there's a sufficient basis to say we can't pay this illegitimate debt, that's what we'll do,'' Correa said in his radio address, according to a statement posted on the government's Web site. ``That the bonds fall and the country risk rises doesn't hold the least interest for us. Here we'll act for the country and the common good.''

Ecuador's finances have come under strain as oil, which accounts for 60 percent of the country's exports, has plunged 62 percent from a record high in July to $55.59 a barrel.

Ecuador needs an oil price of $95 to cover all the spending in its budget and a price of $76 to avoid depleting its $6.3 billion of foreign reserves, according to Barclays. The South American country last defaulted less than a decade ago, halting payments on $6.5 billion of bonds in 1999.

Argentine Default Concern

The structured notes, so-called first-to-default baskets that are also tied to Argentine and Venezuelan debt, work like credit-default swaps, Grisanti said. Swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should an issuer fail to adhere to its debt agreements.

Venezuela would be forced to pay $400 million to investors who would hand over defaulted Ecuadorean bonds in return, according to Barclays.

``In the event of default, Chavez will be Correa's largest creditor,'' Grisanti wrote in a Nov. 14 report. Venezuela's position as a creditor would likely bolster the payout Ecuador would offer in a debt restructuring, he said.

Investor concern has also mounted that Argentina will default for a second time this decade amid the global economic slump and rout in commodities. Argentina's benchmark 8.28 percent dollar bonds due in 2033 trade at 26.25 cents on the dollar, down from 75 cents three months ago, according to JPMorgan Chase & Co.

Correa won a landslide victory in November 2006 after promising to rewrite the constitution and boost spending on the poor. He said in September that he'd suspend debt payments before trimming spending on education and health care.

`Collapsing' Prices

Ecuador's foreign debt totaled $10 billion as of September, according to Goldman Sachs Group Inc. That equals less than 25 percent of its $44 billion annual gross domestic product.

While the drop in oil has crimped revenue, Viteri said on Nov. 14 that Ecuador has the cash to make the $30 million payment on time.

The price on the 2012 bonds, which were issued as part of a restructuring in 2000, sank 28 cents over two days last week from 42 cents on Nov. 12, according to JPMorgan. The bonds traded at 99.5 cents on Sept. 8, a week before the failure of Lehman Brothers Holdings Inc. deepened the decline in oil.

``Bond prices are collapsing,'' said Igor Arsenin, an emerging-market strategist at Credit Suisse Group in New York. ``They are seriously considering defaulting.''

To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net Daniel Cancel in Caracas at dcancel@bloomberg.net