By Naomi Mapstone
Financial Times, April 28 2009
Rafael Correa, Ecuador's newly re-elected leftwing populist president, promised to sustain his radical agenda in his pursuit of 21st century socialist revolution amid the euphoria of his victory.
The first Ecuadorean leader in three decades to win two successive terms in office has had a tense relationship with the US, foreign investors and multilateral lenders since he first came to power in 2006.
A close ally of Hugo Chávez, president of Venezuela, Mr Correa is popular with voters for his refusal to pay foreign debt he deems illegitimate, his threats to expel foreign companies such as Repsol of Spain and America Movil of Mexico if they do not agree to new terms, and for his decision to shut down a base used by the US for anti-drug flights.
Like other leftist leaders in the region, including Mr Chávez and Evo Morales of Bolivia, Mr Correa has also introduced a new constitution that extends his term limits, potentially to 2017.
A buoyant Mr Correa yesterday said he would continue with his social revolution to "eradicate misery and create a more just and dignified country" in spite of the global financial crisis, depressed oil prices and dwindling remittances and tax revenues.
"The outlook is very good for the country, the worst is over. But, of course, there is still great uncertainty and anything could happen."
Mr Correa's Alianza Pais party is close to securing a majority in the 124-member national assembly, which should allow him to pass bills to cement the new constitution and advance his control over the oil and mining industries, the central bank and the media.
But Mr Correa's public expenditure programme, which saw spending more than double in two years to more than $21bn (£14bn) in 2008, was largely predicated on oil wealth. Many economists question Mr Correa's ability to maintain the rate of spending.
"He is going to have less money, so the challenge for Correa is how to deal with the global financial crisis and at the same time maintain the social policies and reforms he has promised," says Adrián Bonilla, a Quito-based political scientist.
The Opec nation relies on oil to fund 40 per cent of its budget, and its reserves have fallen by a third to $3bn (£2bn) since it defaulted on its Global 2012 and 2030 bonds. Ramiro Crespo of Analytica Securities says the government will be able to "muddle through" as long as the oil price holds at about $40-$45.
Mr Correa may yet succeed in a buyback of foreign debt in which he is seeking to repay holders of Ecuador's defaulted bonds as little as 30 cents on the dollar. It was unclear whether bondholders would take up the offer, however, as Ecuador had defaulted out of an unwillingness to pay rather than an inability.
Jaime Carrera, a Quito-based economist, predicts negative growth of -2 or -3 per cent for the year, and says the growing number of unemployed, and those who work for as little as a dollar a day, is likely to cause growing social unrest.
"There is a very high level of poor people who know little of economics . . . they hate the bankers, they don't want them. They hate investors, they don't want them, they hate businessmen, they hate politicians, this is the populist rhetoric," he says. "Correa is a great manipulator of the feelings of the poor."
Mr Carrera predicts Mr Correa will abandon dollarisation, although he acknow-ledges that "the dollar is more popular than Correa".
But Mr Bonilla says Mr Correa will retain the dollar. "The dollar is not only a system of exchange in Ecuador, it's a symbol of economic stability," he says.
"You cannot exit the dollar without causing suffering to the most vulnerable people, which would have dramatic political consequences." Fander Falconi, foreign minister, told the Financial Times the government was unwaveringly committed to maintaining the dollar, although it exacerbated pressure on the balance of payments.
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