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.

Friday, June 19, 2009

Ecuador's Correa tough, but avoids takeovers

* Leftist president unlikely to nationalize oil, mines
* Correa sees nationalization as inefficient
* Lower oil revenues make future takeovers difficult
By Alonso Soto

QUITO, June 18 (Reuters) - Ecuadorean President Rafael Correa will likely keep from nationalizing oil and mining industries even as he promises to get tough on investors and his leftist allies in the Andes step up takeovers.

Correa believes nationalizations are inefficient for a government struggling to run its own companies, like state oil firm Petroecuador, aides and analysts say. Paying for takeovers would also be difficult as the global crisis trims the OPEC member's oil revenues.

Nationalizations were never part of Correa's government plan when he was first elected in 2006, backed by a broad leftist alliance that ranged from old-school communists to well-off businessmen.

Correa's "21st century socialism" aims to bolster state control and squeeze more benefit from companies extracting natural resources that are already owned by the state under the constitution, officials say.

"Nationalizing companies is not on the horizon. Our goal is to defend the interests of Ecuadoreans and there are other mechanisms to do just that," Minister of Politics Ricardo Patino, one of Correa's closest allies, told Reuters.

"We want to change the role of the state, but not turn it into a socialist state like in the 19th century."

Correa's close ally Venezuelan President Hugo Chavez, an ex-paratrooper, has increased nationalizations of key sectors of the economy from oil to steel and telecommunications as part of his drive to forge a socialist state.

Bolivia's Evo Morales, a former coca farmer, has also keep up takeovers of assets that range from jet fuel companies to natural gas pipeline firms. Last month, he nationalized a division of British oil company BP.

"You will never understand us if you compare us to Venezuela or Bolivia," said Patino, who briefly worked for the socialist government of Nicaragua in the 1980s.

Like his allies, Correa, a former economics professor, has shocked foreign investors, first with a surprise tax hike on oil companies that sparked international lawsuits and more recently with a default on $3.2 billion in global bonds.

But after two years in office, the academic has refrained from taking over oil companies and never mentioned nationalization when he terminated deals with a Brazilian construction company and a small U.S. oil company.

"We never discussed nationalizations," said Galo Chiriboga, who was Correa's oil and mines minister for a year. "President Correa is very clear that an economy works with both the private and public sectors."

With less oil cash in hand, Correa has also moved quickly to promote foreign investment in mining to jump-start the nascent sector worth billions of dollars. Canadian miners such as Kinross and Corriente have found world-class precious metals deposits in the Andean country.


After a re-election win in April, Correa has renewed threats to toughen his stance on investors, but close aides and analysts said that is part of a negotiation strategy to get more benefits for the state in new oil deals.

Ecuador is gearing up for what are expected to be tough negotiations with private oil companies, like Spain's Repsol, to overhaul agreements that will give the state more control over the sector.

In an April interview with Reuters, Correa said there was no need for oil nationalizations, but his government will continue with its hard line with investors.

"With the right contracts, that (oil nationalization) will not be necessary. We need to be smart and make these foreign companies work for the country," Correa said. "We will have exactly the same position, absolute toughness to defend the interests of the country."

Still, Walter Spurrier, an economic analyst with Grupo Spurrier, says Correa's threats and risky negotiation tactics have hurt investment in Ecuador.

"Correa wants more state intervention, but he doesn't believe in an economy completely run by the state," Spurrier said. "But he needs to be careful with his threats as investors confidence erodes quickly."

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