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WorldApril 2 2013

President eyes growth outside Ecuador's capitalist model

On the eve of his re-election, Ecuador's president Rafael Correa spoke exclusively to The Banker about why his new economic model is giving the country a more sustainable alternative to the "social holocaust" unleashed by capitalism. 
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President eyes growth outside Ecuador's capitalist model

"In this revolution – the citizens’ revolution – the citizens are in charge, not capital," says Ecuador's president Rafael Correa in an interview at the Carondelet presidential palace in Quito on the evening of his re-election in February.

He is smiling and relaxed; the polls went well, giving him a widely expected third stint in office after a landslide result won him 57% of the votes. His nearest but still very distant rival, a well-known banker Guillermo Lasso, was runner-up with 23.8% of the votes.

Ecuador’s recent prosperity played a large part in his successful re-election. Revenues from the 500,000 barrels of oil a day the country has been able to sell are protecting Ecuador’s new-found prosperity, transforming the public sector and producing improved living standards.

In the first days of 2000, amid what Mr Correa calls “a policy of financial desperation”, with the currency under pressure, then president Jamil Mahuad embarked on the radical step of adopting the US dollar as a substitute for its wobbly predecessor, the sucre. By January 21, Mr Mahuad had been replaced by his vice-president, dollarisation was confirmed and political disorder reigned.

“Ecuador was never a political or economic paradise,” Mr Correa admits, “but what was done in recent decades was indescribable.”

Socialist vision

It was no surprise, then, in 2006 when Ecuadoreans elected a new leader, they opted for Mr Correa, who had a completely different economic vision. Looking back to the troubled past, Mr Correa’s motto remains to this day: “It’s forbidden to forget.” He has indeed brought political and economic stability to a country that has had seven presidents in the past decade. He has done so while proclaiming himself a socialist, yet insisting his socialism comes more from Jesus Christ than Karl Marx.

The economic result of Mr Correa’s policies has been a transformation. Government finances have been fuelled by more efficient tax collection and by more direct income from the oil sector, which is increasingly under state control. These operations, which in 2001 scarcely amounted to $5bn, were estimated in 2011 to generate nearly $30bn. Foreign public debt has fallen from nearly $60bn previously to less than $20bn today. The Chinese are keen to buy crude from Ecuador and their government has an appetite for the country’s debt. Local entrepreneurs have seized business opportunities with enterprises such as new supermarkets full of goods hitherto unfamiliar to locals.

As a small country of 15 million people that has been invaded in recent years by its bigger and more powerful neighbours Colombia and Peru, and come under sustained criticism from Washington, sovereignty is a prized asset in Ecuador.

Mr Correa is unafraid to take an independent line. He argues controversially that developing countries should not rush to embrace free trade. He is wary of the International Monetary Fund, World Bank and the Inter-American Development Bank, which, he says, “have promoted and perpetuated a pattern of capitalist accumulation which brought on an unprecedented social and ecological holocaust”.

Sustainable approach

In this context as leader of a country with a wealth of plant and animal life, not least in the High Andes, the Amazonian jungles and the Galápagos Islands, he argues for conservation. The Yasuní-ITT initiative is a proposal to refrain from exploiting national park land for oil in return for 50% of the value of the reserves. The area contains more than 800 million barrels of oil that, if not consumed, will avoid the release of 400 million metric tonnes of carbon dioxide into the atmosphere. Ecuador is collecting a few billion dollars from ecologically concerned governments, schemes and even individuals, committing it to a trust fund administered by the UN Development Programme in return for Ecuador's undertaking to leave the fuel in the ground.

With new money coming from the German government in 2013, the first disbursement of some $9m was committed in January to build a hydroelectric scheme near the provincial capital of Loja, which could put an extra 5 megawatts into the national grid. The fund has so far collected $300m, a start on the target of $3bn that the Ecuadoreans and their sponsors want to raise.

Another more controversial declaration of sovereignty has been Mr Correa’s decision to shelter Julian Assange, the Australian creator of Wikileaks, at its embassy in London, despite British objections. “Our decision is that of a sovereign country,” he says. The British Foreign Office had earlier hinted that it could seize Mr Assange from the embassy, but has since said there is no threat to enter the embassy; a move Mr Correa calls “very wise”. Bilateral talks continue on the Assange case. 

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Read more about:  Americas , Ecuador