[Marxism] Ecuador's Correa Rattles Investors (WSJ)
walterlx at earthlink.net
Tue Nov 28 12:16:06 MST 2006
The cautionary note struck by Louis's subject line quite appropriate today.
The interests backed by Washington lost yet again in Ecuador with Correa's
big victory over Naboa in Sunday elections. These imperialist commentators
don't need a weathervane to know which way the wind blows. Now that they've
lost an important round, some of them think that they must roll with Correa.
What other choice to they have? Since he won a parliamentary democratic vote
with a two-to-one majority? That's even slightly more than Bush won in 2000
and 2004, and even higher than the margin by which the Democrats took
of the United States Congress this year. So Correa's sitting pretty, at
for the moment, during his honeymood period. Looks from the reports that
off and running in a good way, advancing programs to make life better for
working class and peasantry of his country, and defending national
in the world market as well. This constitutes yet another big step on the
to Latin American Integration. I'm not sure how this relates to ALBA and to
MERCOSUR, but I'm sure it's good for prospects in Latin America in general.
Nestor? Please advise! Thanks.
Los Angeles, California
LOUIS PROYECT WROTE: "Some imperialists okay with Correa and Chavez"
VENEZUELAN FM: LATIN AMERICA FINALLY TAKES THE HELM:
SAVORING VICTORY, CORREA STARTS TO WORK:
LA ALBORADA: Freedom and elections
(La Alborada is the publication of the
Cuban American Alliance Education Fund.)
Humorous, wordless graphic from today's edition of Juventud Rebelde:
November 28, 2006
Ecuador's Correa Rattles Investors
To Renegotiate Debt Stirs
Selloff in Nation's Bonds
By JOHN LYONS
November 28, 2006; Page A6
BOX INSERTED IN WSJ PAGE:
Rafeal Correa, Ecuador's newly elected
president, wants to change his country.
How he plans to do it:
1-Cut debt payments to international
creditors by as much as half
-Dissolve Congress and re-write the
constitution to reduce the legislative
and judicial power of established parties
-Boost government spending for
for low-income housing and other
-Raise th eminimum wage
-Reduce U.S. influence by rejecting
free-trade talks with Washington and
letting a U.S. lease on a coastal military
-Increase economic links with Venezuela
and other countries in the region,
as well as with Europe
Rafael Correa, Ecuador's newly elected president, says he plans to
remake his oil-rich Andean nation by repudiating debt, dissolving
Congress and rewriting the constitution. But his populist rhetoric is
already being rebuked on Wall Street, and if he tries to put his
plans into action, he will face plenty of opposition at home as well.
Investors Monday dumped Ecuador's sovereign bonds due to concern that
Mr. Correa will make good on his promise to cut Ecuador's
debt-service costs by half, which sent yields soaring. One measure of
the impression Mr. Correa has made on the markets: Ecuador's
credit-default swaps -- essentially a bondholder's insurance policy
against government bankruptcy -- cost as much as Iraq's.
"Correa wants to press the reset button on Ecuadorean politics," says
Andres Mejia, an Ecuadorean political analyst and current research
fellow at the United Kingdom's University of Sussex. "This is going
to be incredibly difficult."
With 63% of the ballots from Sunday's runoff counted, Mr. Correa had
a 63.3%-36.7% lead over banana magnate Alvaro Noboa. Though the
margin could narrow, observers expect Mr. Correa to be confirmed as
Mr. Correa's international agenda includes scuttling talks with
Washington on a free-trade pact and letting a lease expire on a U.S.
military based used to combat narcotics trafficking. Domestically, he
would rewrite Ecuador's constitution to reduce the power of political
parties and curb the independence of the Congress and courts.
Each change would put Mr. Correa in conflict with powerful interests,
ranging from exporters, who say a U.S.-Ecuador free-trade pact is
critical for them to compete in the huge American market, to recently
elected lawmakers who would jealously guard their power and
independence. Ecuador's Congress, which is dominated by Mr. Correa's
rivals, has extraordinary powers to depose presidents -- and has done
so before. Ecuador has had seven presidents in the past 10 years.
For his part, Mr. Correa appears to relish a showdown with Congress,
which he has referred to in the past as a "sewer." "Let's stop
worrying so much about Congress," he said. "We're not afraid."
Mr. Correa, a 43-year-old U.S.-trained economist, argues that his
wide margin of victory gives him a mandate to push through an agenda
of radical changes designed to alleviate poverty and wrest control of
the country from a small political elite. He looks for help to
Venezuela and its populist president, Hugo Chávez, who has helped to
bail out friendly governments by lending them hundreds of millions of
But oil-rich Venezuela may be a special case. More on point may be
Bolivia, where President Evo Morales came to power in December with a
far stronger mandate for radical change than Mr. Correa, who gained
in the polls by stressing moderate positions and downplaying his
populist streak. Yet Mr. Morales's plans haven't advanced much. He
couldn't get enough support in Congress to rewrite Bolivia's
constitution, and his government lacks the resources to manage oil
and gas fields it has nationalized.
Monday's selloff in Ecuadorean bonds gives a sense of the obstacles
Mr. Correa could face. The president-elect has said he would like to
cut debt service to around 2%-3% of gross domestic product, about
half what it is today, though it is far from clear how he would do
Whitney Kane Gomez, a Morgan Stanley analyst, said Mr. Correa might
try to do that by restructuring Ecuador's bonds due in 2012 and 2030
-- two issues that were created the last time Ecuador defaulted on
its bonds and restructured them -- or reducing payments of loans to
multilateral lenders, or perhaps both.
These bonds could be targeted because there is a perception that
Ecuador's previous debt restructuring didn't go far enough. After
Ecuador defaulted, the country negotiated about a 40% reduction in
its debt load with creditors. A few years later, however, Argentina
negotiated at least a 70% write-off, making it seem that Ecuador had
left money on the table.
Mr. Correa's plans face a number of hurdles. Multilateral lenders,
such as the World Bank, are unlikely to approve a reduction in
Ecuador's debt-service bills. A debt renegotiation could hurt the
economy by shutting it off from international financing.
But the president-elect is betting he can stave off a crisis. Ecuador
has adopted the U.S. dollar as its currency, which shields it from
international currency speculators, and higher oil prices are pumping
up government revenue, reducing the country's need to borrow further.
Then there is Mr. Chávez. During a short stint as finance minister
last year, Mr. Correa flew to Caracas to arrange a $300 million loan
when it appeared that a World Bank credit line might fall through. He
would be likely to turn again to the Venezuelan president for help if
Ecuador has other financing needs.
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