Ecuador Gets Chávez’d

11 May 2005 | The Nation

by GREG PALAST

George Bush has someone new to hate. Only twenty-four hours after Ecuador’s new president took his oath of office, he was hit by a diplomatic cruise missile fired all the way from Lithuania by Condoleezza Rice, then wandering about Eastern Europe spreading “democracy.” Condi called for “a constitutional process to get to elections,” which came as a bit of a shock to the man who’d already been constitutionally elected, Alfredo Palacio.

What had Palacio done to get our Secretary of State’s political knickers in a twist? It’s the oil–and the bonds. This nation of only 13 million souls at the world’s belly button is rich, sitting on 4.4 billion barrels of known oil reserves, and probably much more. Yet 60 percent of its citizens live in brutal poverty; a lucky minority earn the “minimum” wage of $153 a month.

The obvious solution–give the oil money to the Ecuadoreans without money–runs smack up against paragraph III-1 of the World Bank’s 2003 Structural Adjustment Program Loan. The diktat is marked “FOR OFFICIAL USE ONLY,” which “may not be disclosed” without World Bank authorization. TheNation.com has obtained a copy.

The secret loan terms require Ecuador to pay bondholders 70 percent of the revenue received from any spike in the price of oil. The result: Ecuador must give up the big bucks from the Iraq War oil price surge. Another 20 percent of the oil windfall is set aside for “contingencies” (i.e., later payments to bondholders). The document specifies that Ecuador may keep only 10 percent of new oil revenue for expenditures on social services.

I showed President Palacio the World Bank documents. He knew their terms well. “If we pay that amount of debt,” he told me, “we’re dead. We have to survive.” He argued, with logic, “If we die, who is going to pay them?”

We met two weeks ago in the Carondelet Palace, where, on April 20, his predecessor had disappeared out the back door to seek asylum in Brazil. A crowd of 100,000 protesters had surrounded the building, seeking the arrest of fugitive president Lucio Gutierrez.

“Sucio Lucio” (Dirty Lucio, as the graffiti tags him) had won election in 2002 promising to break away from the supposedly voluntary austerity plan imposed by the World Bank. Then, within a month of taking office, Gutierrez flew to Washington. There he held hands with George Bush (a photo infamous in Quito), and US Treasury officials instructed him in the financial facts of life. Lucio returned to Quito, reneged on his campaign promises and tightened the austerity measures, including raising the price of cooking gas. The public, after a dispirited delay, revolted. After Lucio fled last month, the nation’s congress recognized the vacancy in Ecuador’s Oval Office and filled it with the elected vice president, in accordance with the Constitution.

Given the oil windfall, Palacio sees no need to follow Gutierrez’s path to economic asphyxiation. “It is impossible that they condemn us not to have health, not to have education,” he told me. He made it clear that handing over 90 percent of his nation’s new oil wealth would not stand.

That’s not what the Bush Administration wanted to hear. Besides Condi’s attack, Palacio got the full “Chávez” treatment from the New York Times, which ran the headline “Ecuador’s New Chief Picks Cabinet; Leftist in Economic Post” after Palacio’s new finance minister announced Ecuador would put social-services programs first ahead of payments to bondholders. The Times said Palacio’s views “ruffled some feathers” (whose, we don’t know) and that foreign powers questioned the “legitimacy” of his right to office. Palacio smiled, “They don’t say which ones.”

Palacio seems an unlikely target of US official assaults. He comes off like a cardiologist you’d meet at an AMA convention. That is, in fact, what he is: a heart doctor who practiced in the United States for a decade, a man outside politics, affiliated with no party, brought in by Gutierrez to build a national health program. Hugo Chávez he is not: Palacio is conservative, pro-market, pro-American, but his patient, his nation, is in bad shape.

“Sick people are not going to produce anything,” he said.

I knew he’d been taken aback by Rice’s blast. Indeed, when an earlier president was removed for mental incompetence, the United States had insisted on the vice president taking office. But, unlike Palacio, that vice president, Gustavo Noboa, was a rightist who was happy to sign off on all World Bank terms, including the devastating decision in January 2000 to make the US dollar Ecuador’s official currency. The radical free-market dollarization plan led to collapse of the export market, decimation of payrolls and, for those still working, a halving of real wages.

Palacio told me he “received the explanation from Ms. Condoleezza Rice,” who reassured him she did not seek his removal. But reassurance apparently has a price. The morning we met, Palacio announced he would maintain US military bases in Ecuador (not a popular view) and would not object to Plan Colombia, the US war on guerrillas dressed as a war on drugs. As a physician, however, he did question chemical spraying of coca crops.

But on the oil money and bond payout he’s holding his ground, and with good reason. When the oil market went bust in the 1980s, so did Ecuador, and its bonds sold at dimes on the dollar. Now Ecuador’s debt sells at a full face value, yielding windfall profits to speculators of as much as 500 percent for those who bought cheap.

Palacio doesn’t object to paying off the bonds. The problem is that the World Bank and IMF want the principal of the bonds paid down early, a rare and financially suspect demand to make on any nation.

Who are these guys who hold the bonds? “We don’t know who they are, and that’s terrible,” the president told me. What’s terrible, says a United Nations expert who cannot be named, is that Palacio does know who they are: the old oligarchs who originally stripped the nation’s banks of assets in the 1980s, fled to Miami and now hold a mortgage on the nation. Palacio’s plan to move some of the oil money to social services threatens these bondholders’ windfall.

A closer look at the Structural Adjustment Program suggests that the World Bank may not be putting Ecuador’s interests first. Paragraph III-2 requires electricity rates to rise to double the average price charged in the United States, far above production costs. This is quite a boon to the Ecuadorean electricity suppliers such as Noble Energy of Houston and Duke Power of the Carolinas.

Outside the presidential palace, indigenous women in bowler hats and pigtails chanted, “¡Fuera todos! ¡Fuera todos!” Everyone out. As far as they are concerned, every one of the seven presidents who have entered office in the past
nine years has sold them out to the bondholders, to the oil companies, to the World Bank and its austerity punishments. To them, Palacio is just another in a long line of disappointments.

I asked the president what he would do if the World Bank and the Bush Administration nix his request for Ecuador to keep an extra tiny percentage of its oil money. Mindful that no Ecuadorean president since 1996 has served out his term, Palacio told me simply: “There is no way. There is no other way. These people have to listen to us.”

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