Thursday, April 21, 2005

Ecuador vs. The Economic Hit Man

Today, the Ecuador's President Lucio Guitiérrez was toppled by a mass-protest (after being sacked by the Ecuador Congress)... Since yesterday's posting on the Economic Hitman "Globalisation as Neo-Colonialism" mentioned John Perkin's comments on Ecuador, this news co-incidentally becomes a good live case study.

It is a somewhat paradoxical that President Lucio Guitiérrez - a former Army Colonel - was elected in 2002 on promises to oppose the "free-market" policies, which had left more than 62% under the poverty line.

Unfortunately, he reneged his promises, when a couple of months back, the World Bank approved a new $100 million loan for Ecuador. (where the total debt is already equivalent to 61 percent of Gross Domestic Product. Some 40 percent of Ecuador’s government spending goes to repay external debts).

The World Bank loan followed a February visit to Ecuador by IMF Managing Director Rodrigo Rato, who declared that Ecuador "must open its oil, electricity and pension sectors to private investment." Further, Ecuador needs "changes to labor market rules, restructuring of public enterprises and changes to social spending to provide more help to the poor majority."... Since last 4-5 years, IMF had been insisting that to repay back the loan,

  • 80% of Ecuador's new oil earnings must be used to service the debt (with another 10% to go into a fund to hedge against the price of oil),
  • increase cooking gas prce by 80%,
  • eliminate 26,000 jobs and
  • halve real wages for the remaining workers by 50 per cent...

    A certain IMF document cites 167 loan conditions - which look more like a financial coup d'etat, than a benevolent assistance to a stuggling economy.... And to think that it all stared by Ecuador taking a loan of $1.5bn in 1983 (and it used to be an OPEC country till 1992!!).

    In exchange for the loan, the Guitiérrez government agreed, in the World Bank’s words, to "reverse expansionary spending" - that is, cut the budget, and "enhance labor flexibility" by slashing jobs and weakening workers’ rights.

    Agreeing to IMF conditions, Guitiérrez recently unveiled those "changes" - a proposed law of "economic rationalization" that would privatize the pension system, dramatically raise the costs of electricity for consumers, sell off state enterprises to private capitalists, cut taxes to businesses and reduce workers’ benefit funds...

    Apparently people of Ecuador did not like these progressive reforms...

    Predictably, this has not been dubbed as one of those colourful "democratic revolutions", that one has been witnessing in Eastern Europe/Central Asia in the past couple of years/months....


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