Sunday, October 31, 2010

Ecuador: What’s behind the attempted Coup?

The cause of the attempted coup in October can be found in the backwardness of the Ecuador economy and its new dependence on Chinese imperialism. The least viable of ALBA, facing mounting debt Correa has moved to the right to open up the country to Chinese investment.  This has alienated sections of his support base in the unions and the indigenous organisations (Conaie) who largely kept out of the coup attempt. The Bolivarian populists blame these indigenous social movements as bought by US imperialism, instead of blaming Correa for opening up the country to Chinese imperialism. It is China that is spending billions building a new dam, opening up new mines and making loans for oil.

Under the heading ‘Has China just bought is own Latin American Country?’  one source reports China now finances a majority of the public energy projects underway in Ecuador. Recent deals include an 85% stake in a hydroelectric dam that will cover a third of the country's energy needs by 2016. 

Chinese firms will also take charge of most construction. As you can imagine if another country controlled our utilities, many Ecuadorians are extemely anxious, reports Asia Times: For his part, former Ecuadorean vice president Leon Roldos (1981-1984) maintained that the loan is illegal, because it finances a "turn-key contract" without "definitive studies or detail engineering", which he said is expressly prohibited by law. Ecuadorians are also upset by loans they call larger than necessary: Another contradiction, Roldos argued, is that although it is a fixed price contract, the financing deal is based on price indexing - adjusting amounts by the change over time in prices - for materials and labor power "using a more generous formula than the one normally used for Ecuador's public procurements". In an article published last week by the El Comercio newspaper, the former vice president said the dam was "severely overpriced" because the $1.98 billion price tag is $400 million higher than the cost projected in 2008.

Tongling Nonferrous Metals Group Holdings Co. and China Railway Construction Corp. may invest as much as $3 billion in a copper project in Ecuador, as China seeks to control more commodity assets to feed its economy. Production at the Corriente Copper Belt may start in 2013, Hu Guobin, vice president of a venture set up by the two Chinese companies for the project, said in an interview. Annual copper in concentrate output would start at 30,000 metric tons and double a year later, he said. Chinese companies spent more than $30 billion last year buying oilfields and mines as two decades of economic growth averaging 10.1 percent made China the world’s biggest metal and energy consumer. Copper prices have doubled in the past five years, driven by demand in the third-largest economy...Tongling, China’s second-biggest copper producer, and China Railway Construction, the nation’s biggest railroad builder, in December agreed to buy Canada’s Corriente Resources Inc. for C$679 million ($652 million) for the copper resources. The deal was completed and Corriente was delisted this month, according to a statement on Corriente’s website...The rapid expansion of smelting capacity in China, the world’s biggest producer and consumer of copper metal, has increased ore demand and spurred companies to invest overseas. Larger rival Jiangxi Copper Co. invested in copper mines in Peru and Afghanistan, and Zijin Mining Group Co. is seeking copper and cobalt assets in the Republic of Congo. The Corriente Copper Belt covers 17 deposits in the four main mining regions of Mirador, Mirador Norte, Panantza and San Carlos, China Railway said in December. Copper resources are about 11.54 million tons, based on initial studies, it said. Corriente was also involved in the exploration and development of gold, silver and molybdenum mines, according to the December statement.

Ecuador's government signed a loan agreement for $1 billion with the China Development Bank on 31 August 2010.  The loan will have two tranches, one for $800 million and another for $200 million. It will have a fixed interest rate of 6% per year for a four-year term and an additional six-month grace period. The loan will be used to finance Ecuador's investment programme for infrastructure and other budgetary outlays for the 2010-11 period. It will also be used to finance oil projects of national interest, said Finance Minister Patricio Rivera in a press release.The minister said that with this loan Ecuador had ensured its budget financing for 2010. In June, following meetings in Beijing, according the minutes of the meetings reviewed by Dow Jones Newswires, Ecuadorean Finance Ministry and CDB officials signed an agreement for state oil company Petroecuador to supply PetroChina with 36,000 barrels per day of Oriente and Napo crude or fuel oil until the total amount of the loan has been paid. In a decree signed on Friday by President Rafael Correa authorising to sign the loan, Correa said the operation involves Ecuador's Finance Ministry, state-run Petroecuador, Petrochina International Company and the China Development Bank. In July, Ecuador's National Public Planning Secretariat signed a memorandum of understanding with China's National Construction & Agricultural Machinery Imp./Exp. Corp, or CAMC, opening the door for potential financing by Chinese banks worth about $1 billion. Last year Ecuador's state-run oil company, Petroecuador, and PetroChina signed a two-year crude-oil supply contract. An initial $1 billion advance payment for the oil was made in August 2009 to Ecuador, with an interest rate of 7.25%.

Ecuador will probably tap the nation’s pension fund and seek a loan from China next year to help finance its estimated $2.7 billion budget deficit, according to Erich Arispe, an analyst at Fitch Ratings. South America’s seventh-biggest economy may need as much as 4.3 percent of gross domestic product to fund the “relatively large” deficit...Ecuador is using debt to increase spending on infrastructure projects and social programs in a bid to lower unemployment and boost economic growth, President Rafael Correa said in a June 5 statement. The nation’s default on $3.2 billion in bonds since 2008, declining oil production and a slump in private investment has crimped funding sources... The Finance Ministry said yesterday China delivered $800 million of a $1 billion loan agreement signed last month and will deliver the remaining $200 million in the “next months.” Ecuador owed China $3.66 billion as of July 31, according to a Finance Ministry report. The figure doesn’t include the $1 billion loan signed in August. 

US backing for the police and military who staged the coup attempt was probably to test the water to see if it had the support to remove Correa and replace him with a President aligned to the US rather than China. Correa is backed by the Bolivarian left populists who paint his reliance on China as a progressive alternative to the US. He is with Castro, Chavez and Morales, looking to Chinese ‘market socialism’ as the answer to US imperialism. Revolutionaries have to break this international popular front that unites Castro with Hu Jintao!

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