Moreno’s Neoliberal Restoration Proceeds in Ecuador

Photo Source UNICEF Ecuador | CC BY 2.0

An interview with Andres Arauz

Lenin Moreno won Ecuador’s presidency in 2017 by campaigning to continue the economic policies of Rafael Correa (a leftist who was in office from 2007 until 2017) but upon taking office immediately shifted dramatically to the right. Andres Arauz, a former member of Correa’s economic team whom I interviewed for Counterpunch in May, provides an update on Moreno’s remarkably cynical Neoliberal Restoration. In addition to the troubling state of Ecuador’s economy under Moreno despite increased oil prices that help Ecuador, Aruaz discusses major assaults on the rule of law, looming corporate capture of Ecuador’s highest courts (including the role played by some environmentalists in helping it happen) and the fact that candidates in upcoming elections are forced keep alliances with Correa secret to avoid disqualification.

Joe Emersberger: Has public spending actually gone down under Moreno, after all his allegations that a legally mandated debt ceiling was surpassed under Correa and that money was lost to corruption, or has it merely taken a different form?

Andres Arauz: No, public spending has not gone down. Spending in public works has decreased dramatically, but he increased subsidies for the rich through tax rebates and interest payments. The Moreno government’s argument has been that excessive public debt was taken on in previous years and that we now struggle with a lack of liquidity. That evades a very important consideration. The Moreno government itself has been damaging its own reputation as a credit risk in international and domestic markets by claiming we were over indebted when that wasn’t the case. Imagine going to a bank and saying “please lend to me but I can’t pay you back”. The bank will tell you “then what are you doing here?”. The government itself, out of its own political mediocrity, its desire to damage the previous administration, has damaged its own credibility with financial markets and other sources of bilateral loans such as China. People who apply for loans will, if anything, be a bit overoptimistic about their finances, but this government does the opposite.

Additionally, Moreno’s accused Correa’s government of having exceeded a legal public debt limit, but then his brilliant solution to this alleged problem wasn’t to reduce the debt, like Correa famously did in 2008-9, but to remove the legal limit.  A law was approved to remove it entirely for the next 4 years. That generates concern, because now this government has no limit.

The government also now requires that any surplus revenue from high oil prices has to go into a fund. The budget was based on a price of $45 per barrel, but prices this year have averaged around $70. In spite of the fact that the law is in force, the fund hasn’t been created. Not one dollar has been deposited in any such fund, so they disregard their own self-imposed “austerity”. Why? The reason is that the government also issued two decrees.

One decree eliminated the Law of Energy Sovereignty that established that windfall oil revenues were to be shared 50/50 with the Ecuadorian government. So that law no longer exists. A second decree did the same in the mining sector. The windfall revenues are no longer available to the government because they have given them away to transnational corporations. It shows the implications of Moreno’s political about face.

Another thing is the so called “Trole” law that was approved a few months ago.  It changed a bunch of regulations and was aimed at blocking the state’s ability to finance itself internally, to get loans from within the country.  That was clearly done to be in tune with transnational capital markets. The best example of this is that instead of getting $500 million internally – something that would have been very easy for the Central Bank or the Social Security institute to provide – the government had to go to Goldman Sachs and guarantee the loan with $1.2 billion in bonds. So the sustainability of our public finances is now a concern.

JE: I assume the point you were alluding to initially was that Ecuador is still under-developed and needs a great deal of public investment? 

AA: Of course our public investment needs are still numerous. We still a need a lot of investment in electricity infrastructure, health, education, agricultural infrastructure, potable water, sanitation, and housing. All of that is part of Moreno’s presidential campaign platform that he has simply not bothered to comply with because he has dedicated himself to destroying Ecuador’s financial credibility – which ends up undermining his own campaign promises.

But I actually did not allude only to the development needs that are still huge in Ecuador, but to the fact that macroeconomic sustainability is at risk. Your readers should know that Ecuador adopted the US Dollar as its currency in 2000, so it cannot adjust its exchange rate as most countries do. Look at how the flow of dollars out of Ecuador has evolved so far in 2018. Compared with the same period in 2017, 25 percent more dollars flowed out of the country. We are talking about an outflow between January and September of $14.8 billion. That’s $3 billion more than in the corresponding period last year, around 3% of GDP. To put that in better perspective, remittances from migrants living in the United States and Europe, is around $3 billion per year. While Ecuadorians abroad struggle and sweat to transfer dollars to their families back home, Ecuadorian capitalists transfer out 5 times as much. That is the main threat to the Ecuadorian economy which depends on dollars circulating inside the economy. The outflow of dollars grew 25 percent, but the economy is not even going to grow by 2 percent. That is the impact we are seeing on the sustainability of Ecuador’s dollarization and its balance of payments.

JE:  What was the main thing Moreno did to facilitate this capital flight you mention?

AA: It was a combination of things. In the first place he didn’t renew import tariffs as he could have under WTO rules.

JE: They could have been renewed?

AA: The WTO does not have rules limiting how many times they can be used provided it is justified. Since Ecuador is “dollarized”, there is ample justification, but he has decided not to do it.

Then [on top of not renewing import tariffs] his own Minister of Commerce sided with foreign countries against his own when the Andean Community asked Ecuador to remove a fee to process imports. With that fee (for Service Against Contraband) eliminated, two things happened. First, the smuggling and the illegal exit of dollars was facilitated; second, import costs are reduced so the legal exit of the dollars was facilitated.

On top of all that, the “Trole” law, which revised more than twenty laws, eliminated a tax on the exit of dollars and provided additional exemptions so that the Ecuadorian capitalists can more easily launder money: set up companies in tax havens, put money there, then bring it back as if it were foreign investment.

All of this facilitates the outflow of dollars from Ecuador without any regard for the sustainability of our balance of payments.

The situation is so grave that neoliberal commentators have begun to construct a Panglossian fairy tale theory in which they claim that it does not matter if Ecuador runs out of dollars because dollarization survives on its own. Believe me, dollarization needs physical dollars – I worked in the Central Bank and we used to ship a planeload of dollars every week or so.

JE: Do the elites in Ecuador care about a crisis if they can use it to do more things that they want? It all depends on who you can blame it on.

AA: Indeed. Their entire economic discourse revolves around saying that everything is Correa’s fault, that Correa left the country bankrupt, and thus the environment is prepared for the adjustment that’s coming. They’ve just announced massive layoffs at the end of this year in the public sector. They’ve also said that they want to implement measures to “facilitate wage competitiveness” which is a euphemism for reducing wages. They need that the economic situation to get even worse to justify taking these measures. However, de facto, they have already been doing that through the labor ministry’s lax enforcement of labor laws. Weakening labor rights in that manner effectively brings wages down.

JE: You think Moreno feels he has enough media support to push through a drastic adjustment quickly?   

AA: Until now the tactic has been to proceed slowly by linking the issue of corruption to public finances. Figures are used without any academic rigor to depict corruption as our big macroeconomic problem. And until now Moreno has managed to have some success selling that story. However, that approach is losing effectiveness. Popular outrage is growing and it will be harder to implement a major adjustment. It remains to be seen how much this gradual adjustment can be managed as it impacts the population.

Perhaps the greatest damage to Moreno’s credibility in the last month has to do with a large scale financial fraud in which a key culprit was the Secretary of the Presidency of the Republic who owns a company that had been making charges on debit cards for alleged health care or insurance assistance services of between 2 to 5 dollars from each bank account. We have hundreds of thousands of people affected. We have documented in the Observatorio de la Dolarización. This character, this Secretary of the Presidency, shared these illicit charges with banks and he also had offshore companies in tax havens. It shows the kind of people who are now leading the country in public administration.

JE: When Moreno was elected voters passed a law at the same time that prevented public officials from having money in these offshore tax havens. How did they get around that?

AA: Some people did not declare them. Others have declared a day after taking office, or a month after. In one case it seems the person actually forgot. Sometimes they transfer ownership of the offshore company to children to evade the law. But a good thing about the law that was approved in the referendum was that it clearly prohibits the transfer to relatives as a way to evade the restriction. So part of the recent scandal is the total negligence of the control authorities who were supposed to verify the offshore holdings of this minister.

JE: With Moreno’s handpicked “transitory” CPCCS sitting over top of all these judges and control authorities doesn’t that also tell people not to investigate where it would not be welcome to Moreno and his allies?

AA: Yes.  We have had public statements by Julio Cesar Trujilio, the president of the “transitory” CPCCS, in which he made prejudiced remarks about authorities that he was about to supposed to evaluate impartially. On several occasions the body has directly interfered with the judiciary: first prohibiting the required contests for prosecutors and judges. They designated an interim prosecutor general. They designated the members of the Judicial Council without contests. Then they stripped the judicial council that they appointed of the jurisdiction over the evaluation of judges. It’s one brazen intervention in the judiciary after another that just doesn’t end.

JE: They also just fired the Constitutional Court which the National Assembly does not even the power to do, even though it was too cowardly to stand up to Moreno’s bullying.

AA: It’s terrible – a violation of the rule of law. This council cannot evaluate, and worse dismiss, the Constitutional Court and declare a constitutional vacancy. We are the laughingstock of the planet today. There is no longer a body that can protect constitutional rights. All citizens have been placed in a very vulnerable position. It was a mediocre Constitutional Court, but its judges could not be dismissed like that.

Returning to the issue of the economy, the importance of having a new Constitutional Court is revealed by the workings of the transnational power because the National Assembly – at the request of the foreign trade minister (Pablo Campana) who basically conveys the demands of the United States and its transnational corporations – has requested that the Constitutional Court change its interpretation of an article in the constitution that prohibited the signing of bilateral investment protection treaties. Those treaties have benefited Chevron, Occidental, Burlington and other North American companies that have extracted wealth from Ecuador. Those treaties were declared unconstitutional in more than twelve rulings by the previous Constitutional Court. With Moreno’s government, he has requested the yet to be designated new judges to provide a “reinterpretation” so that those infamous treaties can be signed again.

We see the clear influence of transnationals and in particular of Chevron whose officials have met both with the foreign trade minister, by his own admission, and with other Moreno government figures through the Washington lobby group called AS / COA (American Society and Council of the Americas).

JE: Do you think the new court will annul the $9 billion judgement against Chevron?

AA: Of course. Yes. The sad thing is the nefarious role of the international arbitration tribunal. It said that after the Ecuadorian Supreme Court ruling in favor of the Lago Agrio plaintiffs (Chevron’s victims) is annulled [as the tribunal declared it must be] the victims still have the right to sue Chevron but not collectively. The victims can only do so individually according to the tribunal. Each person in the indigenous communities has to initiate an individual lawsuit against a gigantic Corporation. The influence of transnational power on that decision is more than evident. The tribunal cannot dictate the constitutional rights of citizens. At most, it could have ordered compensation from the Ecuadorian state to Chevron, but it cannot dictate what the internal norms of a country’s judicial system must be.

JE: Do you think there could be a crisis soon due to the outflow of dollars?

AA: Yes. I believe that the situation is extremely sensitive with the year-end approaching. December is a month when a lot of liquidity is required for bonuses throughout the economy. The government will probably have to retreat from its opposition to financing itself internally, or it will have to rush into a deal with the IMF which will impose harsh conditions. The majority of bankers and banking-related sectors are saying that they must sign with the IMF soon to keep afloat in these coming months.

The alternative is controlling the outflow of capital, improving the situation of the external sector, using internal government financing, and promoting policies that grow the domestic economy so that government expenses and dollar outflows are smaller relative to the size of the economy. But we do not see any of that. We see them pushing us closer to the abyss so they can say “There is no other option than to go to the IMF.” They have systematically destroyed the alternatives because they want to leave us with TINA (There Is No Alternative). There is no will or desire to change course and say “Ecuador is a solvent country that has real assets, that has resources, that has productive potential”. That is not their discourse.

JE: Is privatization another way Moreno might raise money quickly?

AA: Moreno’s ministers always say that now foreign investment will be coming to Ecuador. Now they realize that the only “investment” that is going to arrive is through the privatization of public works built by Correa’s government over the past ten years. In fact, Santiago Cuesta, one of Moreno’s advisers, announced last week that they are going to privatize the national telecommunications corporation, a state-owned insurance company “Sucre”, the electric utility companies, and a gas-storage facility “Monte Verde” are all on the list. So we are talking about the privatization of strategic sectors. First, we have to oppose being taken down the path of privatizations. But, second, why do they want to sell at such low prices? If they constantly speak badly about hydroelectric power plants and other public works built under Correa, it drives prices down. If they truly wanted to sell at a good price they would say they are wonderful. Who are they working for? Is it for the Ecuadorian state or for those who want to buy up state assets dirt cheap?

JE: Privatizing, especially through giveaways, is a lot easier than building. What happened with the refinery they were supposed to be building in Manabi?

AA: They said in May the contract to build would be awarded. Then they said June, then August. As of October nothing has happened. They have no positive vision for the country.

JE: How badly has the financial relationship with China been damaged by Moreno?

AA: You’d have to ask the Chinese but there are a few clues. One is that President Moreno went to Japan to ask for money. It was a geopolitical move intended to show an alternative to the Chinese. Evidently, it wasn’t successful – not because of geopolitical issues, but because of what I said before. They are not showing that they believe in themselves. Nobody lends to a country that does not believe in itself. Moreno is supposed to visit China in December and we’ll see what happens there. Moreno’s supporters have been very critical of China. They say that the Chinese are corrupt, that public projects done with Chinese violated human rights, that they were overpriced and poorly done etc… So I don’t know if they will be very successful in China.

JE: What are environmentalists, who were so critical of Correa, saying about Moreno’s giveaways to transnationals?

AA: There were very few statements by environmental organizations against the [international investment tribunal’s] ruling in favor of Chevron, for example. The Moreno government immediately blamed Correa for the ruling! Environmentalists who dislike Correa found themselves without a narrative because they would be contradicting Moreno who also dislikes Correa. That tactic has contaminated public debate – attacking leftism or progressivism by labeling it as ‘Correismo’ has been used to delegitimize all social concerns. The indigenous organizations have reacted but from my perspective in a very timid way given that the pact that exists between Chevron and the Moreno government is so obvious.

Environmental groups and some local communities have had partial successes, short-sighted ones in my view, in obtaining local judicial rulings that for environmental reasons ordered the partial suspension of the mining operations of a couple transnationals in Ecuador.

JE: Those companies were Chinese weren’t they?

AA: Some of them are, others are Swedish or Canadian… I say they are short-sighted, because mining companies have announced that if local judges continue to favor environmental groups and local communities they will initiate international arbitration. They point to the examples of international arbitrations against Colombia, El Salvador, Costa Rica, and Peru as a threat, to say “this is what they are doing in other places and if you continue to bother us, we are going to do it here.” From a strategic point of view, environmental organizations and indigenous local communities have to give greater importance to bilateral investment treaties and international arbitrations. That’s huge. If they really believe in an environmental agenda they have to link it to opposing transnational arbitration. This government should not be allowed to sign the BITs (Bilateral Investment treaties) again or agree to international arbitration in the contracts that it signs with foreign companies.

JE: I was amazed during the referendum campaign (in late 2017, early 2018) the indifference of environmental groups towards question 3 that would restore the dominance of the traditional allies of the transnationals to the judiciary.

AA: Yes. That is what we are seeing. The big battle that we are seeing is not between social organizations and “Correismo” (or whatever you want to call the previous government’s movement). The true big battle – which the local environmental groups tacitly helped set up – is basically between capitalist factions, some more aligned transnational interests, others not, who are fighting among themselves over control of the judiciary. Mercantile judges who historically have placed corporate interests above human rights have been proposed as nominees to preside over the Supreme Court and the Constitutional Court. In the designation of the new Constitutional Court, there will not be progressive judges. There will be judges linked to the defense of the interests of capital. It’s sad because those designations last for nine years. That is where the destiny of our country will be decided.

JE: Last time we spoke we talked about the Moreno government blocking the registration of a new political party formed by Correa’s allies. It’s still being blocked isn’t it?

AA: The political blockade remains in place. Correa just announced that in spite of everything, we are going to have our own candidates in alliance with a little known political party in upcoming municipal elections in 2019, but he did not reveal who these allies would be. For now it is the only way to participate electorally. The candidates’ names or the political party are not yet made public to protect them from the political blockade.

JE: So if Correa names the allies in the 2019 elections those allies will be blocked from running.

AA: Exactly. When there were rumors the Socialist Party was having conversations for a partial alliance with Correa’s movement, the transitory electoral council started an unbelievable blockade against the Socialist Party by refusing to register the elected leaders of the Socialist Party.

JE: Ricardo Patiño (Correa’s former foreign minister) says the time has come for much more aggressive street protests. What do you think?

AA: I believe that the main weakness of our movement has been an inability to express in an organized way the support that we have. His call is precisely to try to generate the kind of organization that can have a presence in the streets, because there are fewer and fewer spaces in the institutional framework of liberal democracy. Electorally we have been virtually blocked from participation. In terms of broader political participation as well. Legally through judicial persecution (so-called lawfare) our leaders’ rights are being violated. Therefore what we have left is the social presence to which Ricardo Patiño refers.

Joe Emersberger is a writer based in Canada whose work has appeared in Telesur English, ZNet and CounterPunch.