SPECIAL REPORT - Desarrollando Ideas · Rafael Correa first ran for president as candidate for...

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BARCELONA BEIJING BOGOTÁ BUENOS AIRES LIMA LISBOA MADRID MÉXICO PANAMÁ QUITO RÍO DE JANEIRO SANTO DOMINGO Rafael Correa: Five years in power SPECIAL REPORT Quito, February 2012

Transcript of SPECIAL REPORT - Desarrollando Ideas · Rafael Correa first ran for president as candidate for...

Page 1: SPECIAL REPORT - Desarrollando Ideas · Rafael Correa first ran for president as candidate for Alianza PAIS (AP) in the 2006 elections; in the second round he beat the right-wing

BARCELONA BEIJING BOGOTÁ BUENOS AIRES LIMA LISBOA MADRID MÉXICO PANAMÁ QUITO RÍO DE JANEIRO SANTO DOMINGO

Rafael Correa: Five years in power

SPECIAL REPORT

Quito, February 2012

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1. INTRODUCTION

On 15 January 2012, Rafael Correa completed five years as Constitutional President of Ecuador. This document summarises the principal results of his handling of economic and social issues, national politics and international politics. It also contains a prospective analysis of the outlook for this year.

Rafael Correa first ran for president as candidate for Alianza PAIS (AP) in the 2006 elections; in the second round he beat the right-wing candidate, Álvaro Noboa, with 57% of the votes. In 2009 the new Constitution, drafted by the Constitutional Assembly, required the elections to be brought forward for all dignitaries, including the President of the Republic. On that occasion, Rafael Correa obtained the highest percentage of votes registered in presidential elections in the history of the country and won in a single round. His second term commenced on 10 August 2009 and will end on 24 May 2013.

The following points will be addressed below:

• Economy: principal macroeconomic indicators summarising the results of five years in government.

• Social indicators: landmarks on the results in the social area within the five years that Rafael Correa has been in power.

• National policy: summary of the main facts, relations with the press and the opposition, referendum and 30-S.

• International policy: relations with neighbouring countries and the search to consolidate a regional block to counter-balance especially the United States.

• Outlook for 2012: an analysis of the principal scenarios facing the country in 2012.

1. INTRODUCTION

2. ECONOMY

3. SOCIAL INDICATORS

4. NATIONAL POLICY

5. INTERNATIONAL POLICY

6. CONCLUSIONS, OUTLOOK 2012

LLORENTE & CUENCA

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2. ECONOMY

The new economic model of the Government focuses on reconstruction of the State’s capacity to guide and intervene in the economy. This model is accompanied by efforts to extend the benefits of developing to the marginal sectors of the population.

An initial analysis of the official statistics reveals sound management of the country’s economy in the past five years. The macroeconomic indicators show sustained growth1, together with heavy investment in the social sector, which has reduced poverty2 in the country. That reduction is backed by international bodies such as the Economic Commission for Latin America and the Caribbean (ECLAC)3.

The results of some of the principal macroeconomic indicators are set out below:

• Total Public Debt: The country closed the year with a debt representing 22% of the GDP (15% foreign debt and 7% internal debt). The public debt was 86% in 2000 and 32% in 20064.

• Debt servicing over social expenditure: Over the past five years, debt servicing over social expenditures was

1 Ecuador closed 2011 with a GDP growth of 9% and an 11.24% growth in the non-oil GDP. 2 Social expenditure grew by 3001 million dollars between 2007 and 2011, i.e. a 53% growth. Poverty in Ecuador was reduced by 4.8 percentage points.3 The Latin America Social Panorama Report for 2011 put Ecuador among the five countries that reduced their poverty rates.4 Ministry of Finance, BCE.5 Ministry of Finance, BCE.6 Internal Revenue Service.

reduced from 215.7% in 2006 to 98.5% in 2007, closing 2011 at 25%5. According to the Government, this means that the money is now spent on improving the quality of life of the Ecuadorean population.

• Inland Revenue Service (SRI): In recent years, the net total tax collection by the SRI has grown by 45%, closing 2011 at USD 9,509 million6. This value is expected to increase as a result of the tax reform that came into force in January 2012.

• Volume of credit of the Public Banks: According to figures published by the Central Bank of Ecuador, the volume of credit of public (state-owned) banks has grown by USD 751.8 million on average, in comparison with the period 2001-2006.

• Exports: Non-oil exports, especially, have grown over the period to close 2011 with a total of USD 17,682 million.

• Imports: Imports continue rising, closing 2010 with a total of USD 15,232 million and 2011 with USD 20,016 million.

• Balance of Trade: The non-oil trade balance showed a deficit over the period 2007–2011, while the oil trade balance posted a surplus. This is largely

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due to the variations in the price of barrels of exported oil.

In the government’s opinion, the importing of capital goods and commodities —the sectors that most contribute to the deficit—proves that the country is growing. Moreover, the strategic projects carried out by the government require those materials, so they are expected to continue gaining weight in the economy.

• Market liquidity: A greater availability of money, as a result of measures to protect the country from dollarization, means on a micro-economic level more money circulating on the market.

It also helps to improve citizens’ purchasing power, but at the same time raises indicators such as inflation and widens trade imbalances.

On a macroeconomic level, this liquidity gives the country a “cushion” to generate cash flows in times of economic crisis, thereby improving the country’s response capacity.

• Inflation: Before the dollarization system was adopted, inflation was rather high, peaking in 2000 at 91.0%.

From then on it was considerably reduced and has been kept almost every year in one-digit figures.

The highest inflation in the five years of the Rafael Correa government was 8.83% in 2008.

This was due partly to the flooding that spoilt crops and partly to pressure from international prices.

2011 closed with inflation higher than in 2010 and over-shooting the target set by the government. The injection of money in the domestic market through increased public spending also maintained a high demand for goods and services and put pressure on prices.

• Unemployment: Unemployment was reduced from 7.4% in September 2010 to 5.5% in September 2011. Underemployment was also reduced, from 49.6% in September 2010 to 45.7% in September 2011.

• Strategic sectors: The new development model needs funds to support the required changes in the economy. Therefore, the government has turned to the extractive sectors (especially mining) as a key element for the country’s economy.

Now, with an economy highly vulnerable to the foreign sector and which, therefore, depends on the health of its main foreign partners, it might seem a contradiction to point to such a sector, but the Government is trying to capitalize on the commodities boom before it slows down.

Moreover, in the new economic and development approach in the country, these new extractive

“We have grownmore than China in the non-oil sector”

Rafael Correa

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activities aim at redistribution and transformation of the economy to export bio-services and technology in the future.

This redistribution option could only be put into practice by changing the institutions and the laws regulating the use and handling of renewable and non-renewable natural resources in the country.

This change was a campaign promise in which, in fact, considerable progress has been made. The new regulation of natural resources in Ecuador incorporated the demands of anti-mining and anti-oil groups (made especially by native and environmental groups) to design the Constitution and the new Hydrocarbons and Mining Act, which radically changed the regulations of the extractive sectors of the economy.

The new laws created a legal framework to recognise the political response from all parties involved as a mechanism. However, in practice, the government has delegitimised the claims of those who have spoken out against the development of resources, especially mining resources. According to the Head of State, these groups would only have a legitimate option to challenge the extraction of resources through elections7.

Even so, the new system of regulating resources is supported by the building of a society based on a harmonious relationship with nature, which is explained through the concept of good living / sumak kawsay8.

According to figures published by the Ministry of Coordination of Strategic Sectors, 2011 closed with the highest value of investment in this sector: USD 4.2 billion, 76% more than in 2007. Most of this sum corresponds to the building of hydroelectric projects and work on the Pacific and Esmeraldas Refineries.

The principal results achieved in mining, oil and energy are summarised below:

• Large-scale mining: the Government hopes that the development of the new mining sector, which it has called “strategic large-scale mining”, will bring in some USD 16,790 million in the next five years, according to the figures of the Ministry of Non-Renewable Natural Resources. All these new mining developments are in the south, specifically in the provinces of Azuay, Zamora Chinchipe and Morona Santiago. The strategic mining projects are to be developed over a total area of 700,907.725 ha.Miners in Ecuador

7 Ministry of Finance, BCE. 8 The National Secretariat for Planning and Development (SENPLADES) upholds that “Good Living, rather than an original idea of the Constitution, is part of a long search for models of living (…) to seek claims against the neoliberal economic model” National Plan for Good Living.

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These projects are not yet mining operations in progress. There are small artisanal mining areas in the country, but the shift towards large-scale mining is under way.

After a number of failed announcements, the first agreement with the Canadian company Kinross was signed at the end of 2011 for operation of Fruta del Norte in Zamora Chinchipe. Contracts for the other concessions are expected to be signed during 2012.

• Renegotiation of oil contracts: In 2010 the government renegotiated the oil contracts, giving the State ownership of al the crude oil production and reducing the oil companies’ profits. This was one of the results of the Hydrocarbon Act reforms.

According to the minister of this area, Jorge Glass, this renegotiation brought in USD 1.2 billion, which will be invested in forthcoming years. The State will also receive a further USD 245 million from the oil price rise.

The marginal oilfields were negotiated in 2011. The oil companies undertook to invest USD 963 million in production and USD 242 million in venture prospecting in the coming three years. The renegotiation would

have generated approximately USD 1,288 million for the country.

However, the country has not managed to increase its oil reserves over the past five years. In 2006, the average daily oil production was 536,843 barrels. Between 2007 and 2011 that average was 498,2009.

• Energy: A decision was made in 2011 to build eight hydroelectric plants, with an investment of USD 4,983 million, which will double the country’s installed capacity when they come on stream in 2016.

The principal projects are Coca Codo Sinclair (1500 MW), Toachi-Pilatón (253 MW) and Sopladora (487 MW), to which some USD 2,800 million will be assigned. The 2012 budget assigns USD 604.72 million in four major projects, with which the government hopes to make up the deficit energy generation in the country.

3. SOCIAL INDICATORS

Much of the success accomplished by Rafael Correa’s government is due to its hard work to achieve the social change used as his rallying cry.

The social indicators have become the way of measuring the “citizen’s revolution” in a

“Saying no to mining is untenable, we are talking about multimillionaire

investments, the creation of thousands of jobs and huge revenues

for the State” Rafael Correa

9 Ministry of Non-Renewable Resources

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model of Government that has been classified by some sectors as welfare, but which is actually based on improving the quality of life of the Ecuadorean population.

The principal indicators in education, health, housing and public works are mentioned below.

• Education: In the past five years more than USD 7,391 million has been invested in education. There have been several controversies in this sector. The implementation of universal secondary education triggered off a number of protests in which students were injured.

The government response was to say that for the first time in Ecuador educational quality standards were being set. The results were: 4,600 schools rebuilt and enlarged, 10 millennium education units and 19,724 new teaching positions assigned to educational establishments. The charging of registration fees was banned in public education and the provision of “school breakfasts” increased.

• Health: This is perhaps one of the most social sectors with the greatest problems. The USD 406 million allocated to solve the health situation was apparently not enough, since there are still complaints about the poor hospital infrastructure and insufficient equipment and staff.

Dozens of new-born babies died in early 2011 in different hospitals throughout the country, there was a measles epidemic, many people were poisoned with adulterated alcohol and the internal dynamics were extremely complicated, bringing about the resignation of the former minister David Chiriboga. The President Rafael Correa then said a more technical profile was needed for that position, a specialist in administration rather than a physician, to put the sector back on its feet.

• Housing: The Government has made a major social investment through the Ministry of Housing (Miduvi), by virtue of which more families have access to housing.

More than USD 900 million has been invested in housing, handing over more than 216,000 dwellings, and over USD 100 million has been spent on providing drinking water and sewers.

• Public Works: Over the past five years, more than USD 3.9 billion has been spent on funding road works throughout the country. The improvement of roads is undoubtedly one of the most visible actions of this government and the President draws attention to it constantly.

4. NATIONAL POLICY

Rafael Correa is the first President in the past 100 years to remain in Hospital emergency

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power for five years in succession. In the situation of instability that has plagued the country in the past, he is the first to complete a term in office, which seems extremely important.

Rafael Correa has run in two presidential elections and several other election processes, which has given rise to the criticism that Ecuador has a plebiscitary democracy, a doubt that comes to light every time the President (as in the case of the mining operations) upholds that it is necessary to “win the elections” to earn the possibility to challenge strategic projects or government policies.

In his first elections, Rafael Correa faced a complex political scenario with players and a civil society that were not willing to trust the country’s political institutions.

A young economist, self-confessed left-winger and with no political experience, he managed to beat Álvaro Noboa in the second round in 2006. At first nobody believed in Rafael Correa’s capacity, neither analysts nor the media. But in the end he won with 57% of the votes. During his campaign Correa proposed a number of political transformations and he was able to channel the feeling of discredit in the previous institutions.

Rafael Correa, without a solid political party,10 realised that his only option was to “advertise himself” (Conaghan and De la Torre, 2008) to create a feeling of support and belonging to his political project, which would avoid the risk of being removed from office by the people’s discontent.

President Correa also acknowledged from the outset the importance of the Armed Forces in the country and the role they have played in times of instability. The President appointed a civilian as Minister of Defence, although he has managed to keep the military on his side, even though there have been numerous calls to order.

The Head of State was relatively unknown before his first campaign. His first strategy was to make himself visible and the media played an important role in portraying the image that the candidate created with his team. Correa was presented as a “humble man born in Guayaquil, an ex-boy scout, devote catholic, volunteer in the missions, scholarship-holder and a family man”11, but the team knew that such a “mild” candidate would not channel enough force to overcome the past. Hence the slogans “Dale Correa” or “Se viene el correazo” [approx.: ‘give it some belt’ and ‘the ‘strap’/belt is coming; both puns on the

Rafael Correa Delgado,President of Ecuador

10 Even now the dynamics of Alianza País (AP) is highly personal; no candidate can be seen that could obtain the necessary votes to get into power if Rafael Correa were to decide not to run for president. Alianza País (Patria Altiva I Soberana), was created in 2006 as an election vehicle in Correa’s run for president.11 Catherine Conaghan and Carlos de la Torre, 2008: The Permanent Campaign of Rafael Correa: Making Ecuador´s Plebiscitary Presidency.

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word for strap/belt —correa— and the President’s surname, which is the same word].

Right from the first campaign, Rafael Correa and his team have worked with the idea of recovering the sense of belonging to the country and, therefore, the project. One of the initial slogans “la Patria vuelve” [‘the mother country is back’] corresponds to that ambition. It is an element to build a sort of maternal belonging to the concept. Some time later, this slogan was changed for “la Patria ya es de todos” [‘the mother country now belongs to everyone’] in clear reference to the idea that it had been seized by a few and had now recovered its public nature.

The Constitutional Assembly that drafted the Constitution that entered into force in 2008 brought the elections forward for all the authorities in the country. The project of the Assembly, which faced strong opposition in Congress at that time, was wrapped up in a halo of publicity created by the President and the citizens ended up demanding the Congress to call the Assembly and controversial actions such as the removal from office of several deputies, which in other times would have caused tremendous discontent. But this time it was readily accepted by most of the population.

In the referendum to approve the Constitution, the government won with 82% of the votes and opened the doors to the current Political Charter, which is the first to recognise rights of this

nature and assign a greater role to the notions of planning for Good Living, through the National Planning and Development Secretariat (SENPLADES).

In the second presidential elections, Rafael Correa won in the first round, becoming the leader with the largest percentage of votes in the history of the country.

Moreover, the conducting of public affairs in the government is clearly public: the Saturday links which replaced the original “dialogues with the President”, the national chains, the travelling government cabinets, etc.

Correa has been very faithful to what he said at the beginning “I will be in campaign the four years because what this country needs most is to regain its hope. I will go to every corner of the nation to tell you that the mother country now belongs to everyone” (Rafael Correa, quoted in Carondelet en Campaña, 2008).

Relations with the press and opposition

During the first election campaign, Rafael Correa had to be as visible as possible. He gave all the interviews requested on radio, TV and for the daily press. Once in power, the President changed his speech, converting the press into its principal conflict, especially when the media began to reject the President’s actions. The Head of State has called them, among other things, “mafia, gangsters, ink assassins, savage beasts,

“I can hear those haters disguised as

journalists (saying) that the President insults,

slanders. Lies! I use irony, sarcasm, and those mediocre idiots consider

that a double insult” Rafael Correa

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horrendous fatsos and idiots that publish junk”.

The conflict perhaps reached its climax when the owners of El Universo and the former opinion editor, Emilio Palacio, were sentenced to three years’ imprisonment and a fine of USD 40 million. There were also several lawsuits against journalists who had, according to the President, slandered him and, therefore, should face the law.

Meanwhile, the President has discredited the opposition holding it responsible for the political and economic instability of the past and has called traditional politicians “hairy, gangsters, liars and dinosaurs doomed to extinction”12.

The opposition was very slow to react and, largely due to the absence of a solid figure to counteract, has gradually lost credibility.

30 September and the theory of a coup

On 30 September 2010, what began as a police protest for the legal reforms about to be approved by the National Assembly, built up and turned into one of the most serious conflicts in recent years.

In the morning, the President received reports that a police

station had rebelled in Quito against the Public Service Act which, according to information obtained from the police officers, eliminated some of their pay bonuses for promotions and medals. It appeared to be getting out of hand and Rafael Correa went to the police station to try to calm things down. But he did not succeed.

Instead, the police launched tear gas, causing serious breathing difficulties for the Head of State and forcing him to withdraw via a difficult route to reach the police hospital, where he was treated.

At this point there are several versions, but what is certain is that the President had to be rescued from the hospital by a military commando in the midst of heavy shooting, broadcast live on television.

The revolt ended with at least eight people killed, hundreds of people injured and a widespread distrust of the national police force. The government has forcefully insisted that Ecuador experienced an attempted coup d’état that day and that the President’s life was in danger. He asked the Institute of Intellectual Property to patent the phrases “forbidden to forget” and “30-S”, deriving from the events that occurred that day.

Rafael Correa and Álvaro Uribe at the Summit of the Rio 7 Group in May 2008

12 Conaghan.

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Judicial investigations have made little progress and the main participant have been declared innocent. According to the public prosecution department, there are still 18 proceedings in progress and three deaths not yet cleared up.

Referendum 2011

Carondelet fostered a new election process in the early months of 2011. The main issues referred to the reform of justice and institutional changes required to combat delinquency.

The government won on all 10 questions asked. However, the referendum showed that the ruling party had lost its electorate in the central mountains, since it was unable to equal the high percentages with which it had triumphed in the previous elections. The referendum determined, for example, that gambling should be declared illegal. But the most controversial questions proposed creating a Transitional Judiciary Council (which has been in office since July 2011) and the creation of a Media Regulation Council.

5. INTERNATIONAL POLICY

Ever since the present government got into power, Ecuador’s international policy has been based on the idea of recovering the country’s sovereignty. This idea has been behind all the decisions, at least at the discussion stage, in the renegotiation of the oil contracts.

Connections with Hugo Chávez have also been publicised from the outset, as has the idea of creating a block to counteract the influence of larger countries, especially the USA, in the region. This discourse is in line with that of the governors of the Bolivian Alliance for the Americas (ALBA), to which Ecuador belongs.

In 2008, the Armed Forces of Colombia bombed a FARC camp set up irregularly in Ecuadorean territory, in Angostura. In the attack, Raúl Reyes (FARC) and another 16 people were killed and the diplomatic relations between the two countries were broken off until very recently.

In 2011 the Ambassador of the United States in Quito was expelled from Ecuador following a Wikileaks cable mentioning corruption within the National Police. This measure was questioned by the entrepreneurs in the country, but the Government supported its decision on the notion of sovereignty. It had no impact on the economic policy between the two nations.

At the end of 2011, Ecuador was visited by Mahmud Ahmadineyad in his tour of Latin America. The meeting of the two leaders generated debate, especially regarding the record of violation of human rights of which the Iranian regime has been accused. Ahmadineyad was seeking new markets to minimise the impact of the new sanctions imposed by the United Nations Organisation

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(UN) and capitalize on the anti-imperialist feeling in the region.

6. OUTLOOK FOR 2012

On a domestic level, a politically difficult year is expected. The pre-campaign will begin, which will lead the government to refine all its resources to consolidate its position. Meanwhile, it will be an acid test for the opposition to prove whether it is able to generate a solid, coherent project to confront Rafael Correa.

Economically, the government will need more resources, especially considering that oil prices are expected to come down. In the dollarized economy, the country lost its capacity to print more money to generate liquidity, so

more measures are expected to prevent the flight of capital.

Mining resources will only be available in 2013 although Ecuador could receive advance payment in 2012 as an advance of royalties. The tax reform that came into force in January of this year will also provide the Regime with more money.

The trade deficit will continue, largely due to the weight of oil prices and capital goods. The measures taken to prevent the flight of capital will also affect prices.

In the environmental area, the country expects to continue receiving support for the Yasuní national park ITT initiative, despite the commencement of development of the Block 31 oilfield in the Amazon.

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REPORT PREPARED BY THE LLORENTE & CUENCA PUBLIC AFFAIRS TEAM IN ECUADOR:

Gonzalo Ponce, Partner and General Manager in Ecuador. He worked for more than 20 years in communications within international organisations and in the media.

María Isabel Vélez, Senior Consultant. She is a journalist specialising in investigation, with experience in communication consultancy and advisory services on a state level.

Verónica Poveda, Consultant. She graduated in Social Communication, specialising in Journalism and On-line Communication, with extensive experience in the media.

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Page 15: SPECIAL REPORT - Desarrollando Ideas · Rafael Correa first ran for president as candidate for Alianza PAIS (AP) in the 2006 elections; in the second round he beat the right-wing

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Because we have a new macroeconomic and social script. And communication is not lagging behind. It is progressing. d+i is a global combination of relations and exchange of knowledge that identifies, focuses and transmits new communication patterns from an independent position. d+i is a constant flow of ideas moving ahead of new trends in information and business management.

d+i LLORENTE & CUENCA exists because reality is not black or white.

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