WikiLeaks cables show how US lost Ecuador

Ecuador's President Rafael Correa and then Venezulean President Hugo Chavez in June 2009, when Ecuador became a full member of t
Friday, September 19, 2014

Cables sent from the US Embassy in Quito during Rafael Correa’s first three years as president document rising tensions between Ecuador and the US.

Correa’s government, first elected in 2006, increasingly rejected US hegemony and asserted control over Ecuador’s economic and political development.

The cables highlight the embassy’s preoccupation with Ecuador’s “difficult investment climate”, with many reports attempting to assess and predict Correa’s economic policies.

The embassy worried the Correa government would exclude the private sector from decision-making, and implement economic policies that would negatively affect US and other foreign investors in Ecuador.

To encourage Correa to “follow responsible and sustainable macroeconomic policies”, the embassy reported in December 2006 that it would ramp up “efforts to explain to the broader public the need to improve competitiveness and take advantage of globalization”.

The cable identified “redlines”, which “if crossed, should trigger an appropriate USG [US government] response”. In the economic sphere, these redlines were:

“Ecuador defaults on bilateral, multilateral or commercial debt. Dramatic increase in GOE regulation of the banking sector that forces Citibank out of Ecuador.

“GOE refuses to respect arbitral decision regarding seized Occidental Petroleum assets or seeks to terminate BIT [bilateral investment treaty]”.

Resource nationalism

In October 2007, Correa raised questions in Washington when he issued a decree raising the Ecuadorian government’s share of oil companies’ windfall petroleum revenues from 50% to 99%.

The petroleum windfall tax had first been enacted during the administration of Correa’s predecessor, Alfredo Palacio, in March 2006. The law had angered US Ambassador Linda Jewell who saw it as a populist measure which threatened US interests and violated the “sanctity of contracts”. US company City Oriente subsequently filed for international arbitration to challenge the law.

Not long after Correa’s decree, Jewell responded to questions from Washington on the “growth of resource nationalism in Ecuador”. While concluding that the Ecuadorian government’s actions “appear to be motivated by resource nationalism”, the Ambassador cautioned: “the USG cannot be out in front of the resource nationalism issue in Ecuador since we believe that doing so would back-fire, increasing nationalist sentiments and complicating the efforts of US companies to secure negotiated settlements.”

Instead, the Jewell promised that “we have and will continue to work the issue quietly behind the scenes, following the lead of affected companies”. She suggested that “Washington encourage broader U.S. associations, such as petroleum associations and other groups, to explain in the region the net benefits of the companies' presence”, with “an emphasis on companies' corporate social responsibility programs”.

Economic uncertainty

After its first year in office, Jewell concluded that the Correa administration’s “rhetoric was usually appreciably worse than the economic policies that it actually implemented”. A cable from February 2008 included a “scorecard” comparing the government’s words with its actions.

For example, Jewell wrote that while the government had said that it might default on illegitimate foreign debt, in practice Ecuador had met its debt obligations. And while the government had announced it would terminate its bilateral investment treaty with the US, it had not followed through with this.

In 2008, however, there were early signs that Ecuador might stray further from the economic path set for it by the US. In February 2008, Correa protested when the US Director of National Intelligence testified to the US Congress that Correa’s government was pursuing policies which “emphasize economic nationalism at the expense of market-based approaches”.

According to a cable from 13 February, Correa sent a diplomatic note to the Embassy criticising the US for questioning Ecuador’s “freedom to exercise its sovereignty and the right of self-determination, central pillars of international law, to choose the economic model that best harmonizes with the interests of the Ecuadorian society”.

A few days later, Jewell anticipated that the coming year would bring “less rhetoric, more changes and continued uncertainty”. The cable reported that Correa had a “highly ambitious economic agenda for 2008” and was planning new legislation in the areas of banking, mining, public sector enterprises and public sector procurement, as well as new labour and competition laws.

One positive outcome in 2008, from the US Embassy’s point of view, was the Correa government’s adoption of a USAID-designed “production and investment promotion program”.

As the cables from Ecuador illustrate, USAID is used by the US government to push its model of neoliberal capitalism onto developing countries. In this instance, the Embassy clearly believed that USAID had directly influenced Ecuadorian government policy.

'Lurch to the left'

By the beginning of 2009, however, the Embassy was lamenting the loss of the “Correa we thought we knew” and warning of his government’s “lurch to the left”.

In March 2008, a Colombian bombardment killed 20 people in a FARC camp near the border, and provoked a diplomatic crisis between Colombia, Ecuador and Venezuela. The US had defended Colombia’s actions and was believed by many Ecuadorians to have helped carry out the bombing raid.

Correa subsequently ended Ecuadorian-US intelligence cooperation and in July 2008 gave the Embassy official notice that the lease on the US forward operating base at Manta would not be renewed. New US Ambassador Heather Hodges took the “the undiplomatic delivery of the diplomatic note” terminating the agreement of as worrying sign of deteriorating relations. The note had been faxed to the Embassy moments after the press had been notified of the decision.

According to Hodges, Correa’s “lurch” was further evidenced by his trips to Iran and Cuba, where he had criticised US imperialism. Correa had also invited the Ambassadors of Venezuela, Bolivia, Cuba, Iran, China and Russia for a New Year’s lunch — “a slap in the face”, according to Hodges, for members of the diplomatic corps who had not been invited.
Moreover, the Correa government had announced in December 2008 that it would default on Ecuador’s commercial debt, crossing one of the “redlines” the embassy had set for it in December 2006.

Correa had also “aligned Ecuador more closely with the Bolivarian Alternative for the Americas (ALBA) by attending its meeting in Venezuela on November 26, although still without becoming a full member”.

ALBA was founded by Cuba and Venezuela in 2004 as an alternative to the Free Trade Area of the Americas (FTAA), which the Bush administration was trying to push on Latin America. Bolivia joined ALBA in 2006, Nicaragua in 2007 and Dominica in 2008.

In contrast to the FTAA, ALBA’s aim is to promote development in member states through trade based on complimentarity and reciprocity rather than competition. The initial agreement between Cuba and Venezuela facilitated the exchange of medical and education resources from Cuba with oil from Venezuela.

Hodges wrote: “we are conveying the message in private that Correa's actions will have consequences for his relationship with the new Obama Administration, while avoiding public comments that would be counterproductive”. However, the Embassy did “not recommend terminating any USG programs that serve our interests since that would only weaken the incentive for Correa to move back into a more pragmatic mode”.

Deteriorating relations

It wasn’t long before Ecuadorian-US relations took another turn for the worse over Ecuador’s refusal to submit to US dictates.

The US had objected to Ecuador’s appointment of a new head of a joint Ecuadorian-US police unit on the grounds that it had been made without US involvement. On January 8, a US attaché wrote to the Ecuadorian government saying that the US would withdraw financial support for the unit.

In response, Correa announced that his government would expel the American attache who wrote the letter, and told that the US that it could keep its “dirty money”. Speculating in a cable as to the reasons for this reaction, Hodges wrote that Correa had “returned a few days earlier from a trip to Venezuela, where Chavez may have pressed him to be more critical of the United States or where his revolutionary fervor may have been re-energized”.

In June 2009, Ecuador became a full member of the Bolivarian Alternative for the Americas (ALBA), marking a shift further away from the US sphere of influence and closer to Ecuador’s regional allies.

[This is the fifth part of a seven-part series investigating about 1000 cables leaked by the US Embassy in Quito and published by WikiLeaks, most of which have not been reported on in English before.]

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