“This is a great trap of the twentieth century: on one side is the logic of the market, where we like to imagine we all start out as individuals who don’t owe each other anything. On the other is the logic of the state, where we all begin with a debt we can never truly pay. We are constantly told that they are opposites, and that between them they contain the only real human possibilities. But it’s a false dichotomy. States created markets. Markets require states. Neither could continue without the other, at least, in anything like the forms we would recognize today” – David Graeber, Debt (http://libcom.org/blog/thoughts-david-graeber%E2%80%99s-%E2%80%98debt-first-5000-years%E2%80%99-03012012).

“The things we care most about – our loves, passions, rivalries, obsessions – are always other people; and in most societies that are not capitalist, it’s taken for granted that the manufacture of material goods is a subordinate moment in a larger process of fashioning people. In fact, I would argue that one of the most alienating aspects of capitalism is the fact that it forces us to pretend that it is the other way around, and that societies exist primarily to increase their output of things”
David Graeber, Revolutions in Reverse: Essays on Politics, Violence, Art, and Imagination

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President of Ecuador, Rafael Correa at the new City of Knowledge, Yachay University

Introduction

What has been called, and is no less, ‘the Ecuadorian Miracle’, is in big financial trouble. The problem is liquidity. Liquidity is the ability to convert an asset to cash quickly. Ecuador has little liquidity and less cash. To see why liquidity looms as a major problem for Ecuador, in part one of this four part series we must first look at just what this revolution, the one President Correa of Ecuador calls ‘21st Century Socialism’, has accomplished in its short seven years and why it is deemed a miracle.

Following this we will then look at the financial crisis that Ecuador is facing and how this tiny, semi-feudal country is coping with financial capitalism, spiraling debt and lack of liquidity. Special attention will focus on the role of imperialist China and how they have seized Ecuador’s oil fields and mining industries through leveraging ‘liquidity’ as Ecuador suffers a cash deficiency.

In part two we will examine the role of the Ecuadorian bond market which is paying large sums to weary international investors to acquire cash. We will turn our attention to some financial history regarding Ecuador to see just why the financial crisis the country is facing is a remnant of US imperialism, oligarchy rule under the canopy of late stage financial capitalism.

Part three of this series will look at the role of the ‘US too-big to fail’ banking system and the criminal banking giant Goldman Sachs and how they seek to recolonize the country through a financial full spectrum assault on Ecuador’s gold reserves. We will also look at the World Bank and how they play a role in debt ridden Ecuador.

Finally, in part four, we will ask some tough questions and look at how the international and domestic oligarchies are perched to use the crisis the country is facing to do away with all the gains made by 21st Century Revolution. A discussion will follow as to what Ecuadorians might do to avoid a coup d’état and the return of the elites, financial or otherwise.

Part one

The Ecuadorian Miracle

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Ecuador is not a socialist country by any means. The current government policies represent more those ‘left’ of Franklin Delano Roosevelt than they do those of Nicaragua, Cuba, Venezuela, or Bolivia which more than often associated with socialism or ‘communism’. However, as Ecuador attempts to crawl out of the sewer left behind by decades of US backed dictators and oligarchs, it’s remarkable what the country has accomplished in seven short years. The Ecuadorian Miracle has also provided a sound moral lesson for the world as to what happens when people are put before profits and social investment is put before self-interest and privatization.

To begin with, 15% of the Gross National Product (PIB) in Ecuador is invested in the public sector. Compare this to the US where gross capital investment by the public sector has dropped to a mere 3.6 per cent of US output compared with a post- World War II average of 5 per cent, according to figures compiled by the Financial Times.   US Politics and Policy, an online journal, noted this fact and summed the situation up quite succinctly:

“Public investment in the US has hit its lowest level since demobilisation after the second world…. (http://www.ft.com/cms/s/0/f0e71a16-4487-11e3-a751-00144feabdc0.html#slide0).

Not so in Ecuador. If we just look at Ecuadorian government investment in the public sector between 2000 and 2006, the government invested a paltry $2.8 billion dollars of public funds in the country to pay for basic needs. However, as of 2007 through 2013 the government of Ecuador has now invested over $20.9 billion in the public sector. This, while the US forces austerity, cuts social programs, deregulates environmental and industry standards, boosts its military budget and gives more and more power to multinational corporations at the expense of average Americans.

The program launched by Correa in 2007 is called “Buen Vivir” or ‘Good Living’. And below the figures show just how massive public investment has paid off in a few years for this country of 14.5 million people, three million of which are indigenous.

  • Ecuadorian urban unemployment is at 4.5%. This is the lowest unemployment rate in urban areas in the history of Ecuador.
  • Extreme poverty for the entire country has been reduced from 16.9% in 20-06, to 8.6%.
  • In 2006, before Correa took power, the minimum wage was $160 per month. It is now $340 per month.
  • Unemployment has fallen since 2006, from 37.6% to 25.6%, a whopping decline of 12%.
  • Between 2007 and 2013 over 9,500 kilometers of infrastructure has been constructed with a government investment of close to 6.5 billion.
  • Government investment in health care during 2007-2014 has been $9 billion dollars.
  • 2% of the Gross National Product of Ecuador (PIB) is being spent on higher education, the second largest investment of any country in the world in higher education, other than Denmark ( ).
  • 8 million students have received scholarships to attend some of the best schools in the world.
  • Close to $3 billion dollars has been given by the central government to subsidize water projects, potable water, and the management of sewage and disposability of waste.
  • 8 hydroelectric plants are being built for purposes of converting Ecuador into one of the largest exporters of what they call, ‘Clean Energy’, thereby replacing combustibles are their major export.
  • In 1990, under the dictatorships supported by the US, only 78% of the people of Ecuador had access to electricity. Now, 97% of the population has access.
  • The State Bank of Ecuador (what we think of as the Central Bank) has authorized $3.042 billion dollars in credits to municipalities between 2007 and 2013. This money is being used to build high speed trains, fix infrastructure, and beautify the cities with parks, support activities for children, the old and disabled.
  • Meanwhile, exports from Ecuador are at 4.5% imports remain at 4.2%.
  • The Central Bank of Ecuador has invested in one of the country’s largest exports, flowers. Flower exports and domestic sales combined have increased by 17% during the Miracle of Ecuador.
  • As to exports that do not include petrol, one of Ecuador’s great resources, the sale of products, both domestically and overseas, such as bananas coffee and cacao (used to make Swiss chocolate), have gone up 6.7%.
  • During the years 2000 through 2006, Ecuador received an economic expansion of 4.6%. Between 2007 and 2013 the country’s economic expansion was an average of 5.1%, growing to a 6% expansion between 2010 and 2013.
  • 12.6% of the entire Gross National Product of Ecuador (PIB) is used for external debt. This, according to the government, is one of the lowest in the entire continent.
  • Within the recently universalized, public Social Security System (2014), that covers both pensions and access to public health care, over 1,000,000 people have become affiliated and the numbers grow each day.
  • As to inflation, it was 4.16% in 2013 but has now fallen to 2.7%.

There is little argument that the gains in economic, education, cultural, social and political life have been spectacular and have had a positive impact on Ecuadorians. To take one example, one only has to get on the trains that have been recently built or the high speed subways to see how transport has improved.

Massive public investment in people and their needs is the great moral tribute we must confer to Ecuador and its people. It is important to also remember that these gains made by the Ecuadorian people and the massive investment in the public sphere took place as the US, and much of the rest of the ‘developed’ world, was experiencing a massive financial crisis unparalleled since the Great Depression of 1929.

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With statistics like those above along with the mammoth improvement in the lives of Ecuadorian workers, children, the old and disabled then how can the Ecuadorian Miracle be in trouble?

Ecuador is broke

The answer to the question above is simple: Ecuador is broke. They have run out of money. Lifting ones’ country from the stoop of feudalism and oligarchic rule to a moral and equitable society is not an easy task for Latin American countries. Centuries of imperialism by one power or another has meant that many Latin American countries like Bolivia, Venezuela or Ecuador now find that favoring public investment for the benefit of people is both costly, and certainly not what the capitalists, oligarchs and imperialist want to see happen. The latter prefer a hierarchy of privatized oppression and centralized power over public investment and social opportunity. They look at the role of the government, much as the elites in America, as helping to subsidize the wealthy classes.

And herein we have the problem: history has provided Ecuador (and many other Latin American countries) with stunning natural resources, not just environmental but also the country of Ecuador is rich in minerals, oil, and gold and silver. Yet with all the beauty of the Amazon and the Cloud Forests that envelop much of the country, the nation has failed to emerge as a producing country in the global system.   In fact, Ecuador produces little, if anything.

The often unkind, dialectic of history (over 500 years of conquest, oppression, oligarchy control, US imperialism, financial terrorism by private banks and more) has left this diminutive country caught between neo-liberal economic and military forces while the nation struggles to right itself in face of virulent US military power and international and oligarchic financial control.

Add to this the fact that the Ecuadorian media is controlled predominantly by the private sector (over 94%) which propagandizes the masses daily with lies, distortions and distractions, then the conditions and opportunities for the development of class consciousness remain difficult.

Everywhere the corporate owned media operate they operate for the elite one percent. Nowhere is this more evident than in Ecuador.

According to a study by UNESCO back in 2011 (United Nations Educational Scientific and Cultural Organization), Ecuador:

“In broadcasting, statistics from December 2010 by the Superintendency of Telecommunications show that there are 1,205 radio stations (short-wave, AM and FM) and 444 television channels, including the main stations and repeating stations for open-signal VHF and UHF, both privately owned a s well as public and community media. According to the same source, 83% of the television s channels are of a private nature, 17% are public and 0 % is community media. Concerning radio stations, 89% are private, 10.8% public and 0.2% community” (Assessment of Media Development in Ecuador, 2011).

The mainstream media in Ecuador, like in the United States, is really a deadly mix of propaganda, distortions, violence and entertainment. This is one reason that the Correa government has imposed a new media law, as of June of last year that among other things, calls for a redistribution of broadcast frequencies and reserves: 33 percent of frequencies for state media, 33 percent for privately owned broadcasters and 34 percent for indigenous groups (http://www.aljazeera.com/news/americas/2013/06/20136157289517936.html).  Of course this initiative has been called censorship by the oligarchs who control the press and seek to subjugate and colonize Ecuadorian minds through self-serving propaganda (http://www.dailycensored.com/author/danny-weil/page/2/).

Crawling out of centuries of neglect has also meant that the Ecuadorian people, for the first time, are experiencing a life they only dreamed of or saw on TV, if they ever dreamt or had a TV. Now, with high expectations for the further development, sustainability and continuation of a better life the Ecuadorian people must also come face to face with the fact that without money, the government cannot continue to make public investments. The Ecuadorian Miracle is appears unsustainable as it is currently being operated.

This is the economic and social quagmire the country finds itself in and what the Ecuadorian political class is doing about it is troublesome, if not downright dangerous. Yet when examined critically, it is all comprehensible.

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Ecuadorian students hard at work

China: El Nuevo Conquistador and the world-wide resource wars

Because the country does not produce much for the world market, Ecuador has largely been financing the Ecuadorian Miracle through debt. Ecuador’s 2013 budget called for spending that was $5.05 billion more than projected revenue, a figure equal to about 16 percent of planned public outlays, according to Finance Ministry data (http://www.bloomberg.com/news/2013-08-26/ecuador-receives-1-2-billion-loan-from-china-for-budget.html). The country’s debt is now almost $6 billion dollars.

China is one of the leaders in extending ‘credit’ or ‘debt’ to Ecuador as the country’s budget deficits soar to fund the Buen Vivir, or the ‘Ecuadorian Miracle’.

But this has come at a cost. Ecuador seems now a wholly owned subsidiary of China. The Chinese, the New Conquistadors, have taken control of Ecuador’s oil sector and much of its mining sector and they have their eyes on much, much more.

The colonization of Ecuador’s oil happened quickly. In April of 2010, Chinese firms were receiving around a third of Ecuador’s export oil. A year later the volumes had nearly doubled. By mid-2013, Chinese state-controlled firms were allocated 83 percent of Ecuador’s oil exports.

Ecuador pumps around 520,000 barrels per day (bpd), making it the smallest producer in OPEC. Yet, according to Petro Global News:

“In exchange for covering 61% of the country’s $6.2 billion financing needs in 2013, China last November secured the rights to up to 90% of Ecuador’s oil shipments in coming years (for comparison, China holds 23% of U.S. debt just held by foreigners) http://petroglobalnews.com/2013/11/china-now-controls-ecuador-crude-output/).

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How did this happen?

The financial shift to Chinese debt happened after Ecuador defaulted on $3.2 billion in debt in 2008 and lost access to credit markets.

It began shortly after taking office in 2007, when Correa declared a large chunk of Ecuador’s foreign debt “illegitimate” and “odious,” and the country defaulted on these loans in 2008. This left Ecuador a ‘pariah’ in the capitalist credit markets and the government began scrambling to balance its budget to pay for the massive public works and investment in their people. The Chinese saw an opening as Ecuador could not obtain credit, stepped in and became the country’s prime shylocks.

It was in July of 2009 when PetroChina offered the small country a lifeline. They deposited $1 billion in Ecuador’s public coffers. The “pre-finance” deal was to be repaid over 2 years and carried a 7.25 percent interest rate. Ecuador exclusively committed 96,000 barrels per day to Chinese firms in exchange for the deal.

As the loans began flowing into the public trough, Chinese firms gained favor in Ecuador. Incredibly, Ecuador provides visa-free services for Chinese tourists. But this is just a courtesy for the Chinese are currently involved in construction, metallurgy, petrochemicals, shipping and pharmacy, to name just a few industries. More recently China helped fund two of Ecuador’s biggest hydroelectric infrastructure projects and Ecuador may soon build a $12.5bn oil refinery with Chinese financing.

Ecuador owed China more than $7 billion dollars as of the summer of July 2012, more than a tenth of its GDP (http://www.theguardian.com/world/2013/mar/26/ecuador-chinese-oil-bids-amazon). Over 60% of all Ecuadorian debt is held by the Chinese. In America, this percentage is 23% of all debt.

China’s direct investment in Ecuador, not including financial sectors, reached $3.5 billion by the end of November 2013 and covered energy and mineral sectors. More incredibly, during an economic forum held January of this year (2014) in Beijing that was sponsored by the China Council for Promotion of International Trade, Vice-President, Jorge Glas of Ecuador, who was visiting China, encouraged even more Chinese investment in his country (http://www.chinadaily.com.cn/bizchina/2014-01/22/content_17252639.htm).

 Helping China exploit Yasuni

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Some might remember that in 2009, Ecuadorian President Rafael Correa was drawing praise from environmentalists and global climate change activists with a plan to keep Ishpingo-Tambococha-Tuputini, or ITT – an oil-rich area of Ecuador’s pristine Yasuni National Park – untouched by drilling. To be fair, Ecuadorian President Correa worked with the United Nations to create a trust fund that would pay Ecuador not to drill (http://amazonwatch.org/news/2013/0820-ecuador-stops-protecting-its-rainforest-to-pay-off-debt-to-china).

Basically the Ecuadorian government was telling the developed nations: “If you wish to protect the lungs of the earth from drilling and contamination as a result, then please help our country. We produce very little other than cut flowers, bananas and oil products. Please, a country with a 27 percent poverty rate can ill-afford to turn down a bounty equal to about a tenth of its gross domestic product. We need help to protect our environment and the earth.”

However, Correa was forced to cancel the project in summer of 2013 after global donors only ponied up $13 million in cash (and $167 million in pledges) out of the agreed-upon $3.6 billion. This is about half the revenues the country could expect to generate by extracting the petroleum. It was simply not enough to sustain the Ecuadorian Miracle.

Meanwhile that same year, Ecuador’s economic policy ministry was busy drawing up a private presentation for Correa’s staff in which they pledged to “make the utmost effort to support PetroChina and Andes Petroleum,” another Chinese-controlled driller, “in the exploration of the ITT” oil field (http://www.reuters.com/article/2013/11/26/us-china-ecuador-oil-special-report-idUSBRE9AP0HX20131126). The Ecuadorian government had bet to show.

Correa eventually scrapped the Yasuni initiative in August of 2013 and signaled that drilling could proceed in a small area of ITT. Petroamazonas, a state-run PetroEcuador affiliate will drill there. But in reality, Ecuador plans to auction off more than three million hectares of pristine Amazonian rainforest to Chinese oil companies. The issue: liquidity.

El Nuevo Conquistador now owns and controls Ecuador’s oil

After 2009, financial terms with new Chinese loans to Ecuador changed.

Reuters noted in a report entitled, “How China Took Control of an OPEC Country’s oil”, published in November of 2013 that:

“A 2010 deal for another $1 billion credit line from China Development Bank cut the premium that PetroChina would pay for Ecuador’s oil and granted PetroChina approval to resell the crude in any market.

In early 2011, Ecuador got another $1 billion loan, and authorized PetroChina to collect money from any other companies that owed PetroEcuador, if Ecuador failed to meet repayment terms (ibid).

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According to Reuters:

“When the latest loan deal was made public, in August, it brought the amount of financing that China has pledged to Ecuador during Correa’s presidency to nearly $9 billion – equivalent to 11 percent of Ecuador’s gross domestic product.

About 60 percent of these oil shipments are handled by PetroChina, the world’s second-largest publicly traded oil firm after ExxonMobil and the listed arm of state-owned parent China National Petroleum Corp (CNPC). State-run Unipec – the trading unit for giant Sinopec Corp – and other Chinese firms get smaller volumes, the schedules show.

Beijing’s growing thirst for natural resources has led Chinese oil firms to offer at least $100 billion in oil-related financing around the world. They already control growing volumes of oil from Venezuela, where China has negotiated at least $43 billion in loans; from Russia, where the tab may exceed $55 billion; and Brazil, with at least $10 billion. In Angola, the deals total around $13 billion.

In Ecuador, Chinese firms also participate in oil fields and a refinery project. But most of the loan transactions don’t hand China direct control of oil wells, reservoirs or pipelines. Instead, the borrowings are repaid with cash proceeds from PetroEcuador’s oil sales to Chinese firms.

Ecuador’s ex-Finance Minister, Patricio Rivera, told state-run TV earlier this year that the Chinese “provide financing for our country and, in exchange, we ensure sales of oil at international prices,” (http://www.reuters.com/article/2013/11/26/us-china-ecuador-oil-special-report-idUSBRE9AP0HX20131126).

Yet according to Bloomberg, Ecuador has embarked on borrowing even more from China:

“Ecuador borrowed $1.2 billion from China, its second loan from the country this year to help fund its 2013 budget, according to a Finance Ministry official.

China transferred the money to the Andean country on Aug. 12 as part of a “commercial operation” with Ecuador’s state-owned oil company, PetroEcuador, the official, who asked not to be identified because he isn’t authorized to comment publicly, said today in a telephone interview from Quito. He declined to give more details about the loan.

In February of 2013 the Ecuadorian government received a $1.4 billion, eight-year loan from China with an average interest rate of 7 percent” (http://www.bloomberg.com/news/2013-08-26/ecuador-receives-1-2-billion-loan-from-china-for-budget.html).

Chinese buy Ecuadorian oil for trading purposes and to hedge

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China has the right to sell any oil it receives from Ecuador on the world market. Financial experts have stated that the Chinese firms’ strategy is evolving: by gaining control of crude flows from other national oil companies, China’s oil giants are expanding into oil trading where they compete with big multinational commodity trading houses like Trafigura and Glencore (http://en.wikipedia.org/wiki/Glencore).

Little of the Ecuadorian oil actually gets shipped to China. Instead, Chinese oil firms are able to sell the oil to would-be Ecuadorean trading partners and capture an enormous discount and thus a huge profit. Reuters says Ecuador’s annual oil sales are valued at $13 billion, and China’s cash advances cover only a “slice” of what that near $13 billion could earn Ecuador from oil sales (http://www.businessinsider.com/china-buys-out-ecuador-oil-2013-11#ixzz35aovaYBd). Once again this goes to the heat of Ecuador’s growing problem: liquidity.

With exclusive access to Ecuadorian oil, Chinese firms now serve as middleman in most of the Ecuadorean oil sales worldwide while reserving a strategic option to divert barrels to China if the need arises. This allows China to profit from oil trades while ‘hedging’ against oil prices in the Middle East and elsewhere. The Chinese are hardly communists but instead shrewd financial capitalists that have embarked on operating a régime-run trading house in the financial and resource markets.

And what Ecuador did to get their hands on the Chinese loans, or ‘liquidity’, was not simply agree to high interest rates and the surrender of their oil, but they agreed to sell Chinese firms several hundred million barrels of oil, valued far higher than the loans themselves were worth!

This has had the effect of locking up supplies of oil so that other potential worldwide buyers get few chances to purchase crude from PetroEcuador in competitive markets, meaning that Ecuador is prevented from selling the oil to those willing to pay more. Chinese loans remain linked to the majority of Ecuadorian oil revenues over the short and long term. This means that Ecuadorian oil has now been mortgaged exclusively to imperialist China.

El Nuevo Conquistador is financing through debt all over Latin America

The Chinese race for resources is not only happening in cash strapped Ecuador but all over Latin America. Chinese financing to Latin America has topped $100 billion since 2005. In a report by Inter-Amercan Dialogue, an online journal, the author states:

“Our data indicates a major increase in Chinese financing to Latin American Countries in 2013, following a considerable drop in 2012. In 2012, Chinese banks issued only $3.5 billion in new finance – the lowest amount since 2006, when China began lending in earnest to LAC (Figure 1). In 2013, Chinese banks issued approximately $20.1 billion to LAC governments and companies.  As indicated in Figure 1, China’s 2013 lending was only surpassed by Chinese finance in 2010, when policy banks issued $37 billion to the region.  In 2013, CDB provided 79 percent of the total finance and CHEXIM provided 9 percent. For the first time, a loan came from China’s central bank, the People’s Bank of China (PBoC). The PBoC loan supported the establishment of a joint financing initiative with the Inter-American Development Bank” (http://www.thedialogue.org/page.cfm?pageID=32&pubID=3563).

And detailed information from Ecuador’s Statistical Bulletin on External Public Debt indicates that Chinese interest rates are similar to those of international financial institutions (IFIs) and regional development banks.

According to the bulletin, Ecuador is paying interest rates on its foreign debt ranging from 2 percent to 7.9 percent. In accordance with our findings in New Banks in Town (2012), Chinese loans to Ecuador are among those with the highest interest rates (ibid).

Imperialist China has found a home for its trillions in US dollars by making use of the dollars as financial vehicles in the war for resources and high interest yields. Of course, the US is subsidizing the Chinese foray into Latin America through its own indebtedness to the rising imperialist power.

Meanwhile, the financial controversy also shines a spotlight on China’s rapidly growing presence in Latin America. This presence could mean greater risk of conflicts in the region as Beijing seeks to feed its voracious hunger for raw commodities, particularly metals, gas, oil and food exports. This is all part of the growing resource wars.

For working Ecuadorians, it means that one imperialist power, the US, has been replaced with another, China. But this is just a partial glimpse at the debt cancer that is eating Ecuador and stealing her sovereignty. There is more.

Mining and the exploitation of Ecuador’s mineral wealth and destruction of the environment

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The Chinese are just one player in the race to exploit Ecuador’s mineral wealth. With ‘liquidity’ being the largest issue facing Ecuador mining in the country is up for grabs. Like Bolivia, Ecuador is an extraction country and 20% of the country remains under mining extraction. Ecuador’s mining chamber of commerce values the country’s total mineral wealth at $220 billion, including about 40 million ounces of gold reserves.

Ecuador’s National Mining Company (ENAMI EP) and Chile’s state-own Codelco, the world’s largest copper producer, have embarked on a joint venture to explore the Llurimagua reserves in the North of Ecuador, a country with no mining industry to speak of.

The extraction deal, reports Reuters, will see Enami holding a 51% stake in the project and the Chilean miner, which brings to the fore vast experience and the necessary technology to mine, owning the rest.

This project is one of many Codelco is planning to take part in Ecuador, as stipulated in a 2011 agreement between the parties. The Chilean company promised to help Ecuador define its copper potential, which could be as high as $200 billion in untapped deposits.

Under the treaty signed two years ago, the Chilean copper titan agreed to invest between $10 million and $30 million in Ecuador by 2015. By mid-2012 Codelco had already invested $3.5 million in basic exploration of 20 prospects (http://www.mining.com/ecuador-and-codelco-form-jv-to-explore-ecuadors-copper-reserves-96307/).

In March of 2012, China-backed Ecuadorean miner Ecuacorrientes SA (China Railway Construction Corp) signed an agreement with the Ecuadorean government to invest $1.72 billion in its Mirador copper project after one year of negotiations. Ecuacorrientes will pay 52 percent of the mine’s profits to Ecuador in the form of royalties and taxes as well as $100 million in advance royalty payments, according to the agreement. (http://www.chinamining.org/Investment/2012-03-08/1331167011d55068.html).

Correa has insisted that the royalties from the mine are necessary for Ecuador’s economic development.

“We cannot be beggars sitting on a bag of gold,” the president said when his government signed the concession contract with Ecuacorriente in March (http://www.globalpost.com/dispatch/news/regions/americas/120329/ecuador-indigenous-protest-chinese-mirador-copper-mine). .

El Mirador would produce 2.35 million tons of copper, and generate estimated royalties for Ecuador of $5.4 billion. It would be the first deal of its kind in the small South American nation, and is widely viewed as establishing a precedent for the mining industry here.

However, Correa now finds himself accused of hypocrisy as his bid to push through a huge $1.77 billion open-pit copper mine in the Amazon has aroused the wrath of the country’s powerful indigenous minority.

According to the Confederation of Indigenous Nationalities of Ecuador (CONAIE by its Spanish initials), the El Mirador mine, run by Chinese company Ecuacorriente, would lead to the ravaging of around 450,000 acres of spectacularly diverse cloud forest that is the ancestral territory of the Shuar people.

CONAIE claims that the planning process has not included a meaningful consultation with the local communities. The organization also says Ecuadorean law prohibits mining in natural watersheds such as those in Zamora Chinchipe, the area where the mine will be located.

Ecuacorriente declined GlobalPost’s requests for comment, saying its executives were too busy.

At the heart of the bitter dispute lie competing visions of “development,” with indigenous groups and some environmentalists rejecting Western models based on the industrial exploitation of natural resources.

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Mauricio Paqui, CONAIE director for territory, natural resources and development told the GlobalPost:

“For us as indigenous people who have lived here for millennia, it is not about having a big apartment with a plasma flat-screen TV. Development means nothing to us if it doesn’t protect the forests where our people have always lived, or allow us to continue to have clean water, forests and air (ibid).

As the Chinese move quickly to capture the mining industry in Ecuador, many mining analysts say that Ecuadorian’s attempt to capture 70% windfall tax on revenues is flawed. Even though it wouldn’t kick in till after a company’s investment is recovered, the base price above which it would apply and its high level undercut the reward needed for what is a long, costly and risky endeavor.

According to the Wall Street Journal for mining to really take off:

“Ecuador will need commercially oriented private sector miners that can operate with adequate profit and legal security, not just a handful of Beijing-backed companies looking to lock up metals supplies for the Middle Kingdom” (http://blogs.wsj.com/moneybeat/2013/06/13/fissures-in-ecuadors-mining-reform-but-china-can-fill-in/).

Summary

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Ecuador is putting the majority of its natural resources up for sale and China seems to be the big winner. With Ecuadorian oil now mortgaged to China and Chinese control of mining racing forth each month, Ecuadorian’s sovereignty can now be questioned.

Ecuador needs the liquidity it can derive from allowing the Chinese and other nations to take control of its natural resources. The cash that the country will obtain from such efforts will be spent for infrastructure in the public sector. Can anyone blame them? When looked at metaphorically, is it any different than taking your gold to the pawn shop to get you through to your next pay check? Or is the Buen Vivir program itself the problem, as Mauricio Paqui, the director of CONAIE indicated? Is the Ecuadorian Miracle based on capitalist bourgeois values and a Western model of development that will destroy the environment of Ecuador and thus add to climate change and global warming? Will the country be beholden to the new Chinese imperialists?

In part two of this article we will critically examine the Ecuadorian bond market and take a peek at some financial history of the country and what Ecuador is doing to diversify investments.