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INTERVIEW-Ecuador's Correa touts socialism with market bent

* Wants society with market, not a market society

* Says South Korea is good growth model for Ecuador

* Aims to develop steel, chemicals, oil and mining

CARACAS, July 6 (Reuters) - Ecuador’s President Rafael Correa says his vision of “21st century socialism” avoids economic errors made by past leftist experiments by recognizing the need for a private sector regulated by the state.

In an interview with Reuters in Caracas, Correa said “heterodox” economics helped Ecuador and other South American nations such as Bolivia grow in the global economic crisis.

Correa, who could stay in office until 2017 if he wins the next election, said he would steer the small oil-exporting country out of underdevelopment by focusing on state-led industrialization, but without excluding the private sector.

“We believe, and this is different to the most extreme examples of traditional socialism, that it is necessary to recognize the market as an economic reality.

“But it is one thing to have societies or economies with markets, and another to have market economies, dominated by the market -- that is the great error of modern capitalist society and the determining factor in the global crisis,” Correa said late on Monday.

Correa said violent revolution and class war were things of the past. He said the biggest threat to his project, which he, like Venezuela’s Hugo Chavez, dubs 21st century socialism, came from what he calls “infantile” leftists, environmentalists and indigenous groups unwilling to modernize.

“The ‘all or nothing’ left, who end up with nothing, with the status quo. The ecologists who say ‘no mines, don’t use non-renewable resources.’ That’s like being a beggar while sitting on a sack of gold.”

Correa has been criticized by ecologists and indigenous groups for his plan to develop the mining and oil sectors. Several previous presidents were toppled by social movements, but, with 46 percent support, Correa looks more stable.

Other critics accuse him of amassing too much power and of scaring away investors with threats to expropriate. In 2008, Correa opted to default on $3.2 billion in debt, saving more than $1 billion in a buy-back but shocking investors.

Investment in the oil sector has suffered in the last two years as the U.S. and Belgian-trained economist has pushed to sign new state-designed contracts with foreign companies, a process the government says will conclude in coming months.

Correa, who took office in 2007, said investment will rebound once the new rules, which aim to give the state a larger share of oil revenue, are in place.

Latin America has fared better than others in the world recession, with its economies bouncing back more quickly that Europe and the United States.

Correa said leftist governments in the region had generally performed the best in the crisis, with the notable exception of Venezuela, mired in recession for the second year running.

“The countries that had the worst time followed orthodox economics -- Mexico, which shrank the most, Chile, Colombia -- with 14 percent unemployment,” he said.

Mexico’s market-oriented economy shrank about 9 percent in the crisis but is forecast to grow this year. Free-market champion Colombia’s had 13 percent unemployment in May.

The president was visiting Caracas to take part in July 5 independence day celebrations. About Venezuela, he only said that its economy had its own “particularities” such as dependence on oil prices that affected its performance.

Correa’s close ally Chavez has been in office since 1999.

The Venezuelan economy grew rapidly for several years during an oil price boom but has suffered a collapse in private investment that economists blame on Chavez’s aggressive program of nationalizations and pressure on the private sector.

Correa has shied away from outright nationalizations of industries, although he has taken over French company Perenco’s oil operations. He said foreign companies were welcome in Ecuador but were required to invest in costly exploration.

CORREA ON KOREA

Straddling the equator in South America, Ecuador is a major exporter of bananas and the smallest member of oil exporters group OPEC. Correa said he would like to see the nation of 14 million people industrialize in a way similar to South Korea.

“South Korea has demonstrated the fallacy of free trade, of the intelligence of the market, and shown that with planning and with domestic growth and smart policies it is possible to escape underdevelopment.”

The development of the Asian country is often cited by opponents of the “comparative advantage” theory of growth through free trade as evidence that economies can only be industrialized via protectionism.

“If South Korea had stuck to comparative advantage it would never have become a ship-builder, because it had no advantage. It would still be a producer of rice and maybe silkworms.

“What was the departure point for South Korea? Petrochemicals and steel, that’s what we want to do in Ecuador,” Correa said.

Another model is China, whose own blend of state planning with capital markets has produced dramatic growth. China is a major investor and financier in Ecuador, providing funding following the country’s debt default.

Correa laughed when asked if he would seek to return to private debt markets.

“I don’t know that they’d have us; for me there is no problem. Ask the international markets,” he said, adding that Ecuador was covering its financing needs with help from China and multi-lateral lenders.

The former Catholic missionary said Ecuador would not become a developed country in the near future, but that he hoped to help it on its way.

“I know my country will not be developed in my term, nor in two terms, maybe not even in a generation, but I aim to leave it on an irreversible path to welfare and development.” (Additional reporting by Alexandra Valencia; Editing by Pascal Fletcher and Cynthia Osterman)

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