November 1, 2011 / 2:31 PM / 6 years ago

FACTBOX-Key political risks to watch in Ecuador

QUITO, Nov 1 (Reuters) - The appointment of a new cabinet, tensions between government and media, and contract talks with mining companies are issues to watch in Ecuador.


Leftist President Rafael Correa asked his cabinet in full to resign in October, as he often does toward the end of the year. He should unveil a new cabinet in early November.

Correa tends to reappoint most ministers, but this time he will have to name a new political economy minister, the cabinet’s top economic official, after Katiuska King quit in October.

Correa won a May 7 referendum on 10 reforms to overhaul the justice system and limit media ownership, as well as to ban activities such as bullfighting and gambling in casinos.

He argues the judicial overhaul is key to tackling crime, the number one worry of Ecuadoreans. But opposition leaders say the reforms are designed to give Correa more control over judicial appointments.

In early September, Correa declared a 60-day judicial “emergency” to ensure legal services while the justice system is overhauled.A new supreme court should be elected before the end of the year.

Some of the 10 reforms have to be ratified by lawmakers, and the ruling Alianza Pais coalition is scrambling to win support for them since it does not hold a majority in Congress.

Ecuador sentenced three newspaper directors and a former columnist to jail in July, and fined them and the paper $40 million for libeling Correa, prompting widespread condemnation from rights groups.

Correa often accuses the media of lying to undermine his government and calls them “the real opposition,” while news organizations accuse him of trying to silence media critics.

Congress is due to start debating a media reform bill in mid-November. The bill calls for a media watchdog that critics fear will be used to censor journalists.

Correa is part of a South American leftist alliance that includes presidents Hugo Chavez of Venezuela and Evo Morales of Bolivia, who have changed laws to boost their power and have also been accused of stifling media freedom.

What to watch:

-- Worsening tensions between Correa and the media.

-- A heated debate in Congress over the media reform bill.


Violent police protests rocked Correa’s government last year, reviving memories of Ecuador’s volatile history. He said the protests were an attempted coup.

The government’s relations with the police remain tense and it has announced a plan to subject hundreds of policemen to lie detector tests to find out if they are involved in corruption or criminal activities.

The government wants to implement reforms to clean up the police force, such as setting up of an internal affairs unit, and it is promoting the investigation of alleged human rights abuses by police in the 1980s, which is stoking tensions.

Ecuador’s military calls the shots during crises and they backed Correa during the police mutiny. The soldiers’ assertiveness may temper some of his policies, or undermine stability.

Correa enjoys high popularity rates thanks in part to increased social spending. However, three presidents were ousted in the decade before Correa took office in 2007 and the military often played a critical role by refusing to assist the leaders being buffeted by protests.

What to watch:

-- Government slowly forging ahead with police reforms.

-- Police criticizing the reforms in the media.


After excluding itself from debt markets by defaulting on $3.2 billion in global bonds three years ago, Ecuador has met funding needs with bilateral credit deals, mostly from China.

Ecuador signed a $2 billion credit deal with China in June and in October it signed a deal for a $571 million loan with a Chinese bank, which took debt commitments to China to around $7.3 billion, including loans, advance payments for oil sales, and energy project financing.

The government has launched a bid to attract foreign investment for a plan to spend $8 billion in infrastructure, including roads, ports and airports.

Increased investments helped Ecuador’s economy grow 8.9 percent in the second quarter versus the same period last year, and it is on track to meet its 5.2 percent growth target for 2011.

Ecuador may return to international debt markets with a bond issue in 2012, but past defaults, instability and Correa’s tempestuous relationship with the private sector mean it may have to pay very high yields.

The government expects $7 billion in mining investments in the next few years, and officials have been in talks for months with four foreign miners aiming to develop large projects.

They should reach agreements before the end of the year. Correa said in August the talks were “really hard,” because the government was demanding an 8 percent royalty payment while investors were offering to pay 6 percent.

Oil companies including Schlumberger , Halliburton and Baker & Hughes are in talks over $1.5 billion in investments to increase output in four large mature oil fields controlled by state-run oil company Petroecuador.

Ecuador has offered $168 million to Brazilian oil company Petrobras for its assets in the country, which were nationalized after Petrobras refused to sign a new contract giving the state a larger share of its revenue. Petrobras is reportedly seeking $300 million for its Ecuador unit.

What to watch:

-- Petrobras may seek international arbitration.

-- Government and miners extending the deadline for talks.


A judge ordered Chevron in February to pay $8.6 billion to clean up pollution at old drilling sites in the Amazon. Chevron denies the charges, and the 17-year-old legal saga looks far from over as both sides appeal.

A U.S. judge later froze the enforcement of the ruling outside Ecuador, but in September an appeals court reversed the order, although the plaintiffs promised not to seek enforcement until their appeal process in Ecuador is completed.

Correa expelled the U.S. ambassador in April over U.S. diplomatic cables released by WikiLeaks that suggested Correa was aware of the corrupt police practices.

However, after months of talks aimed at patching up relations, Ecuadorean Foreign Minister Ricardo Patino said in September that both countries have appointed ambassadors who should take their posts in the next few weeks.

Despite fears that U.S. lawmakers were not going to renew a regional trade preferences deal that expired in February because of the diplomatic row, the U.S. Congress extended the agreement in October until 2013.

What to watch:

-- Further legal rulings and moves in the Chevron case.

-- U.S., Ecuador reestablish full diplomatic relations.

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