Oil Report

ANALYSIS-Ecuador's Correa moderate despite radicals' pressure

QUITO, July 18 (Reuters) - Ecuador’s President Rafael Correa is trying to burnish his credentials with radical supporters ahead of a key referendum vote but he will not abandon the pragmatic policies needed to attract investment in the oil-exporting economy.

Although Correa’s rhetoric against “greedy” capitalists will likely intensify before the September referendum on extending his powers, experts say he will keep paying Ecuador’s foreign debt and resist calls for socialist reforms.

The popular leftist is trying to keep left-wing radicals as well as more centrist voters behind him so he can win the referendum to give him greater control over the Andean country’s sputtering economy and weak political institutions.

Correa had largely eschewed radical positions against businesses and debt-holders, but last week he suddenly seized control of almost 200 companies owned by a prominent business group, including two television stations.

Correa’s finance minister resigned in protest, and he was replaced by a former banking regulator who has spooked Wall Street by advocating debt cancellation for poor nations.

The OPEC nation’s debt plunged as investors feared that the ally of self-styled socialist revolutionary Venezuelan President Hugo Chavez President Hugo had finally turned his anti-market words into action.

But the moves were part of Correa’s balancing act to keep his party united by occasionally firing up hard-line supporters without alienating core centrist voters in a country that has ousted three presidents in the last decade.

Correa last month forced out the highest-profile radical in his team. Alberto Acosta, the head of a constitutional assembly charged with pushing through major reforms, quit after failing to persuade Correa to eject foreign companies from the attractive mining sector.

“Correa is more of a conservative on a lot of issues ... He is trying to balance his movement,” said Fernando Vega, a Correa party member who sometimes criticizes the government. “He has pushed aside the fundamentalists, but not completely.”


A U.S.-trained economist and devout Catholic, Correa took office early last year on a nationalist platform pledging to eliminate the influence of elite groups and spread the wealth from Ecuador’s natural resources to its majority poor.

With investors watching to see if he would deepen Latin America’s shift to the left in recent years, Correa has avoided the radical socialism of Venezuela’s Chavez even if he is not as centrist as Brazilian President Luiz Inacio Lula da Silva.

He has an irascible style but Correa showed his pragmatism by softening his stance in talks over taking more revenue from oil companies and then -- despite initially suspending mining activities -- by supporting a law that should lure investment to the sector.

Rejecting calls from Acosta and other radical allies to bar mining drilling, Correa has told foreign companies he backs their large projects because they benefit the economy.

“I would not like to be in his shoes. It’s an extremely difficult job to balance his party,” said Cesar Espinosa, the head of Ecuador’s mining chamber who has participated in industry meetings with Correa.

“Sometimes we are victims of that balancing act.”

Even when he includes hard-liners in his government, Correa keeps them in line.

One day after her appointment last week, Finance Minister Wilma Salgado was already sounding more like Correa and promised to avoid policies that could cause economic turmoil.

Correa’s takeover of the TV stations and other assets owned by a corporation linked to a decade-old banking crisis also initially scared investors.

But the move was popular among Ecuadorean voters, some of whom lost their savings in the financial meltdown 10 years ago, and highlights Correa’s focus on politics ahead of the referendum rather than a decision to impose radical policies.

Correa could take additional short-term measures to win voters’ favor in coming weeks but he will almost certainly stop short of moves that could scare off foreign investment he needs to spur the slowing economy.

Correa’s Alianza Pais party ranges from radical Indian leaders and environmentalists to moderate businessmen.

Jaime Duran, of pollster Informe Confidencial, says Correa is not strong enough to dismiss criticism from his own party.

“Correa is positioned more at the center, but his government and the assembly is allowing his (party’s) most radical sectors to keep some powers,” he said. “Correa will have to deal with this later.” (Editing by Saul Hudson and Kieran Murray)