QUITO, Ecuador (AFX) - Ecuador's president-elect joins a wave of Latin American leaders swept into power opposing the free-market economic policies that are preached by Washington but are hugely unpopular among the region's poor.
After two decades of privatization and trade liberalization across the hemisphere, leftist leaders -- most notably Hugo Chavez in Venezuela and Evo Morales in Bolivia -- are exerting more state control over their nations' economies to promote wealth distribution.
Rafael Correa, the U.S-educated economist who will take over the presidency of this small Andean nation in January, says he will apply the same prescription in his country, where three-fourths of its inhabitants live in poverty despite Ecuador being South America's fifth largest oil producer.
Correa, 43, plans to tighten government control over the banking system and expand the state oil company's role in production and commercialization of Ecuador's oil.
He also wants to cut ties to international lending institutions, including the World Bank and the International Monetary Fund, and has threatened a moratorium on foreign debt payments unless foreign bondholders agree to lower Ecuador's debt service by half.
He said Ecuador cannot afford its current $2 billion (euro1.6 billion) annual debt service, representing 7 percent of the country's gross domestic product. 'Ecuador cannot pay more than 3 percent,' he said.
In his first statements after defeating banana tycoon Alvaro Noboa, Correa criticized the free-market policies that he says have failed to improve the lives of Ecuadoreans and urged them to join him 'to overcome 20 years of a long and sad neoliberal night.'
Correa laid out his economic vision in his 2001 doctoral thesis at the University of Illinois, in which he blames the 'Washington Consensus' -- a set of U.S.-backed free-market policies -- for the region's economic ills and analyzes the potential of a common regional currency as a partial solution.
'He was, like I am, a critic of some of the aspects of the so-called Washington Consensus, which preached orthodoxy but just never talked much about the problems of income distribution,' said Werner Baer, a University of Illinois economics professor who sat on the committee that approved Correa's doctorate in 2001.
Correa opposes a trade agreement with the United States because he says it will hurt Ecuador's farmers and is a sharp critic of globalization in general.
In the first reaction to his election, Ecuador's bonds were hammered on Wall Street because of concern over his policies, including his threats to unilaterally lower payments on Ecuador's $16.8 billion (euro12.8 billion) foreign debt to free up money for social programs.
On Tuesday he reiterated that he did not discard a moratorium on debt payments, a step that could cut off Ecuador's access to new foreign credit, something that doesn't seem to worry Correa.
'If country risk goes up because of speculators worrying over our ability to pay the debt, I don't care,' he said this week. 'The country risk I care about is children suffering.
'If they're nervous, let them take a Valium. What more can I do?'
Such statements worry Ecuadorean business leaders, who say they feel Correa's life as an academic has kept him out of touch with economic realities.
'The announcement of a possible foreign-debt moratorium is a bad sign before beginning to govern,' said Alberto Dassum, president of the Chamber of Industries of Guayaquil, Ecuador's largest city and its business center. 'Ecuador has commitments and it should meet them.'
He said such statements worried not only foreign investors but also Ecuadorean companies which are now reconsidering potential investments.
'To invest in the medium term, as is the case with industries, you need stability and rules that don't change,' Dassum said.
Alfredo Arizaga, an economist who is co-director of the Quito think tank Quantum, has a darker view of what may result from Correa's plans.
His hope is that once in power Correa will realize many of his ideas are not realistic and could harm economic growth and development.
Arizaga said he's most concerned by Correa's plans to tighten controls over banks and pressure oil companies to hand over a much larger quantity of oil to the state.
'We are going to begin to review the contracts with oil companies,' Correa said Wednesday. 'We cannot permit that they take four of each five barrels and leave us one.' He said his objective is to reverse the ratio, a situation that existed 35 years ago when Ecuador first began producing oil.
Oil is Ecuador's major export, providing 55 percent of its annual export income of $9.8 billion (euro7.4 billion).
Arizaga warned that if Correa pressures foreign oil companies into turning over more oil, they will cut back on investment in the oil fields and in 'two or three years the production in those oil fields will fall drastically and oil income will fall.'
If that happens, he said, 'there will be a very strong social and political crisis.'
He said he foresees a crisis much sooner if Correa tightens controls over banks and forces them to pull their reserve funds, now kept in foreign banks, back to Ecuador. Such steps, he says, could frighten people into withdrawing their money.
'I think that would provoke a crisis almost immediately,' Arizaga said.
Correa has tried to reassure Ecuadoreans that he intends to maintain the dollar as Ecuador's official currency for the next four years. The dollar was adopted in 2000 to halt hyperinflation, and Ecuadoreans see it as a symbol of stability.
Correa admits that for ideological, nationalistic reasons it galls him to use the U.S. currency. He says that in the long run the dollar's use will make Ecuador's non-oil exports increasingly uncompetitive but dropping it in the near future would cause chaos.
As a long-term goal, he would like to see the Andean nations develop a regional currency, a possibility deemed unrealistic by most economists.
'I think dollarization was the biggest economic error this country has ever committed,' he said during a campaign debate.
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