President Alfredo Palacio's Stone
In a somewhat misleading analysis today, Financial Times reports,
"Ecuador’s Congress has voted to impose a tax of 60 per cent on the 'extraordinary profits' earned by foreign investors in the oil sector - a proposal that could earn the country up to $500m in extra revenues."
The "devil in the details" of this report lies in the word "could". In another report published in Forbes.com we read, "The tax could boost the country's revenues by up to 500 mln usd". Ecuador's Economy Minister, Diego Borja is quoted: "Profit margins for foreign companies have been very great and a clause in favor of the state could lead to economic equilibrium between the foreign companies and the state.' (Forbes.com-AFX Hong Kong). In what appears to be an aggressive vote by the Ecuadoran Congress to tax foreign oil companies there lies (no pun) an attempt to kill 2 birds with one stone.
Killing One Bird
It is interesting that the congress of this U.S. backed regime under the leadership of Ecuadoran President Alfredo Palacio, chose this time to impose "a tax of 60pct on the 'extraordinary profits' earned by foreign investors in the oil sector" - just after the most recent popular uprising (March 16) against the government. Two weeks ago, the indigenous people of Ecuador marched on Quito and shut down 11 of Ecuador's provinces with roadblocks, demanding that President Palacio stop negotiating with the U.S. on the so-called, "Free Trade Agreements". If Palacio thinks this imposition of a 60pct tax on oil profits will pacify Ecuador's masses (killing one bird), he had better think again. 60pct sounds impressive, so why should they not be satisfied? Because there is an important difference between taxing oil profits on the one hand, and imposition of royalties, on the other.
Killing the Other Bird
Taxes are more difficult for the government to collect from the foreign oil companies because of the loopholes, bluntly stated, that make it possible for the corporations to cheat. Royalties, on the other hand, involve a fixed price per barrel extracted that foreign companies are required to pay to the host government - and even royalties can be renegotiated between corrupt oil regimes and foreign oil companies. These are the reasons why President Chávez doubled the oil royalties in Venezuela's new oil reform law in 2001 and reduced the taxes imposed on foreign oil profits. In his 8/30/03 analysis for Venezuelanalysis, Gregory Wilpert explains:
"the government can track very easily how much oil is being extracted and what the royalty payments should be based on the current price of oil. However, taxes based on oil income are much more difficult to control because PDVSA or other oil companies deduct their expenses from the income on which they have to pay the taxes. Since expenses are not that easily identifiable for an outside auditor, the tax payer can attempt to inflate expenses, in order to lower their tax payments. By shifting government revenues from taxes to royalties, the government is basically closing loopholes in the tax collection process."
The relationship between Petroecuador and the central government presents another important problem for the people of Ecuador. Petroecuador is "nationalized" and run by the Ecuadoran government. Petroecuador controls petroleum blocks in the country. However, it has historically given away Ecuador's petroleum through sweetheart deals with Northern petroleum companies like Burlington, Texaco, Arco, Halliburton, Repsol, Shell, Occidental who have collected 80% or more of the profits and only about 20% of the responsibility for cleanup. The cleanup is as important as the profits and part and parcel thereof: In his "Ecua-blog", Lee Gilman writes:
"Petroleum extraction is devastating to the environment, and the as-of-yet unexplored Central-Southern region is thought to have lower quality and less concentrated reserves, which translates into greater toxic waste in separation processes and greater environmental destruction."
Lessons Learned from Venezuela
Washington, of all places and people, are fond of accusing Venezuela's President Chávez of interfering in the domestic affairs of neighboring countries, thus amounting to a "destabilizing force" in Latin America. Their accusation is another lame attempt to discredit President Chávez. But Washington's fear that neighboring countries are learning from the control the Venezuelan people have gained over their own natural resources is right-on. It appears that the people of Ecuador are indeed learning from Venezuela's history with their nationalized oil company PDVSA just as the people of Bolivia have learned. In August, 2003, Gregory Wilpert reported: "Chávez and his supporters have long claimed that PDVSA is providing too little of its revenues to the central government, the company’s only shareholder." Push came to shove between the Chávez administration and PDVSA in 2002-03, when the technocrat-managers who were still running PDVSA went on strike in an attempted economic coup against government. Earlier this month, Andy Goodall, writing for Venezuela Solidarity Campaign (Britain) stated:
"It is worth recalling that the lock out and oil industry sabotage which lasted from December 2nd 2002 till February 4th 2003 cost Venezuela an estimated US$14 billion in lost oil revenues and a further US$11 billion in lost industrial production. During the lock out, there was hardly any petrol or domestic gas and the poor were reduced to cutting up their furniture in order to cook a hot meals, if they could find basic foodstuffs."
Last year we (Axis of Logic) also described the PDVSA strike:
"On December 2, 2002, the US-backed executives and managers of Venezuela's state oil company, Petróleos de Venezuela (PDVSA) went on strike, shutting down Venezuela's oil industry in an ill-advised tactic to bring down the Chavez government. When they went on strike they sabotaged the industry by destroying essential documents, computers and software. The people who worked in the industry, however, learned how to repair the damage and restore the flow of oil and took over PDVSA. 18,000 managers were fired for their role in the strike in February, 2003."
With oil revenues now pumped into Venezuela's successful social programs, all the people of Venezuela are benefiting. In the meantime, Washington and the multinational oil companies just don't get it - or perhaps better said, they "get it" all too well. Their problem a simple one. It lies in a presumption that they have a legitimate claim to the natural resources owned by other sovereign nations. In March, 2005, President Chávez' delivered his clear and unequivocal response: "The United States government would very much like to keep all our oil for itself ... But our oil reserve does not belong to Mr. Bush. The oil belongs to the Venezuelan people."
[Luis Macas, left, president of the indigenous organization, CONAIE, watches a ceremony for Solsticio in Quito, Ecuador, Tuesday, March 21, 2006. The ceremony is at the same time of indigenous protests against Free Trade Agreement with United States. (AP Photo/Dolores Ochoa R.)]
3 Ecuadoran Interior Ministers busted in 11 months
None of Venezuela's experience is lost on the people of Ecuador who know that their national resources belong to them - not the multinational corporations.
Over 40 percent of Ecuador's 13 million people belong to indigenous communities. They are primarily led by Ecuador's Confederation of Indigenous Nationalities (CONAIE). Just as they have been marching on Quito, forcing 3 interior ministers to resign in the 11 months, they continue their demand that their government end the free lunch at its petroleum table. [Chart on Right] New Internationalist, 2001
Luis Macas, President of CONAIE: “Respect for diversity is the foundation for all social construction. If an individual, nationality or people impose their will on the rest, things will not work. We need to find links that bring us together in a space that fosters respect.”*
After years of living under the heel of the trans-national corporations, almost 70% of the people of Ecuador still live in poverty. In January, 2006, Paul Martin, UNICEF representative in Ecuador reported:
"As in most of Latin America, the big challenge in Ecuador is poverty. "There isn’t money to pay for children to go to school or for their textbooks, or for their uniforms. There isn’t money for the family to pay for them to go to a doctor. But, poverty itself in a country like Ecuador also comes from exclusion. The poor are not equally distributed in the society. Indigenous children are much more poor, Afro-descendent children are much more poor – both on average and in absolute terms."
We should not be surprised if we see President Palacio's resignation on the table in the not to distant future. We predict that the people of Ecuador will not be fooled by this latest maneuver on the part of the Ecuadoran Congress to tax the profits of the multinationals. They continue their campaign to stop Palacio's unilateral negotiations with the U.S. on "Free-Trade". Yesterday, Prensa Latina reported,
"Ecuador's Confederation of Indigenous Nationalities (CONAIE) accused the Alfredo Palacio administration of dictatorial actions against the legitimate right of the people to defend their interests and sovereignty."
The Political Fate of President Alfredo Palacio
When Palacio assumed office, he threw an olive leaf to CONAIE by reinstating their representatives to head several state bodies. (They had been removed by his ousted predecessor, Luis Gutiérrez.) He also offered the CONAIE the vice-presidency and provincial governorships. However, Palacio also left open the possibility of continuing Gutiérrez' neoliberal policies:
"We will continue discussing all aspects concerning the free trade agreement and all of the treaties that the globalisation process will impose on us, because that is the way history is moving. We can't bury our head in the sand like an ostrich," he stated, adding that "there is no reason to be afraid of the free trade deal, but we should negotiate as equals with the United States."
At the time of his election, he also told Washington they should not worry about losing their Manta Air Base in Ecuador. These hints of his neo-liberal tendencies are now borne out and adamantly opposed by those he attempted to pacify. His attempts appear to have failed.
Yesterday, CONAIE Vice President, Santiago de la Cruz, hammered Palacio for "[using] violence and brutal repression against everyone opposed to the signing of the free trade treaty with the US." Some may wonder why heads of Latin American states like Palacio do not wake up and begin to represent the interests of the people of Ecuador. The question is of course naíve because it ignores Palacio's neoliberal views and organic relationship with the U.S and the multinationals. CONAIE has correctly accused Palacio of reaching a "compromise with the nation’s oligarchies" and "committing the country to a process of no return with the signing of a free trade deal with the United States."
Last week, Green Left Weekly warned: "If Palacio doesn’t respond to these popular demands, he faces the risk of becoming the fourth Ecuadorian president to be overthrown in 10 years, following his predecessor Lucio Gutierrez, who fled the country amid protests last April."
According to the GLW report Palacio's approval rating has dropped to 14% and Mesias Tatamues, president of the trade union federation Cedoc-Cut, told Granma International on March 15: “We are going to show him that if he doesn’t listen to us he will have to go home, because the general slogan, from the countryside to the city, is: FTA signed, Palacio out.”
Based upon the growing refutation of neo-liberal economic policies throughout Latin America - from the successful Bolivarian Revolution in Venezuela to the ousting of President Mesa in Bolivia in favor of newly-elected President Evo Morales - it is reasonable to expect Alfred Palacio's resignation in 2006 and another notch added to the economic guns of Latin America's indigenous people.