Correa May Tighten Grip on Banks, Oil With Ecuador Charter Vote

By Stephan Kueffner

Sept. 28 (Bloomberg) -- Ecuadoreans head to polls today to vote on a new Constitution that would strengthen the president's grip over the energy, telecommunications, and banking industries, and strip the central bank of its independence.

President Rafael Correa says the new charter, which opinion polls indicate is likely to pass, is needed to help alleviate poverty and put an end to the country's cycle of collapsing governments. It would also enable Correa to extend his time in office by allowing a second consecutive four-year term.

The 45-year-old economist, an ally of Venezuela's President Hugo Chavez, says the proposed Constitution will more fairly distribute oil revenue to the 40 percent of the population that lives in poverty, and smooth the workings of government by allowing him to dissolve the legislature once per term. Correa has vowed to quit office if voters reject what he calls his ``citizens' revolution.''

``It consolidates Correa's political power,'' said Riordan Roett, director of Western Hemisphere Studies at Johns Hopkins School of Advanced International Studies. ``It's the end of the traditional oligarchy as we've known it for decades in Ecuador.''

The new Constitution, the country's 20th, requires immediate new elections if a president is impeached or the legislature is dissolved and allows recall referendums. Correa says the change would prevent the chaos that came after street protests forced all three elected presidents since 1996 to resign because the provisions puts the jobs of all politicians on the line.

Free Trade

Correa has denounced free trade and globalization, along the same lines as Chavez and Bolivia's Evo Morales. He speaks the indigenous Quichua language, and draws much of his support from the poor. The opposition is concentrated in oil-producing regions and in Guayaquil, the country's biggest city and its business center.

The charter, by giving Correa control of the central bank, will allow him to set interest rates. It also guarantees all citizens access to water and universal health care, pensions, and free state-run education through university.

Patricio Donoso, president of Ecuador's umbrella Council of Chambers and Associations of Industry, said the increased spending required by those broadened rights may force Ecuador to abandon the dollar as its currency if prices for crude oil, its biggest export, fall. Ecuador produces about 500,000 barrels a day, which accounts for 61 percent of the country's exports.

`Low Growth'

``It could create conditions for de-dollarization -- lack of liquidity from a fall in exports and remittances, a low growth rate, high inflation and an enormous budget deficit,'' Donoso said.

Ecuador, the smallest member of the Organization of Petroleum Exporting Countries, had the slowest economic growth in the Western Hemisphere last year, 2.52 percent, even as oil prices rose to a record. Meanwhile, annual inflation has accelerated to 10 percent in August, driven by higher food prices.

``I'm voting `no' because everything has gotten so expensive,'' said Marco Tage, 42, a villager from the Huaroani ethnic group that lives in Ecuador's Amazon region. Ecuador law compels him to cast a vote because he can read and write. Going to the polling station is a three-hour trip by canoe and bus.

A poll by Cedatos Gallup found 60 percent of voters who had made up their mind backed the charter, with 27 percent against and the rest saying they would leave the ballot blank or void, following advice from opposition parties that urged citizens to make a protest vote if they favor neither the current charter nor the one proposed by Correa. The poll of 2,180 people, taken Sept. 13 to 16, had a margin of error of 3 percentage points.

Poll Results

A survey by researcher Santiago Perez from Sept. 18 to 21 put support at 57 percent, ``no'' at 24 percent, and the rest null or blank. It tallied the opinions of 1,800 people, and also had a margin of error of 3 percentage points.

``If we say `no' to the Constitution, we're saying no to our own rights,'' said Artidoro Cabrera, 48, a painter and farmer in San Vicente del Rio, a dusty Andean village near the border with Peru. On the front door of his house are posters of Correa with members of the assembly that wrote the new Constitution.

The new Constitution focuses on redistributing wealth rather than growth, and allows too much state interference in the economy, said Jaime Carrera, an economist at the Quito-based Fiscal Policy Observatory. ``It will set Ecuador back 30 years,'' he said.

`Strategic Sectors'

Correa's proposed charter ``reserves the right'' for the government to manage ``strategic sectors'' through state-owned companies, including energy, refining, telecommunications, and refining, allowing the government to privatize them only under ``exceptional circumstances.''

The president has already expanded his control of the economy. He secured financial concessions from America Movil SA, which holds the biggest share of Ecuador's mobile phone market.

Correa forced foreign oil companies to give the government a bigger share of oil revenue by imposing a 99 percent windfall tax, which was later reduced to 70 percent. He revoked more than 1,500 mining concessions and halted most mine operations in April.

``If the Constitution is adopted, it won't encourage much foreign investment,'' said Michael Shifter, vice president of Inter-American Dialogue, a policy research group in Washington. As for the enhanced role of the state in the economy, ``for the time being, this is very popular,'' Shifter said.

To contact the reporter on this story: Stephan Kueffner in Quito at skueffner@bloomberg.net