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From the Editors: Misguided Development
Over the past decade, the Ecuadorian government has tried to solve the country's economic crisis by imposing austerity measures on the poor and trying to produce more oil. In this issue, Peter Lippman explains why this strategy makes no sense. He also finds there is an alternative model of development that is more sustainable and more respectful of the rights of Ecuadorians.
The arguments for and against an oil-based development were laid out briefly in the first issue of this series. It has to be said, once again, that oil accounts for almost half of Ecuador's total export revenues. With over two billion barrels of proven reserves, and a hungry market for oil in North America, it is hardly surprising that successive administrations have built their economic policy around oil.
But this windfall has not led to economic stability. One reason is that the price of oil fluctuates, depending on demand. As a result, Ecuador has gone through the same cycle of boom and bust that plagues so many developing nations dependent on single commodities.
Like many other oil-producing countries, Ecuador borrowed extensively during the oil boom of the 1970s. When oil prices collapsed in the 1980s, Ecuador's economy entered a period of turbulence that has persisted to this day. Inflation has reached as high as 100 percent in one year, and Ecuador has the highest foreign debt per capita in Latin America.
The government's response -- at the urging of its creditors -- has been to impose austerity measures. These have hurt and enraged the poor, who now make up over 70 percent of the population. Thousands have sought relief by emigrating to Spain, the United States, and any other country where they can find work. Those who remained have taken to the streets to protest. Continuing impoverishment has undermined democracy and perpetuated the cycle of instability.
Not all of this, of course, is due to dependency on oil. Ecuador's military has played far too prominent a role in Ecuador's political and economic life, gouging into the country's coffers. The banking system is a disgrace. Corruption is endemic.
But oil remains at the heart of the problem. It was oil that led Ecuador into debt, oil that polluted the northern Oriente, and oil that now threatens to destroy the southern part of the region, with its astonishingly rich environment and culture. Whatever the economic benefits of oil -- and they are debatable -- it is surely time to develop alternatives.
This matter cannot simply be blamed on Ecuador's inadequate government or its impoverished people. International lending banks have helped put the country in its current hole, and the government's obsession with producing more oil is at least partly driven by the demand for cheap gasoline in North America. By destroying the Amazon, American and European consumers are helping to destroy the Earth's lungs.
Instead of pushing Ecuador into a new round of oil exploration, international institutions like the World Bank and International Monetary Fund owe it to Ecuador to rein in this destructive process and look for more sustainable alternatives. As this issue makes clear, such alternatives do exist, and they are coming from Ecuador's increasingly articulate and organized indigenous movement.
In the News: IMF Loan Requirements Compel Social Service Cuts, Increased Oil Development
Acting under pressure from the International Monetary Fund (IMF), the government of Ecuador has approved a $500 million reduction in the national budget that seems certain to put further pressure on Ecuador' s poor and indigenous population. At the same time, the IMF is pushing Ecuador to increase its production of oil.
Ecuador's Minister of the Economy approved the $500 million budget cut earlier this week; $120 million will be taken from projected social service funds and the rest from investment.
The cuts have been made to comply with conditions set by the IMF that will qualify Ecuador for a $300 million loan from the IMF, to be arranged by April. Without at least this amount, Ecuador will not be able to pay off $854 million that it owes this year in principle on its external debt of more than $13 billion.
The government has also sent a fiscal reform package to congress establishing stricter control of the economy, and it is pushing to pay back interest on a loan that it received from the Paris Club of creditors. This will be the first payment to that group in six years.
Ecuador has recovered slowly from its 1999 recession, during which inflation skyrocketed, oil production dropped, and the country defaulted on $6 billion in Brady Bond debts.
So far this year, economic indicators have been mixed. The price of oil, which funds about half of the Ecuadorian budget, started the year at approximately $15 a barrel, or $5 under the projected price.
If the price remained at this level, it would wreak havoc with Ecuador 's budget and the government's ability to repay its debt. However, by the middle of this month the oil price had risen almost to $20 per barrel. Meanwhile, inflation has decreased. Ecuador's current economic growth rate last year was one of the best in South America. The IMF is also encouraged by the construction of the OCP (Oleoducto de Crudos Pesados) pipeline, with its promise of doubling Ecuador's oil transport capability.
But Ecuador's trade deficit continues to worsen, reaching $189 million this January, compared to the surplus of $52 million that was recorded for the same month in 2001. Exports by the state-owned oil company Petroecuador also fell in January of this year.
In other words, Ecuador's economy is not yet out of the danger zone, and it is not clear that IMF-supported loans will solve its problems. The budget may end up balanced, but this provides no promise that conditions for the mass of Ecuador's poor will improve. What it does promise, however, is that oil development will expand.
An Economy Built on Debt
Thirty years of oil drilling has produced three billion barrels of oil and brought $32 billion to Ecuador. In the course of this vast production, a few people became richer, while many became poorer. Foreign oil companies made money, and so did Ecuadorian politicians and businessmen. But during the same period, the standard of living for the average Ecuadorian deteriorated drastically. As the national debt increased and corruption flourished, the numbers of those living under the poverty line rose. As a result, in recent years Ecuador has become one of the most politically unstable countries in Latin America.
Some statistics give a picture of the ruinous state of Ecuador's economy today. The country's debt stands at more than $13 billion [1], the highest per capita debt of any country in Latin America. [2] There is a direct relationship between this debt and the advent of oil development in Ecuador 30 years ago, because the debt was incurred when oil prices were high and Ecuador was considered a 'sound investment' by lenders.
In 1970, as oil development was taking off in Ecuador, the national debt was a manageable $217 million. [3] In the boom period that followed, Ecuador's government financed state enterprises and a growing bureaucracy by reckless borrowing. But in the early 1980s, with world oil prices dropping, the multilateral development banks stopped lending to faltering oil-producing countries. By this time, public spending had risen to a level that was twenty times greater than in 1970. [4] The freeze on new loans forced Ecuador to drastically reduce its budget. Ecuador's growth rate plummeted, and inflation mushroomed.
The oil industry brought great profits to Ecuador, but Ecuador was ill-equipped to handle such quick income. The government allocated funds badly and financed unproductive projects. A disproportionate amount of oil income went straight into the military budget. Too much money was invested in high-income urban neighborhoods to the exclusion of more deserving programs and subsidized the transportation of oil that could have paid for itself. Agricultural development stagnated, and social welfare was ignored. Hundreds of millions of dollars were lost, along with the chance to invest income intelligently.
Meanwhile the debt has continued to grow -- from $10 to $13 billion during the last decade alone. Half the national budget now goes to servicing this debt, leaving less and less for social infrastructure and sustainable development. [5] At the beginning of the oil boom, half of the population lived below the poverty line. Now the figure is around 70%. [6] Among the indigenous communities it reaches 85%. [7] This translates into child malnutrition, infant mortality, and illiteracy. Ecuador's oil debt is being serviced at a severe cost to the social and economic rights of its people.
On the Backs of the Poor
The poor are always the first to suffer when Ecuador teeters on the edge of disaster.
At the urging of its creditors, the government's standard response has been to impose 'austerity' measures. Somewhat ironically, gasoline and related fuels are always among the first commodities to be targeted. Fuel is a critical commodity for the poor -- essential for cooking, heating, and public transport. In 1999, President Mahuad proposed a 13 percent increase in the price of oil. This led to protests, which forced Mahuad to call off the increase and agree to a two-year freeze in prices.
But in mid-2000, the World Bank approved structural adjustment loans to Ecuador totaling $161.5 million. These loans, according to a World Bank spokesman, were to 'help Ecuador resolve its financial crisis, restore growth, and protect social programs to ease the impact of the crisis on the poor.' But one of the conditions of the loans was that subsidies for fuel be discontinued.
Once again, poor Ecuadorians found themselves in the paradoxical position of being asked to pay more for their fuel, while their oil was exported and turned into cheap gas in rich markets.
This time, it cost President Mahuad his job. A massive, peaceful 'uprising' by indigenous protestors filled the streets of Quito in January 2000. Pressure was so great that Mahuad and his government were forced to abandon the city. But the Ecuadorian military, taking advantage of this situation, maneuvered Vice President Gustavo Noboa into office. Noboa proceeded down the same economic dead end.
Mercifully, Ecuador has been spared the violence that has consumed neighboring Colombia and Peru. But it has also experienced five changes of government in the past six years.
If Ecuador cannot reorder its economic priorities soon, and if its government cannot shed its venality and arrogance towards its own people, the country could well be drawn into the same chaotic violence that has engulfed its neighbors.
The Folly of Oil
President Noboa has emerged as one of the oil industry's great cheerleaders. He is committed to doubling Ecuador's oil production and appears to view oil as the only possible solution to the economic crisis. Noboa has confidently predicted that oil development will result in an annual increase in GDP of 2.5 percent for the next 20 years -- if the oil can just be produced. [8]
Yet he should know, more than most, that production and income are largely dependent on world prices. Ecuador joined Organization of Oil Exporting Countries (OPEC) in 1973, a year after it started exporting oil. OPEC's strategy was to limit production to push up prices, and this paid off during the world oil shortages of the 1970s. But by the early 1990s Ecuador was chafing from the output restrictions imposed by OPEC. The government quit the cartel in 1993 to increase its production.
Then the oil boom turned to bust, when prices fell. In 1999 oil exports decreased by 11 percent, and Ecuador's GDP shrank by 7 percent.[9] Increasing production was no solution, because it would put more oil on the market and push down prices even further. Some oil fields were even closed.
Instead of looking for alternatives and diversifying out of oil, the government rode out the storm and waited for prices to rise. This began to take place in 2000, leading to another burst of optimistic predictions. The government began to talk of an increase in production and a windfall in private investment flows, from $700 million in 2000 to over $2 billion in 2002. [10] Petroecuador invited bids for projects that called for over $3 billion of investment.
The government then launched an ambitious plan, known as 'Apertura 2000,' which relied on private investment to pull Ecuador out of its economic tailspin. This plan included the expansion of refinery capacity, development of the new 'Tiputini' oil fields in the eastern part of Orellana province along the Peruvian border, and the increased exploitation of five major oil fields in Sucumbios province. Preparations also began on the ninth round of leasing, which would open up huge areas of the Oriente to oil exploration.
There was no question of Ecuador achieving this alone. It lacked the money for new exploration, and the technology of the state-owned company Petroecuador was largely obsolete. In addition, there was a major transport bottleneck. The main (SOTE) pipeline that ran from the oil fields in the east to the coast was only capable of carrying 400,000 barrels per day. This was barely adequate for transporting the amount being produced, let alone a major increase from the Oriente.
As noted in earlier issues of this series, the government then pushed ahead with construction of the new pipeline in the summer of 2001, brushing aside widespread protests. It predicted that the new pipeline would create as many as 60,000 new jobs and attract as much as $3 billion in new investment, over and above the cost of construction. [11] The IMF also exerted pressure to build the pipeline and warned that if Ecuador did not go ahead with the construction project, it would lose access to promised loans.
This rosy scenario has not turned out as planned, because significant increases in oil investment have yet to take place. Furthermore, the recent drop in oil prices worldwide will wreak havoc with economic predictions; Ecuador's oil price, pushing $25 per barrel in 2000, has dropped below $20 today.
A successful strategy of development is not just about technology and investment. It is about building a consensus and respecting the rights of those most immediately affected. Any strategy of development that punishes the poor and destroys their livelihood is bound to fail. And successful development will require shifting from oil as the centerpiece of its strategy.
Hidden Costs
The larger question is whether the goal of increased oil production makes any sense. Even on strict economic terms, it looks risky. By the Ecuadorian government's own calculation, proven reserves of oil will be depleted in 11 years -- the U.S. government predicts a much shorter term of six years. [12] Chris Jochnick, co-founder of the Center for Economic and Social Rights (CDES), has written that the income from oil in the remaining period will cover less than one-fifth of the present national debt, which continues to compound itself. [13] Current IMF projections warn that only four years from now the annual debt payment -- today at $1.7 billion -- will have jumped to over $2.3 billion. [14]
This is not an argument for opening up new areas for exploration. A rational oil policy should start by improving and upgrading the oil industry, which is riddled with corruption and bad management. It would also plug the leaks in the pipelines and clean up the pollution in the existing fields. It would make better use of the fields that are already under production. A rational policy would also make it a priority to develop a national consensus on whether and how to exploit oil.
It should also attempt an honest assessment of the costs of oil development. Many of these costs are hidden and not reflected in the cost of end products like gasoline. For example, the damage to the environment is not included in the price per gallon of gasoline consumed by North Americans.
The costs of reinjection of hazardous wastes, reforestation, and natural gas burn-off into the atmosphere have been calculated at nearly $1.5 billion. [15] Texaco alone is estimated to have burned off 235 billion cubic feet of natural gas. [16] The cost of the resulting global warming, not to mention the threatened extinction of the Zapara, the Cofans, and other indigenous groups, is incalculable. These costs are paid by the whole world. But those who pay the first and the most are the inhabitants of the Amazon who, in this way, subsidize our fuel habits.
Then there is global warming. It is now generally accepted that the Earth's atmosphere and environment will not be able to withstand the burning of all of today's proven fossil fuel reserves, let alone any that have yet to be discovered. If some oil is to be left in the ground, then it would be wisest to leave the world's most delicate and diverse bioregion undisturbed.
In the light of this, launching into a massive new round of exploration in the Amazon looks like madness. In the first place, it will require the sort of consensus among Ecuadorians, particularly the indigenous, that clearly does not exist. Second, it will devastate an asset than in the long term will do far more for the health of Ecuador -- and the world -- than oil. This, of course, is the Amazon. A hectare of the Oriente contains as many plant species as are found in all of Europe. This only includes the known species; Greenpeace has stated that a vast portion of existing species in the Amazon remain to be identified.
The Alternative to Oil
Ecuador's activists have been doing their homework. They have concrete plans to reduce Ecuador's oil-induced debt without sacrificing -- in fact, while repairing -- the environment and their livelihoods.
Debt for Nature
There are several ideas for sustainable alternative development in the Amazon. On the largest scale, they involve a 'debt-for-nature' plan that could reduce Ecuador's debt payment as much as $1 billion annually, while redirecting funds into positive forms of development.
Such an arrangement would block extraction of oil or other subsoil minerals on a given territory forever. It is the centerpiece for a comprehensive debt reduction proposal that has been put forward by CDES, together with the indigenous organization CONAIE. [17]
The CDES/CONAIE plan for Ecuador's debt reduction describes a nature swap that works in the interest of both creditor and debtor alike. This plan was presented to the Ecuadorian government in 2000 on behalf of the UN Children's Fund (UNICEF) and Jubilee 2000, an international organization that advocates debt cancellation. The government accepted it and presented it to the Paris Club group of creditor nations. The heart of the plan involves canceling a portion of the debt. In return, industrial development would be curtailed in lieu of permanent protection of Amazon territory.
Of Ecuador's $13 billion national debt, approximately one-half is owed to private holders of 'Brady Bonds' and the rest to foreign governments and multilateral lending institutions. [18] The CDES plan focuses on this latter 45 percent of the debt. In return for the cancellation of this amount, the Ecuadorian government will put some of the forgiven portion of its debt into a social investment fund. It would only require a small percentage to double the government's expenditure on health care and educational infrastructure.
The social investment fund would be directed toward alleviating the conditions of the poorest communities of Ecuador. Citizen participation would be a guaranteed part of these programs. Another part of the saved money would be invested in reforestation and conservation in the Amazon. This investment would support a verification program for conservation projects. Sustainable development programs such as ecotourism would also be supported.
To ensure compliance, if the Ecuadorian government failed to follow through with these programs, the debt cancellation would be revoked and Ecuador would be required to pay the entire debt.
The advantages for Ecuador from such an arrangement are clear and numerous. It is estimated that under this plan, debt service costs could be reduced by more than $1 billion per year. [19] The creation of a social infrastructure, including schools and clinics, would enhance human resources needed to further develop the economy in a healthy way. The political stability that is liable to result from these measures would make Ecuador more attractive to other kinds of foreign investment.
The debt-for-nature swap is not an entirely new idea. Indeed, it has already been put into practice in Ecuador. For example, in 1990 the Paris Club forgave a debt of $10 million in exchange for an investment of $1.5 million in conservation, administered by the Nature Foundation. Subsequent exchanges sponsored by the Paris Club have supported further environmental investment.
Objections
There are several reservations that have been voiced in objection to the idea of debt swaps. One problem is that the volume of debt swaps that have been implemented so far around the world has been minimal in comparison to the debt that remains outstanding. The only swap that has made a significant dent in one nation's debt has been the reduction of almost half of Poland's debt in a program administered by the Polish EcoFund. Put all together, existing debt swaps do not yet add up to the answer to oil development that is needed to break the vicious cycle of debt and IMF austerity measures.
However, experts in debt swap arrangements argue that conditions in Ecuador are particularly ripe for a significant increase in the amount of debt that should be traded in for nature conservation programs. First, the existing debt is not payable, and international lending institutions recognize this. Second, the debt is thus devalued to the extent that international environmentalist organizations or multilateral banks could purchase it at a considerable discount. Finally, there is a plentiful supply of pristine land available to be set aside and preserved in return for cancellation of the debt.
Fraser Preston, researcher for CDES, argues that debt swap arrangements on a vast scale in Ecuador not only have great promise for the country's economy, but that they are the only solution to the debt problem. The potential income from oil development, as noted above, will only cover a fraction of the current debt, and debt is meanwhile increasing. Mr. Preston's prognosis is that 'when the [next] round of oil development is finished, Ecuador's oil reserves will be exhausted, and Ecuador will have been enriched by $2.8 billion (in terms of present value), less than 3 months worth of GDP.' [20]
Razing the rest of the Oriente's forests will also cancel the possibility of future carbon credit exchange earnings (see below). But a major debt swap that preserves the forests will open the possibility for non-destructive development such as eco-tourism. Social development programs funded by the proceeds from forgiven debt will provide a boost to the local economy, instead of draining it. And a reduction of the country's overall debt will free up resources for infrastructure repair and development of human resources throughout the country, on a scale that is now only a dream.
Several major creditor countries, including the United States, Spain, Italy, and France, have expressed interest in the CDES proposal for a major debt swap. The losses incurred by debtors would not be so significant as to create any great political or economic instability for the creditors.
Another important reservation about debt swaps is that of some indigenous activists. The objection is that the indigenous communities did not incur the debt, so why should they pay with their land? Furthermore, who is conceiving these plans, and who will administer them -- international banks and 'corporate' environmentalists, or the indigenous people themselves?
These are serious objections that, if not overcome, will prevent movement in debt swap arrangements. Especially in Ecuador, as we have seen, the indigenous population has the capacity to block any move that the government makes, if it objects strongly enough.
The response of CDES to the indigenous complaint is that indigenous participation in such arrangements is paramount. Over the years, experience with debt-for-nature swaps has shown that indigenous land set aside for preservation must be administered by and for its inhabitants. This is the only way to overcome possible corruption or lack of implementation on the part of the government. Conditions must also be built into debt swap agreements requiring monitoring of implementation. If the government falls short in its support of nature reserves or social investment funds, it must be required to revert to payment of the original loan. Only strict arrangements such as these will protect indigenous rights and carry through the intent of the swap.
It is true that the indigenous communities did not incur the debt, but it is also true that through oil development, it is on their backs that the debt is being paid off. The only alternative to oil that has been proposed still involves indigenous land, the rain forest. But rather than being a threat to the sovereignty of the indigenous over their land, in fact it returns sovereignty to them. For as it stands now the government, as holder of subsoil mineral rights, is essentially in control of the land. If debt swaps are signed with strict conditions and full participation by indigenous activists, this would remove that encroachment on indigenous control.
The alternative to debt swaps is to continue blindly to extract oil from the Oriente, lease off most of the Ecuadorian Amazon, and continue to destroy its fragile environment and cultures. This will produce nothing but a temporary supply of crude oil. What is more, any income from expanded drilling will not become available for five to seven years from now, while the benefits from debt cancellation would begin almost immediately.
Carbon Credits
Another alternative source of income for Ecuador comes in the form of carbon emissions trade credits. Under the Kyoto Protocol, a global treaty on climate change, less-developed countries are allowed to sell 'pollution rights' to countries that already have developed industrial economies. Under this arrangement, Ecuador would receive payment for each hectare of land that it promised to leave undeveloped.
The point of this, in large measure, is to give the Amazon region a way to protect the one of the most important 'carbon sinks' in the world. The disappearance of this resource would accelerate global warming.
Estimates on the value of pollution rights per hectare of saved jungle run between $29 and $38. [21] The Center for Economic and Social Rights calculates that if pollution rights to two million hectares of jungle were sold, the revenue over a twenty-year period -- the life of an oil concession lease -- could be as much as $4 billion. [22]
As with debt swaps, the idea of carbon credit exchanges has met with opposition on the part of some indigenous activists. In September 2000, representatives of indigenous nations from around the world met in France to discuss climate change. The resulting Lyons Declaration reminds us that indigenous people are active conservationists, and it asserts the right of indigenous communities to participation in international discussions regarding climate change. [23]
The Lyons Declaration opposes carbon credit exchanges to the extent that they do not recognize the land rights and customary land use of indigenous peoples. It also opposes such arrangements inasmuch as industrialized countries fail to meet carbon emission reduction standards. As with debt swaps. it is clear that a program of carbon emissions credit exchanges must only be implemented with the full participation of the indigenous people whose land it effects.
Assuming such participation, credit exchange programs and debt swaps begin to answer an important question: What's in it for Ecuador's creditors? These governments and banks generally know that they will never receive back all that Ecuador owes them. (Today, the Brady Bonds are sold for as low as one-quarter of their nominal price.) [24] So they must cut their losses. Helping Ecuador manage its resources more rationally would at least ensure some return on their loans.
Judging from their past behavior in Ecuador, this sort of vision may be beyond the capacity of the boards of companies like Texaco or Occidental. This is why pressure from the grassroots communities in the Amazon all the way up to the international NGOs -- and if possible, even the Ecuadorian government -- is so critical.
The Community Approach From OPIP and FINAE
To one degree or another, all of the grassroots organizations of the Oriente have been working on plans for sustainable development in their community and region. Among the most advanced are those of OPIP (Organization of Indigenous Peoples of Pastaza) and FINAE (Interprovincial Federation of the Ecuadorian Nation of Achuar).
OPIP is one of the largest and most effective grassroots organizations in Pastaza province. The main components of its plan are infrastructure and educational development, ecotourism, and management of natural resources. These are all aimed at supporting local production and returning resources to the community, instead of letting them be extracted for exploitation abroad.
OPIP would like to see airstrips built in strategically placed remote communities, and river travel improved. Communications must be improved by increasing the number of local radio stations in jungle communities.
OPIP calls for the Oriente's educational system to be refurbished, from the bottom up. School buildings need to be improved, and local teachers trained in native languages. Local libraries should contain technological information appropriate to the region, such as forest management, alternative communication systems, and organic agriculture. OPIP's plan also calls for the establishment of an Amazon University, and it includes appropriate vocational training programs such as outboard motor mechanics, aviation mechanics, resource management, and alternative production.
The health infrastructure would be enriched by restoring traditional native prevention and healing, alongside the development of Western medicine. New shamans and herbologists would be trained. An 'air ambulance' program would be instituted, and the clinic network expanded throughout Pastaza province.
OPIP advocates the preservation of traditional skills that can contribute to alternative production. It envisions training and improved marketing of local handicrafts ('artesania'). The ecotourism industry, which is already under development in parts of the Oriente, could provide jobs to many Ecuadorians by satisfying the curiosity of thousands of tourists without destroying the jungle. In OPIP's master plan, there would be tourist zones and 'untouchable zones,' set aside as 'biodiversity reserves.'
Mr. Cesar Cerda, director of management of natural resources for OPIP, notes that cattle-raising destroys the jungle. But fishing, as well as the husbandry of forest animals, could generate money and strengthen Ecuador's economy in the long term, without depleting the jungle.
Like OPIP, FINAE is concerned with preservation of traditional skills. Mr. Pedro Tsamaraint from FINAE, says: 'Our elders taught us how to work with pottery, paints, head-dresses, and other crafts. We must maintain this knowledge, not forget it. We want to continue to educate our children in the traditional knowledge, and also with modern skills. If we leave the old ways behind, we will lose our culture.'
FINAE wishes to conserve the forest by planting peanuts and beans for consumption and sale, and expanding fishing and animal husbandry. Traditional crops such as yucca, bananas, and other fruits are also components of this plan.
Most indigenous communities are looking at eco-tourism as a sustainable development solution. Together with the San Francisco-based Pachamama Alliance and a private company, FINAE has created a lodge in a remote part of Ecuador. Kapawi is a ten-days' walk from the nearest town. Visitors are flown in to this lodge, one of the most environmentally sensitive tourist accommodations in the region.
Today Kapawi, powered by solar energy, provides employment to members of the surrounding Achuar communities, who earn up to 45 percent of their income from direct employment and sale of handicrafts. Full possession and management of the lodge will be turned over to FINAE in 2011. By that time they will have already earned over $600,000 from the project.
FINAE President Santiago Kawarim said of Kapawi, 'This alternative project shows that the exploitation of renewable and non-renewable natural resources is not the only source of income for our people. We believe that we can work on new and original forms of development..'
Activists with FINAE have worked with the Center for Economic and Social Rights to explore the issue of a debt swap, and the Pachamama Alliance has also helped FINAE to create a 'master development plan.' This proposes alternative development schemes for the traditional Achuar territory. It would encompass the area of Block 24, an oil concession lying on the border of Pastaza and Morona-Santiago provinces and currently controlled by Burlington Resources.
FINAE's plan includes forest conservation, debt reduction, and a carbon dioxide emissions credit exchange with more developed countries. FINAE has requested that the government and oil companies support a 12-month moratorium on oil exploration in Block 24 so that it can develop a plan for management of this territory. The organization asserts that its plan will bring in more income for Ecuador than oil development. International conservation organizations have expressed a willingness to help FINAE set aside 'biodiversity preserves.' It is one more indication that there are alternatives from Ecuador's Amazon -- and the money to pay for them.
References and Resources
[1] USAID Ecuador information website
[2] Chris Jochnick, 'Perilous Prosperity,' New Internationalist magazine (June 2001)
[3] CDES, 'Ocho Mitos Sobre el Petroleo'
[4] See note 2 above.
[5] Ibid.
[6] CDES, 'Una Opcion par el Pais: Deuda por Conservacion de la Amazonia'
[7] World Bank, 'Development of Indigenous and Afro-Ecuadorian Communities in Ecuador'
[8] 'Ecuadorian President Approves Pipeline Backed By Occidental' Drillbits & Tailings, Vol. 6, No. 5 (June 30, 2001): http://www.moles.org/ProjectUnderground/drillbits/6_05/3.html
[9] 'Economic Overview & History'
[10] Ecuador News Briefs (April 2001): http://www.gtamericas.com/country/ecuador/
[11] 'Pipeline Through Paradise' http://www.latintrade.com/newsite/content/archives.cfm?StoryID=1452
[12] 'WestLB Financing OCP Oil Pipeline Through the Mindo Important Bird Area, Ecuador'
[13] See note 2 above.
[14] See note 6 above.
[15] See note 3 above.
[16] See note 3 above.
[17] See note 6 above.
[18] See note 6 above.
[19] See note 6 above.
[20] Fraser Preston, 'Developing Countries' International Debt: A New Currency for Environmental Protection and a Proposal for Ecuador' Draft Graduate Thesis, Stanford Graduate School of Business, Stanford, Calif. (The Advocacy Project is grateful to Mr. Preston for sharing his work.)
[21] See note 6 above.
[22] See note 6 above.
[23]. 'Declaration of the First International Forum of Indigenous Peoples on Climate Change'
[24] See note 6 above.
Confederation of Indigenous Nationalities of Ecuador
Center for Economic and Social Rights (CDES)
The Pachamama Alliance
For more sources see our Ecuador resource list.
Glossary
Achuar -- Indigenous community located in Pastaza and Morona-Santiago provinces.
Agip -- Italian-owned oil company drilling in Block 10, western Pastaza province
Block -- A concessionary piece of territory where exploration and drilling rights are leased by the Ecuadorian government to an oil company.
Brady Bonds -- Privately-held shares of Ecuador's debt.
CDES -- The Center for Economic and Social Rights
CONAIE -- Confederation of Indigenous Nationalities of the Amazon
Debt-for-nature swap -- cancellation of a portion of debt in return for protection of the environment
eco-tourism --Tourism based on visitors' appreciation of the riches of Ecuador's natural environment
FINAE -- Interprovincial Federation of the Ecuadorian Nation of Achuar
Hectare -- 2.471 acres
Huaorani, Zapara, Siona, Cofan, and Secoya -- Pre-Incan indigenous communities of Ecuador whose numbers are threatened by oil development
IMF -- International Monetary Fund
Jubilee 2000 -- International organization that advocates debt cancellation.
Kyoto Protocol -- International agreement to curb climate change.
OPIP -- Organization of Indigenous Peoples of Pastaza
Orellana -- A northern province of the Oriente
Oriente -- The Ecuadorian Amazon; eastern half of Ecuador
Pachamama -- San Francisco-based group working to preserve the tropical rainforests.
Paris Club -- A group of creditor nations joined to solve problems of debt.
Pastaza -- A central province of the Oriente
Petroecuador -- Ecuador's state-owned oil production company.
SOTE Sistema Oleoducto TransEcuatoriana -- the TransEcuadorian Pipeline from Lago Agrio to Esmeraldas, built by Texaco in 1972
Sucumbios-- Northernmost province of the Oriente
In the next issue: Democratizing Communications for Ecuador
Issue 10: Debt and Development
On the Record - The Fight for the Amazon
Vol. 16, Iss. 10
March 29, 2002
Debt and Development
Contents:
- From the Editors: Misguided Development
- In the News: IMF Loan Requirements Compel Social Service Cuts, Increased Oil Development
- An Economy Built on Debt
- On the Backs of the Poor
- The Folly of Oil
- Hidden Costs
- The Alternative to Oil
- Debt for Nature
- Objections
- Carbon Credits
- The Community Approach From OPIP and FINAE
- References and Resources
- Glossary
From the Editors: Misguided Development
Over the past decade, the Ecuadorian government has tried to solve the country's economic crisis by imposing austerity measures on the poor and trying to produce more oil. In this issue, Peter Lippman explains why this strategy makes no sense. He also finds there is an alternative model of development that is more sustainable and more respectful of the rights of Ecuadorians.
The arguments for and against an oil-based development were laid out briefly in the first issue of this series. It has to be said, once again, that oil accounts for almost half of Ecuador's total export revenues. With over two billion barrels of proven reserves, and a hungry market for oil in North America, it is hardly surprising that successive administrations have built their economic policy around oil.
But this windfall has not led to economic stability. One reason is that the price of oil fluctuates, depending on demand. As a result, Ecuador has gone through the same cycle of boom and bust that plagues so many developing nations dependent on single commodities.
Like many other oil-producing countries, Ecuador borrowed extensively during the oil boom of the 1970s. When oil prices collapsed in the 1980s, Ecuador's economy entered a period of turbulence that has persisted to this day. Inflation has reached as high as 100 percent in one year, and Ecuador has the highest foreign debt per capita in Latin America.
The government's response -- at the urging of its creditors -- has been to impose austerity measures. These have hurt and enraged the poor, who now make up over 70 percent of the population. Thousands have sought relief by emigrating to Spain, the United States, and any other country where they can find work. Those who remained have taken to the streets to protest. Continuing impoverishment has undermined democracy and perpetuated the cycle of instability.
Not all of this, of course, is due to dependency on oil. Ecuador's military has played far too prominent a role in Ecuador's political and economic life, gouging into the country's coffers. The banking system is a disgrace. Corruption is endemic.
But oil remains at the heart of the problem. It was oil that led Ecuador into debt, oil that polluted the northern Oriente, and oil that now threatens to destroy the southern part of the region, with its astonishingly rich environment and culture. Whatever the economic benefits of oil -- and they are debatable -- it is surely time to develop alternatives.
This matter cannot simply be blamed on Ecuador's inadequate government or its impoverished people. International lending banks have helped put the country in its current hole, and the government's obsession with producing more oil is at least partly driven by the demand for cheap gasoline in North America. By destroying the Amazon, American and European consumers are helping to destroy the Earth's lungs.
Instead of pushing Ecuador into a new round of oil exploration, international institutions like the World Bank and International Monetary Fund owe it to Ecuador to rein in this destructive process and look for more sustainable alternatives. As this issue makes clear, such alternatives do exist, and they are coming from Ecuador's increasingly articulate and organized indigenous movement.
In the News: IMF Loan Requirements Compel Social Service Cuts, Increased Oil Development
Acting under pressure from the International Monetary Fund (IMF), the government of Ecuador has approved a $500 million reduction in the national budget that seems certain to put further pressure on Ecuador' s poor and indigenous population. At the same time, the IMF is pushing Ecuador to increase its production of oil.
Ecuador's Minister of the Economy approved the $500 million budget cut earlier this week; $120 million will be taken from projected social service funds and the rest from investment.
The cuts have been made to comply with conditions set by the IMF that will qualify Ecuador for a $300 million loan from the IMF, to be arranged by April. Without at least this amount, Ecuador will not be able to pay off $854 million that it owes this year in principle on its external debt of more than $13 billion.
The government has also sent a fiscal reform package to congress establishing stricter control of the economy, and it is pushing to pay back interest on a loan that it received from the Paris Club of creditors. This will be the first payment to that group in six years.
Ecuador has recovered slowly from its 1999 recession, during which inflation skyrocketed, oil production dropped, and the country defaulted on $6 billion in Brady Bond debts.
So far this year, economic indicators have been mixed. The price of oil, which funds about half of the Ecuadorian budget, started the year at approximately $15 a barrel, or $5 under the projected price.
If the price remained at this level, it would wreak havoc with Ecuador 's budget and the government's ability to repay its debt. However, by the middle of this month the oil price had risen almost to $20 per barrel. Meanwhile, inflation has decreased. Ecuador's current economic growth rate last year was one of the best in South America. The IMF is also encouraged by the construction of the OCP (Oleoducto de Crudos Pesados) pipeline, with its promise of doubling Ecuador's oil transport capability.
But Ecuador's trade deficit continues to worsen, reaching $189 million this January, compared to the surplus of $52 million that was recorded for the same month in 2001. Exports by the state-owned oil company Petroecuador also fell in January of this year.
In other words, Ecuador's economy is not yet out of the danger zone, and it is not clear that IMF-supported loans will solve its problems. The budget may end up balanced, but this provides no promise that conditions for the mass of Ecuador's poor will improve. What it does promise, however, is that oil development will expand.
An Economy Built on Debt
Thirty years of oil drilling has produced three billion barrels of oil and brought $32 billion to Ecuador. In the course of this vast production, a few people became richer, while many became poorer. Foreign oil companies made money, and so did Ecuadorian politicians and businessmen. But during the same period, the standard of living for the average Ecuadorian deteriorated drastically. As the national debt increased and corruption flourished, the numbers of those living under the poverty line rose. As a result, in recent years Ecuador has become one of the most politically unstable countries in Latin America.
Some statistics give a picture of the ruinous state of Ecuador's economy today. The country's debt stands at more than $13 billion [1], the highest per capita debt of any country in Latin America. [2] There is a direct relationship between this debt and the advent of oil development in Ecuador 30 years ago, because the debt was incurred when oil prices were high and Ecuador was considered a 'sound investment' by lenders.
In 1970, as oil development was taking off in Ecuador, the national debt was a manageable $217 million. [3] In the boom period that followed, Ecuador's government financed state enterprises and a growing bureaucracy by reckless borrowing. But in the early 1980s, with world oil prices dropping, the multilateral development banks stopped lending to faltering oil-producing countries. By this time, public spending had risen to a level that was twenty times greater than in 1970. [4] The freeze on new loans forced Ecuador to drastically reduce its budget. Ecuador's growth rate plummeted, and inflation mushroomed.
The oil industry brought great profits to Ecuador, but Ecuador was ill-equipped to handle such quick income. The government allocated funds badly and financed unproductive projects. A disproportionate amount of oil income went straight into the military budget. Too much money was invested in high-income urban neighborhoods to the exclusion of more deserving programs and subsidized the transportation of oil that could have paid for itself. Agricultural development stagnated, and social welfare was ignored. Hundreds of millions of dollars were lost, along with the chance to invest income intelligently.
Meanwhile the debt has continued to grow -- from $10 to $13 billion during the last decade alone. Half the national budget now goes to servicing this debt, leaving less and less for social infrastructure and sustainable development. [5] At the beginning of the oil boom, half of the population lived below the poverty line. Now the figure is around 70%. [6] Among the indigenous communities it reaches 85%. [7] This translates into child malnutrition, infant mortality, and illiteracy. Ecuador's oil debt is being serviced at a severe cost to the social and economic rights of its people.
On the Backs of the Poor
The poor are always the first to suffer when Ecuador teeters on the edge of disaster.
At the urging of its creditors, the government's standard response has been to impose 'austerity' measures. Somewhat ironically, gasoline and related fuels are always among the first commodities to be targeted. Fuel is a critical commodity for the poor -- essential for cooking, heating, and public transport. In 1999, President Mahuad proposed a 13 percent increase in the price of oil. This led to protests, which forced Mahuad to call off the increase and agree to a two-year freeze in prices.
But in mid-2000, the World Bank approved structural adjustment loans to Ecuador totaling $161.5 million. These loans, according to a World Bank spokesman, were to 'help Ecuador resolve its financial crisis, restore growth, and protect social programs to ease the impact of the crisis on the poor.' But one of the conditions of the loans was that subsidies for fuel be discontinued.
Once again, poor Ecuadorians found themselves in the paradoxical position of being asked to pay more for their fuel, while their oil was exported and turned into cheap gas in rich markets.
This time, it cost President Mahuad his job. A massive, peaceful 'uprising' by indigenous protestors filled the streets of Quito in January 2000. Pressure was so great that Mahuad and his government were forced to abandon the city. But the Ecuadorian military, taking advantage of this situation, maneuvered Vice President Gustavo Noboa into office. Noboa proceeded down the same economic dead end.
Mercifully, Ecuador has been spared the violence that has consumed neighboring Colombia and Peru. But it has also experienced five changes of government in the past six years.
If Ecuador cannot reorder its economic priorities soon, and if its government cannot shed its venality and arrogance towards its own people, the country could well be drawn into the same chaotic violence that has engulfed its neighbors.
The Folly of Oil
President Noboa has emerged as one of the oil industry's great cheerleaders. He is committed to doubling Ecuador's oil production and appears to view oil as the only possible solution to the economic crisis. Noboa has confidently predicted that oil development will result in an annual increase in GDP of 2.5 percent for the next 20 years -- if the oil can just be produced. [8]
Yet he should know, more than most, that production and income are largely dependent on world prices. Ecuador joined Organization of Oil Exporting Countries (OPEC) in 1973, a year after it started exporting oil. OPEC's strategy was to limit production to push up prices, and this paid off during the world oil shortages of the 1970s. But by the early 1990s Ecuador was chafing from the output restrictions imposed by OPEC. The government quit the cartel in 1993 to increase its production.
Then the oil boom turned to bust, when prices fell. In 1999 oil exports decreased by 11 percent, and Ecuador's GDP shrank by 7 percent.[9] Increasing production was no solution, because it would put more oil on the market and push down prices even further. Some oil fields were even closed.
Instead of looking for alternatives and diversifying out of oil, the government rode out the storm and waited for prices to rise. This began to take place in 2000, leading to another burst of optimistic predictions. The government began to talk of an increase in production and a windfall in private investment flows, from $700 million in 2000 to over $2 billion in 2002. [10] Petroecuador invited bids for projects that called for over $3 billion of investment.
The government then launched an ambitious plan, known as 'Apertura 2000,' which relied on private investment to pull Ecuador out of its economic tailspin. This plan included the expansion of refinery capacity, development of the new 'Tiputini' oil fields in the eastern part of Orellana province along the Peruvian border, and the increased exploitation of five major oil fields in Sucumbios province. Preparations also began on the ninth round of leasing, which would open up huge areas of the Oriente to oil exploration.
There was no question of Ecuador achieving this alone. It lacked the money for new exploration, and the technology of the state-owned company Petroecuador was largely obsolete. In addition, there was a major transport bottleneck. The main (SOTE) pipeline that ran from the oil fields in the east to the coast was only capable of carrying 400,000 barrels per day. This was barely adequate for transporting the amount being produced, let alone a major increase from the Oriente.
As noted in earlier issues of this series, the government then pushed ahead with construction of the new pipeline in the summer of 2001, brushing aside widespread protests. It predicted that the new pipeline would create as many as 60,000 new jobs and attract as much as $3 billion in new investment, over and above the cost of construction. [11] The IMF also exerted pressure to build the pipeline and warned that if Ecuador did not go ahead with the construction project, it would lose access to promised loans.
This rosy scenario has not turned out as planned, because significant increases in oil investment have yet to take place. Furthermore, the recent drop in oil prices worldwide will wreak havoc with economic predictions; Ecuador's oil price, pushing $25 per barrel in 2000, has dropped below $20 today.
A successful strategy of development is not just about technology and investment. It is about building a consensus and respecting the rights of those most immediately affected. Any strategy of development that punishes the poor and destroys their livelihood is bound to fail. And successful development will require shifting from oil as the centerpiece of its strategy.
Hidden Costs
The larger question is whether the goal of increased oil production makes any sense. Even on strict economic terms, it looks risky. By the Ecuadorian government's own calculation, proven reserves of oil will be depleted in 11 years -- the U.S. government predicts a much shorter term of six years. [12] Chris Jochnick, co-founder of the Center for Economic and Social Rights (CDES), has written that the income from oil in the remaining period will cover less than one-fifth of the present national debt, which continues to compound itself. [13] Current IMF projections warn that only four years from now the annual debt payment -- today at $1.7 billion -- will have jumped to over $2.3 billion. [14]
This is not an argument for opening up new areas for exploration. A rational oil policy should start by improving and upgrading the oil industry, which is riddled with corruption and bad management. It would also plug the leaks in the pipelines and clean up the pollution in the existing fields. It would make better use of the fields that are already under production. A rational policy would also make it a priority to develop a national consensus on whether and how to exploit oil.
It should also attempt an honest assessment of the costs of oil development. Many of these costs are hidden and not reflected in the cost of end products like gasoline. For example, the damage to the environment is not included in the price per gallon of gasoline consumed by North Americans.
The costs of reinjection of hazardous wastes, reforestation, and natural gas burn-off into the atmosphere have been calculated at nearly $1.5 billion. [15] Texaco alone is estimated to have burned off 235 billion cubic feet of natural gas. [16] The cost of the resulting global warming, not to mention the threatened extinction of the Zapara, the Cofans, and other indigenous groups, is incalculable. These costs are paid by the whole world. But those who pay the first and the most are the inhabitants of the Amazon who, in this way, subsidize our fuel habits.
Then there is global warming. It is now generally accepted that the Earth's atmosphere and environment will not be able to withstand the burning of all of today's proven fossil fuel reserves, let alone any that have yet to be discovered. If some oil is to be left in the ground, then it would be wisest to leave the world's most delicate and diverse bioregion undisturbed.
In the light of this, launching into a massive new round of exploration in the Amazon looks like madness. In the first place, it will require the sort of consensus among Ecuadorians, particularly the indigenous, that clearly does not exist. Second, it will devastate an asset than in the long term will do far more for the health of Ecuador -- and the world -- than oil. This, of course, is the Amazon. A hectare of the Oriente contains as many plant species as are found in all of Europe. This only includes the known species; Greenpeace has stated that a vast portion of existing species in the Amazon remain to be identified.
The Alternative to Oil
Ecuador's activists have been doing their homework. They have concrete plans to reduce Ecuador's oil-induced debt without sacrificing -- in fact, while repairing -- the environment and their livelihoods.
Debt for Nature
There are several ideas for sustainable alternative development in the Amazon. On the largest scale, they involve a 'debt-for-nature' plan that could reduce Ecuador's debt payment as much as $1 billion annually, while redirecting funds into positive forms of development.
Such an arrangement would block extraction of oil or other subsoil minerals on a given territory forever. It is the centerpiece for a comprehensive debt reduction proposal that has been put forward by CDES, together with the indigenous organization CONAIE. [17]
The CDES/CONAIE plan for Ecuador's debt reduction describes a nature swap that works in the interest of both creditor and debtor alike. This plan was presented to the Ecuadorian government in 2000 on behalf of the UN Children's Fund (UNICEF) and Jubilee 2000, an international organization that advocates debt cancellation. The government accepted it and presented it to the Paris Club group of creditor nations. The heart of the plan involves canceling a portion of the debt. In return, industrial development would be curtailed in lieu of permanent protection of Amazon territory.
Of Ecuador's $13 billion national debt, approximately one-half is owed to private holders of 'Brady Bonds' and the rest to foreign governments and multilateral lending institutions. [18] The CDES plan focuses on this latter 45 percent of the debt. In return for the cancellation of this amount, the Ecuadorian government will put some of the forgiven portion of its debt into a social investment fund. It would only require a small percentage to double the government's expenditure on health care and educational infrastructure.
The social investment fund would be directed toward alleviating the conditions of the poorest communities of Ecuador. Citizen participation would be a guaranteed part of these programs. Another part of the saved money would be invested in reforestation and conservation in the Amazon. This investment would support a verification program for conservation projects. Sustainable development programs such as ecotourism would also be supported.
To ensure compliance, if the Ecuadorian government failed to follow through with these programs, the debt cancellation would be revoked and Ecuador would be required to pay the entire debt.
The advantages for Ecuador from such an arrangement are clear and numerous. It is estimated that under this plan, debt service costs could be reduced by more than $1 billion per year. [19] The creation of a social infrastructure, including schools and clinics, would enhance human resources needed to further develop the economy in a healthy way. The political stability that is liable to result from these measures would make Ecuador more attractive to other kinds of foreign investment.
The debt-for-nature swap is not an entirely new idea. Indeed, it has already been put into practice in Ecuador. For example, in 1990 the Paris Club forgave a debt of $10 million in exchange for an investment of $1.5 million in conservation, administered by the Nature Foundation. Subsequent exchanges sponsored by the Paris Club have supported further environmental investment.
Objections
There are several reservations that have been voiced in objection to the idea of debt swaps. One problem is that the volume of debt swaps that have been implemented so far around the world has been minimal in comparison to the debt that remains outstanding. The only swap that has made a significant dent in one nation's debt has been the reduction of almost half of Poland's debt in a program administered by the Polish EcoFund. Put all together, existing debt swaps do not yet add up to the answer to oil development that is needed to break the vicious cycle of debt and IMF austerity measures.
However, experts in debt swap arrangements argue that conditions in Ecuador are particularly ripe for a significant increase in the amount of debt that should be traded in for nature conservation programs. First, the existing debt is not payable, and international lending institutions recognize this. Second, the debt is thus devalued to the extent that international environmentalist organizations or multilateral banks could purchase it at a considerable discount. Finally, there is a plentiful supply of pristine land available to be set aside and preserved in return for cancellation of the debt.
Fraser Preston, researcher for CDES, argues that debt swap arrangements on a vast scale in Ecuador not only have great promise for the country's economy, but that they are the only solution to the debt problem. The potential income from oil development, as noted above, will only cover a fraction of the current debt, and debt is meanwhile increasing. Mr. Preston's prognosis is that 'when the [next] round of oil development is finished, Ecuador's oil reserves will be exhausted, and Ecuador will have been enriched by $2.8 billion (in terms of present value), less than 3 months worth of GDP.' [20]
Razing the rest of the Oriente's forests will also cancel the possibility of future carbon credit exchange earnings (see below). But a major debt swap that preserves the forests will open the possibility for non-destructive development such as eco-tourism. Social development programs funded by the proceeds from forgiven debt will provide a boost to the local economy, instead of draining it. And a reduction of the country's overall debt will free up resources for infrastructure repair and development of human resources throughout the country, on a scale that is now only a dream.
Several major creditor countries, including the United States, Spain, Italy, and France, have expressed interest in the CDES proposal for a major debt swap. The losses incurred by debtors would not be so significant as to create any great political or economic instability for the creditors.
Another important reservation about debt swaps is that of some indigenous activists. The objection is that the indigenous communities did not incur the debt, so why should they pay with their land? Furthermore, who is conceiving these plans, and who will administer them -- international banks and 'corporate' environmentalists, or the indigenous people themselves?
These are serious objections that, if not overcome, will prevent movement in debt swap arrangements. Especially in Ecuador, as we have seen, the indigenous population has the capacity to block any move that the government makes, if it objects strongly enough.
The response of CDES to the indigenous complaint is that indigenous participation in such arrangements is paramount. Over the years, experience with debt-for-nature swaps has shown that indigenous land set aside for preservation must be administered by and for its inhabitants. This is the only way to overcome possible corruption or lack of implementation on the part of the government. Conditions must also be built into debt swap agreements requiring monitoring of implementation. If the government falls short in its support of nature reserves or social investment funds, it must be required to revert to payment of the original loan. Only strict arrangements such as these will protect indigenous rights and carry through the intent of the swap.
It is true that the indigenous communities did not incur the debt, but it is also true that through oil development, it is on their backs that the debt is being paid off. The only alternative to oil that has been proposed still involves indigenous land, the rain forest. But rather than being a threat to the sovereignty of the indigenous over their land, in fact it returns sovereignty to them. For as it stands now the government, as holder of subsoil mineral rights, is essentially in control of the land. If debt swaps are signed with strict conditions and full participation by indigenous activists, this would remove that encroachment on indigenous control.
The alternative to debt swaps is to continue blindly to extract oil from the Oriente, lease off most of the Ecuadorian Amazon, and continue to destroy its fragile environment and cultures. This will produce nothing but a temporary supply of crude oil. What is more, any income from expanded drilling will not become available for five to seven years from now, while the benefits from debt cancellation would begin almost immediately.
Carbon Credits
Another alternative source of income for Ecuador comes in the form of carbon emissions trade credits. Under the Kyoto Protocol, a global treaty on climate change, less-developed countries are allowed to sell 'pollution rights' to countries that already have developed industrial economies. Under this arrangement, Ecuador would receive payment for each hectare of land that it promised to leave undeveloped.
The point of this, in large measure, is to give the Amazon region a way to protect the one of the most important 'carbon sinks' in the world. The disappearance of this resource would accelerate global warming.
Estimates on the value of pollution rights per hectare of saved jungle run between $29 and $38. [21] The Center for Economic and Social Rights calculates that if pollution rights to two million hectares of jungle were sold, the revenue over a twenty-year period -- the life of an oil concession lease -- could be as much as $4 billion. [22]
As with debt swaps, the idea of carbon credit exchanges has met with opposition on the part of some indigenous activists. In September 2000, representatives of indigenous nations from around the world met in France to discuss climate change. The resulting Lyons Declaration reminds us that indigenous people are active conservationists, and it asserts the right of indigenous communities to participation in international discussions regarding climate change. [23]
The Lyons Declaration opposes carbon credit exchanges to the extent that they do not recognize the land rights and customary land use of indigenous peoples. It also opposes such arrangements inasmuch as industrialized countries fail to meet carbon emission reduction standards. As with debt swaps. it is clear that a program of carbon emissions credit exchanges must only be implemented with the full participation of the indigenous people whose land it effects.
Assuming such participation, credit exchange programs and debt swaps begin to answer an important question: What's in it for Ecuador's creditors? These governments and banks generally know that they will never receive back all that Ecuador owes them. (Today, the Brady Bonds are sold for as low as one-quarter of their nominal price.) [24] So they must cut their losses. Helping Ecuador manage its resources more rationally would at least ensure some return on their loans.
Judging from their past behavior in Ecuador, this sort of vision may be beyond the capacity of the boards of companies like Texaco or Occidental. This is why pressure from the grassroots communities in the Amazon all the way up to the international NGOs -- and if possible, even the Ecuadorian government -- is so critical.
The Community Approach From OPIP and FINAE
To one degree or another, all of the grassroots organizations of the Oriente have been working on plans for sustainable development in their community and region. Among the most advanced are those of OPIP (Organization of Indigenous Peoples of Pastaza) and FINAE (Interprovincial Federation of the Ecuadorian Nation of Achuar).
OPIP is one of the largest and most effective grassroots organizations in Pastaza province. The main components of its plan are infrastructure and educational development, ecotourism, and management of natural resources. These are all aimed at supporting local production and returning resources to the community, instead of letting them be extracted for exploitation abroad.
OPIP would like to see airstrips built in strategically placed remote communities, and river travel improved. Communications must be improved by increasing the number of local radio stations in jungle communities.
OPIP calls for the Oriente's educational system to be refurbished, from the bottom up. School buildings need to be improved, and local teachers trained in native languages. Local libraries should contain technological information appropriate to the region, such as forest management, alternative communication systems, and organic agriculture. OPIP's plan also calls for the establishment of an Amazon University, and it includes appropriate vocational training programs such as outboard motor mechanics, aviation mechanics, resource management, and alternative production.
The health infrastructure would be enriched by restoring traditional native prevention and healing, alongside the development of Western medicine. New shamans and herbologists would be trained. An 'air ambulance' program would be instituted, and the clinic network expanded throughout Pastaza province.
OPIP advocates the preservation of traditional skills that can contribute to alternative production. It envisions training and improved marketing of local handicrafts ('artesania'). The ecotourism industry, which is already under development in parts of the Oriente, could provide jobs to many Ecuadorians by satisfying the curiosity of thousands of tourists without destroying the jungle. In OPIP's master plan, there would be tourist zones and 'untouchable zones,' set aside as 'biodiversity reserves.'
Mr. Cesar Cerda, director of management of natural resources for OPIP, notes that cattle-raising destroys the jungle. But fishing, as well as the husbandry of forest animals, could generate money and strengthen Ecuador's economy in the long term, without depleting the jungle.
Like OPIP, FINAE is concerned with preservation of traditional skills. Mr. Pedro Tsamaraint from FINAE, says: 'Our elders taught us how to work with pottery, paints, head-dresses, and other crafts. We must maintain this knowledge, not forget it. We want to continue to educate our children in the traditional knowledge, and also with modern skills. If we leave the old ways behind, we will lose our culture.'
FINAE wishes to conserve the forest by planting peanuts and beans for consumption and sale, and expanding fishing and animal husbandry. Traditional crops such as yucca, bananas, and other fruits are also components of this plan.
Most indigenous communities are looking at eco-tourism as a sustainable development solution. Together with the San Francisco-based Pachamama Alliance and a private company, FINAE has created a lodge in a remote part of Ecuador. Kapawi is a ten-days' walk from the nearest town. Visitors are flown in to this lodge, one of the most environmentally sensitive tourist accommodations in the region.
Today Kapawi, powered by solar energy, provides employment to members of the surrounding Achuar communities, who earn up to 45 percent of their income from direct employment and sale of handicrafts. Full possession and management of the lodge will be turned over to FINAE in 2011. By that time they will have already earned over $600,000 from the project.
FINAE President Santiago Kawarim said of Kapawi, 'This alternative project shows that the exploitation of renewable and non-renewable natural resources is not the only source of income for our people. We believe that we can work on new and original forms of development..'
Activists with FINAE have worked with the Center for Economic and Social Rights to explore the issue of a debt swap, and the Pachamama Alliance has also helped FINAE to create a 'master development plan.' This proposes alternative development schemes for the traditional Achuar territory. It would encompass the area of Block 24, an oil concession lying on the border of Pastaza and Morona-Santiago provinces and currently controlled by Burlington Resources.
FINAE's plan includes forest conservation, debt reduction, and a carbon dioxide emissions credit exchange with more developed countries. FINAE has requested that the government and oil companies support a 12-month moratorium on oil exploration in Block 24 so that it can develop a plan for management of this territory. The organization asserts that its plan will bring in more income for Ecuador than oil development. International conservation organizations have expressed a willingness to help FINAE set aside 'biodiversity preserves.' It is one more indication that there are alternatives from Ecuador's Amazon -- and the money to pay for them.
References and Resources
[1] USAID Ecuador information website
[2] Chris Jochnick, 'Perilous Prosperity,' New Internationalist magazine (June 2001)
[3] CDES, 'Ocho Mitos Sobre el Petroleo'
[4] See note 2 above.
[5] Ibid.
[6] CDES, 'Una Opcion par el Pais: Deuda por Conservacion de la Amazonia'
[7] World Bank, 'Development of Indigenous and Afro-Ecuadorian Communities in Ecuador'
[8] 'Ecuadorian President Approves Pipeline Backed By Occidental' Drillbits & Tailings, Vol. 6, No. 5 (June 30, 2001): http://www.moles.org/ProjectUnderground/drillbits/6_05/3.html
[9] 'Economic Overview & History'
[10] Ecuador News Briefs (April 2001): http://www.gtamericas.com/country/ecuador/
[11] 'Pipeline Through Paradise' http://www.latintrade.com/newsite/content/archives.cfm?StoryID=1452
[12] 'WestLB Financing OCP Oil Pipeline Through the Mindo Important Bird Area, Ecuador'
[13] See note 2 above.
[14] See note 6 above.
[15] See note 3 above.
[16] See note 3 above.
[17] See note 6 above.
[18] See note 6 above.
[19] See note 6 above.
[20] Fraser Preston, 'Developing Countries' International Debt: A New Currency for Environmental Protection and a Proposal for Ecuador' Draft Graduate Thesis, Stanford Graduate School of Business, Stanford, Calif. (The Advocacy Project is grateful to Mr. Preston for sharing his work.)
[21] See note 6 above.
[22] See note 6 above.
[23]. 'Declaration of the First International Forum of Indigenous Peoples on Climate Change'
[24] See note 6 above.
Confederation of Indigenous Nationalities of Ecuador
Center for Economic and Social Rights (CDES)
The Pachamama Alliance
For more sources see our Ecuador resource list.
Glossary
Achuar -- Indigenous community located in Pastaza and Morona-Santiago provinces.
Agip -- Italian-owned oil company drilling in Block 10, western Pastaza province
Block -- A concessionary piece of territory where exploration and drilling rights are leased by the Ecuadorian government to an oil company.
Brady Bonds -- Privately-held shares of Ecuador's debt.
CDES -- The Center for Economic and Social Rights
CONAIE -- Confederation of Indigenous Nationalities of the Amazon
Debt-for-nature swap -- cancellation of a portion of debt in return for protection of the environment
eco-tourism --Tourism based on visitors' appreciation of the riches of Ecuador's natural environment
FINAE -- Interprovincial Federation of the Ecuadorian Nation of Achuar
Hectare -- 2.471 acres
Huaorani, Zapara, Siona, Cofan, and Secoya -- Pre-Incan indigenous communities of Ecuador whose numbers are threatened by oil development
IMF -- International Monetary Fund
Jubilee 2000 -- International organization that advocates debt cancellation.
Kyoto Protocol -- International agreement to curb climate change.
OPIP -- Organization of Indigenous Peoples of Pastaza
Orellana -- A northern province of the Oriente
Oriente -- The Ecuadorian Amazon; eastern half of Ecuador
Pachamama -- San Francisco-based group working to preserve the tropical rainforests.
Paris Club -- A group of creditor nations joined to solve problems of debt.
Pastaza -- A central province of the Oriente
Petroecuador -- Ecuador's state-owned oil production company.
SOTE Sistema Oleoducto TransEcuatoriana -- the TransEcuadorian Pipeline from Lago Agrio to Esmeraldas, built by Texaco in 1972
Sucumbios-- Northernmost province of the Oriente
In the next issue: Democratizing Communications for Ecuador
Back
- News Service
- Multimedia
- Global Issues
- On The Record Archive
- Youth Against AIDS
- Palestine - Civil Society Under Siege
- Bosnia - Postwar Refugee Return
- Ecuador – The Fight for the Amazon
- Issue 1: Series Launch
- Issue 2: Ecuador's Troubled History
- Issue 3: The Poisoning of San Carlos
- Issue 4: Risky Business: the Oil Industry in Ecuador
- Issue 5: Legal Battles
- Issue 6: The Dilemma of Negotiating with Oil Companies
- Issue 7: Profiles of Resistance
- Issue 8: Profiles of Resistance II
- Issue 9: The Colombia Connection
- Issue 10: Debt and Development
- Issue 11: Democratizing Communications for Ecuador
- Kosovo – The Birth and Rebirth of Civil Society
- Nigeria – Girls for Sale
- Kosovo – Rebuilding After the War
- Cambodia - Civil Society and the Tribunal
- Central America - Life After Hurricane Mitch
- Guatemala – The Rio Negro Campaign
- Southeast Asia – Violence Against Women
- Covering the UN
- Civil Society in Albania
- Afghanistan's Women & Girls
- Africa – Pygmies
- Bangladesh – Empowering the Blind
- Bosnia – War and Recovery
- Ecuador and Oil
- Guatemala – Indigenous Advocacy
- India – The Global Movement for Children
- Kosovo – Civil Society after the War
- Nepal – Democracy and Discrimination
- Nigeria – Trafficking to Europe
- Occupied Palestinian Territories
- Peru – The Search for Truth and Justice
- Roma and Gypsies
- Serbia – Fighting Repression
- Sri Lanka – Rebuilding After the Tsunami
- The World Bank and Human Rights
- UK Travellers and Dale Farm
- AP Diaries and Staff Blogs
Services
Fellows+
Dissemination+
Training+
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FIND A PARTNER
The Advocacy Project develops partnerships with advocates on the frontline and with nongovernmental organizations (NGOs). In so doing, we take our cue from partners and tailor any support to their needs.