The Importance of Being Ecuador, 10

1. The discovery and development of petroleum fields in the Oriente reprised the theme of export capitalism, export enclave capitalism, but with a vengeance. What was to have been a cash asset, a capital plow, turning over the rotted remains of the hacienda, of the mita, of the conquest economy, became instead the vector, the vehicle for the infiltration and subjugation of the entire economy by international debt. In this modern form of capital, debt, there was preserved, secured, the impossibility of national, capitalist development. It, the petroleum based expansion of the Ecuadorean economy, was the old rags to new oil-soaked rags story.

Earnings are a sometimes thing, but debt is forever. Between 1967 and 1974, Ecuador’s foreign exchange earnings increased tenfold. The average annual rate of growth (AARG) for real GDP during this period exceed nine percent. Manufacturing GDP AARG exceeded 13 percent. But the growth of external debt far outstripped GDP growth and foreign exchange earnings. By 1979, external had grown to $4.5 billion dollars, an AARG of 60 percent in a decade.

Ecuador’s debt doubled again between 1979 and 1986. Petroleum revenues increased in relation to GDP while revenues from non-petroleum commodity exports declined by 25 percent. The government increased public expenditures as a portion of the revenues from oil exports were used to subsidize consumption and finance public works. Transportation and utility infrastructure were improved as were water, and sewer systems.

By 1989, 50 percent of the goverment’s budget was financed by oil export revenues, and 38 percent of expenditures were dedicated to foreign debt service.

OPEC 2, the oil price spikes of were the overture to the contraction of the world markets and the collapse of rates of growth. More than overture, OPEC 2 was the coda, signifying more than the end of the post WW2 expansion, more than the end of the post OPEC 1 recycling of petro-dollars, and more than just the inability of capitalism to sustain reproduction of capital. The coda of capital was announced in the attack on living standards, in the transfer of wealth from poorer to richer, in the creation of a “lost decade”stretching in space and time through the 1980s and from Seattle to Buenos Aires.

Overproduction of oil, overexpansion of the productive assets for extraction, transportation, and distribution of oil; overexpansion of manufacturing as a whole, of the assets for production, transportation, and distribution, created a declining rate of return on investment and production, and had created that decline globally.

The decline of oil earnings after OPEC 2, slowly at first, then dramatically in 1986, and then catastrophically in 1988-89, was marked by the usual government efforts of devaluation, austerity, and the attack on living standards. The sucre was devalued twice between 1981 and 1983. Government spending was reduced and domestic interest rates climbed. IMF debt was rescheduled which then allowed the government to reschedule foreign private bank debt in 1985.

In 1987, however, the decline in oil revenues forced the government to suspend interest payments to the private lenders and impose import surcharges. The Trans-Ecuadorian Petroleum Pipeline was partially destroyed by the earthquake of March, costing the economy approximately $700 million in export revenues. GDP declined 5.2 percent from the 1986 level, despite increased government spending to stabilize the contracting economy.

2. The cycle of austerity, constrained economic recovery, expanding debt continued for Ecuador throughout the 1990s. AARG of manufacturing reached 6.9 percent in 1995. The percentage of gross fixed investment dedicated to machinery and equipment climbed from 43 percent in 1990 to 60 percent in 1995 and was maintained at 60 percent until 1999.

The financial crisis of the Asian economies in 1996-97-98, in reality the result of the peak and decline in the rate of profit throughout capitalism as a whole, and in the US in particular, worked its way east and west. The determinant of this contraction, overproduction, was particularly acute once again in petroleum production. Oil prices again head down, this time falling below the $12 a barrel mark touched a decade earlier.

Capital stumbled. Ecuador’s capitalism staggered and neared collapse in 1999. The contribution of external financing to domestic investment actually turned negative. The negative net transfer of resources in 2000 was 20 times larger than the 1995 measure. Per capita growth of GDP, barely positive 1991-1995, turned negative and stayed negative 1996-2000.

With each successive iteration of commodity nationalism, the capitalism of Ecuador has become always and only that much more integrated into and dependent upon the world market, upon international capital. The economic collapse of 1999 and the dollarization of the economy were not actually variations on a theme, but the theme itself.

The theme of course is the maintenance of capital through the assault on wage rates and living standards, by the deconstruction of even the incremental development afforded by the “upswing” in world markets. Between 1997 and 1999 labor income declined by half. Even after the “recovery” of 2000, 2001, labor income was still 30 percent below its 1997 mark.

The dollarization of 2000 “stabilized” the economy, in effect, by guaranteeing the value of debt repayment.

With the contraction of world markets in 2001 and its reduced rate of growth since then, capital, international and national, in Ecuador, is at it was: the heir and the servant to the conquest economy and its legacy. Capital, international and national, in Ecuador, find its task to be more and more, and never less, the constraint of the very expansion of growth that requires an actual reorganization of property to move development out of an enclave, out of a concession, out of zone. Those concessions require more and more and never less military bases, and military organizations to “protect” the pipelines, the production facilities in the Oriente, in Sucumbios, Orellana; bases and organizations that will be used to “pacify” Putumayo, to sever Beni and Santa Cruz from Bolivia.

The UN in its 2006 report on the state of the world’s cities wrote: “Around the world, the wealthy have created an architecture of fear by retreating behind fortified residential enclaves.” Residential property is merely the reflection of the private property in production. It is in the hacienda that capital finds its security, its lost future.

S. Artesian
July 15, 2006

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