Ecuador Politics

by | May 9, 2007 | Archives

Ecuador politics create opportunity. A reader who recently bought property in Ecuador just wrote: “I just read this article about Ecuador politics at Yahoo. The article said Ecuador will not extend an investment treaty with the United States that just expired. The treaty, signed in 1993, aims to protect investment in both countries and forbids the expropriation or nationalization of investment without proper compensation. Los Angeles-based Occidental Petroleum has used the treaty for support in an arbitration claim filed against Ecuador for terminating its contract last year. Ecuadorian President Rafael Correa, an ally of Venezuela ‘s anti-U.S. President Hugo Chavez, has publicly criticized Washington’s foreign policy in the region and called President George W. Bush a ‘dimwitted’ leader. Correa, a U.S.-trained economist, has investors jittery with pledges to limit foreign debt payments and rework foreign oil contracts in South America ‘s fifth largest oil producer. Should there be some nervousness on our investments?”

Many messages at this site have reiterated the fact that there should be caution on any investment anywhere, but the comment “Correa, a U.S.-trained economist, has investors jittery with pledges to limit foreign debt payments and rework foreign oil contracts in South America ‘s fifth largest oil producer” is an important one.

All investments entail a degree of risk. The key is to be sure you get the correct premium as a reward for taking the risk. For example US dollar government bonds (even though they have lost about 75% of their value in the last 35 years or so) are viewed as safe so you receive a discount for investing in this. Bad move paying to invest in a sure loser.

So we have a new president in Ecuador and new Ecuador politics. Is he a good guy or not? No one can tell. None of us can look in the hearts of another man. If so, would Americans have elected Bush or Clinton?

So far Correa and his Ecuador politics have given investors the jitters but acted wisely.

Here he is at a recent Ecuadorian political rally he put on near our town square. His platform now is that if Ecuadorians want a better life they have to become more productive. Notice the banner he is posting “Credito ya es de Todos”! He has a five year plan for the government to lend small business people money for five years at 5% to stimulate the economy. Sounds like a smart plan.

If he called Bush dim witted, I must regretfully say this is not wise of him to speak this way but I have called Bush worse.

At this rally two things were new. The flag that was flown next to the Ecuadorian flag was the Stars and Stripes.

Correa also stated boldly that no outside nation would control Ecuadorian politics. Then when everyone expected him to slam the US , he talked about how he would not be swayed by Venezuela instead.

So I repeat my statement reiterated in numerous messages. Correa is a smart economist educated in the USA who worked his way from poverty to president. His family lives in the US and his wife is Belgian. He is a man with a huge job. To date he has talked left and acted middle of the road. He has talked populist but has acted in the best interests of a global economy. He talked forfeiture of bonds but paid.

Yes, there is risk but we are paid a huge premium to take it and the area in which most of us are investing (personal real estate) is the least likely to be hurt and among the most likely assets to be helped.

I consider the European shares I just bought (because of their good value above) risky investments because there is not as great a premium. Yet in France protestors for a second night, burned cares and smashed store windows in Paris in post election demonstrations. There was also unrest elsewhere. The unrest has been small-scale, but sent a message to the new president. Many French voters find his free-market reforms and tough line on crime and immigration brutal. Plus ca change, plus ce la meme chose.

The risk of loss from changing property values in the US seem more real and greater to me than the chances of loss in Ecuador from political change. I like the odds in Ecuador and have increased my investment there.

See another reasons why I like Ecuador in tomorrow’s message.


Until next message, may all your international investments be good.


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