China and Ecuadorean Oil

In an ongoing attempt to sketch the borders of China’s challenge to the Left, some brief thoughts/quotes on Ecuador and resource extraction.

Patrick Iber in Dissent on the “Pink Tide” in Latin America:

With the benefit of hindsight, it becomes clearer that the Pink Tide was made possible by a boom in the global price of commodities. That boom structured both its achievements and its limitations. Latin-American economies have long been exporters of primary products and importers of finished ones; most industrial production is destined for internal markets. In the early 2000s, rapid growth in India and China drove up the price of primary products, from oil to lithium to soybeans. This gave governments the ability to spend money on social welfare and development, satisfying—at least in part—the needs of their political bases without making fundamental structural changes to their economies or their position in the global system of trade…

Policies under Rafael Correa’s government [in Ecuador] have frequently strengthened the state while weakening organizations in civil society. Correa preferred initiatives that provided reliable support to his political project rather than ones that could advance democratic and egalitarian goals. But the organizations created by the state to compete or replace more self-organized associations have not succeeded, and they have the potential to become instruments of control and demobilization.

And from Jacobin’s Pink Tide retrospective in 2017:

In Ecuador during the boom years, this model provided crucial revenues for social spending. But in the context of an economy like Ecuador’s, which is still dominated by oligopolistic markets, these revenues were mostly transformed into private-sector profits.

They provided people with spending money, but they spent it in private-sector controlled markets. It was the private sector that truly reaped the benefits of that increased social spending.

The continuing reliance on oil revenues seems to have left it both a first and last resort to continued government financing. The main benefactor of this has been China:

Last November, Marco Calvopiña, the general manager of Ecuador’s state oil company PetroEcuador, was dispatched to China to help secure $2 billion in financing for his government. Negotiations, which included committing to sell millions of barrels of Ecuador’s oil to Chinese state-run firms through 2020, dragged on for days. Calvopiña grew anxious and threatened to leave…

Shunned by most lenders since a $3.2 billion debt default in 2008, Ecuador now relies heavily on Chinese funds, which are expected to cover 61 percent of the government’s $6.2 billion in financing needs this year. In return, China can claim as much as 90 percent of Ecuador’s oil shipments in coming years, a rare feat in today’s diversified oil market.

“This is a huge and dramatic shift,” said Rene Ortiz, a former Ecuadorean energy minister and secretary general of the Organization of the Petroleum Exporting Countries. “Never before has Ecuador committed its oil to a lender.”

This is the nexus of several trends at once: fossil fuel dependence, a non-diversified resource extraction-intensive economy, a lack of internal markets sufficient to generate revenues to support a good and robust social safety net (and as the Jacobin piece makes clear, the failure to create a more vigorous political project). China is there to take advantage of it. So why is that sub-optimal?

  1. It surrenders control of its own production to China, by ensuring the diversion of its oil to them for a period of years
  2. It constrains budgets by diverting government funds to repayment for loans
  3. It further enriches speculators and enlarges the oil market as the province of traders rather than simply producers and consumers (with all the commodity disruption that portends)

The U.S. Department of Defense’s Assessment on U.S. Defense Implications of China’s Expanding Global Access cites Ecuadorean oil as one example of an “unfair” economic deal that offers some benefits but “also carr[ies] costs to host country sovereignty.” In the case of Ecuador, that might well mean constraining the ambitious welfare and social justice programs begun under Rafael Correa. It’s further proof that social programs will have to be accompanied by decarbonization, and soon.

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