With help from an old friend of President Obama, Ecuador declares war on capitalism
By KEVIN D. WILLIAMSON – National Review: Nov. 9, 2009
Ecuador is not a banana republic; it is a bananas, shrimp, flowers, and oil republic. Those products are the country’s main exports, and earnings from them have declined as a result of the global economic slowdown and, perhaps more important, the misgovernance of Pres. Rafael Correa, the teacup Castro who is leading his country into despotism and disarray. Mr. Correa’s response to his country’s misfortunes has proceeded along classically authoritarian lines: He demonizes foreigners, particularly foreign businessmen, while conducting a campaign of theft and extortion against them.
An emergent anti-American autocrat never lacks friends among American progressives, and Mr. Correa enjoys the devotion of such notables as Kerry Kennedy, daughter of Robert F. Kennedy, and Daryl Hannah, the celluloid mermaid. He also was bolstered, at a critical juncture, by the support of Barack Obama. Mr. Correa is a master greenwasher, having convinced his admirers that he steals and extorts for the benefit of the environment and Ecuador’s Indians. Never mind that the oil company he controls, Petroecuador, is among the country’s main environmental problems, or that his forces kill the occasional uppity Indian, as happened in September during protests in Morona Santiago province. Mr. Correa’s greenery is bogus, but the combination of an environmental crusade with wretched Indians and anti-corporate invective is catnip to the celebrity-activist set.
Among Mr. Correa’s targets are American telecommunications companies. AT&T, MCI, and Sprint have been accused of conspiring to evade per-minute taxes on international calls, and Mr. Correa wants more than $100 million in reparations. His government has discovered a $500 million tax bill for the Spanish oil firm Repsol and a $350 million bill for the French energy company Perenco. He has unilaterally terminated contracts with oil companies, insisting that they reorder their businesses on terms of his own devising. Repsol and its Brazilian competitor, the state-owned Petrobras, gave in. Perenco’s operations were seized and transferred to a firm owned by the Ecuadoran government, Petroamazonas. Mr. Correa accuses J. P. Morgan and Salomon Smith Barney of having profited improperly from bond deals and threatens to renege on Ecuador’s debts. All of the country’s banks have been ordered to repatriate 45 percent or more of assets held abroad. Smaller business operators report that bribery and corruption are rife and grow rifer.
It is an epic shakedown, and it is undeniable that Mr. Correa’s government needs the money. Ecuador defaulted on a $31 million interest payment in December and a $135 million payment in March. The government threatens to default on 40 percent of its sovereign debt. Mr. Correa has bought much of what popularity he has, and he is going to need a lot more cash to keep his ratings high. He believes he has hit a $27 billion jackpot with a case against Chevron, which inherited Texaco’s operations in Ecuador when it acquired the firm in 2001.
It is Mr. Correa’s crusade against Chevron that has attracted the interest of Ms. Kennedy, Ms. Hannah, and Mr. Obama. It has all the makings of an Erin Brockovich–style Hollywood jeremiad against corporate greed and environmental malfeasance: crude oil glooped around the rain forest, Indians suffering from poisoned drinking water, dead fish in lifeless rivers, corrupt judges — throw in a precocious kid and a wisecracking sidekick and the script practically writes itself. And it is a script: Much of what Chevron is accused of doing seems either not to have been done at all or to have been done by Petroecuador, the state-run oil company. The main difference is that in this case the corrupt politicians, rapacious lawyers, and tainted judges seem to be on the side of the environmentalists.
Texaco, which Chevron would acquire in 2001, had in 1992 determined to end its partnership with Petroecuador; in doing so it was obliged to “remediate” 116 oil-drilling sites — meaning it had to seal them up, clean them up, and minimize the environmental impact of its activities there. The remaining 204 sites were the responsibility of Petroecuador, the senior partner in the relationship. Texaco spent some $40 million on the remediation project, and Chevron seems to be proud of the work: Executives all but begged Scott Pelley of 60 Minutes, who was working on a story about the Ecuador case, to come with them on a tour of their sites, but he declined. The pre-Correa government of Ecuador must have been pleased with the work as well, inasmuch as it certified that everything had been completed to the satisfaction of the authorities.
But that bit of settled business turned out to be anything but. One of the identifying features of a banana republic is its refusal to recognize the acts of the governments that preceded it, and Mr. Correa’s regime has been true to form in that respect. Whether it is refusing to recognize debts incurred by previous administrations or dissolving contracts, Rafael Correa’s operating assumption apparently is that the only legitimate contracts are those that were negotiated with Rafael Correa. (One remarkable deal found his brother, Fabricio Correa, receiving $80 million in government contracts.) Ecuador, under Mr. Correa’s rule, apparently is to be regarded as having no continuous governmental authority. His government refuses to recognize the prior administration’s dealings with Chevron, especially its release of the firm from future environmental liability.
That is a particularly sensitive point, because oil-extraction operations in the region did not end with Texaco’s exit. Petroecuador continued to drill — and to spill — and, being a state-owned firm, it has taken an attitude toward environmental externalities that a U.S.-based company might regard as cavalier, and that at least one close observer has called “criminal.” To the consternation of Chevron executives, the celebrity activists and journalists who travel to Ecuador to wallow in the environmental devastation invariably are taken to sites belonging to Petroecuador, not the sites that were remediated by Texaco. Chevron spokesman Don Campbell identified one of the polluted sites from the 60 Minutes piece as “Shushufindi 38” — a Petroecuador site. He sent a frustrated e-mail to CBS news boss Sean MacManus, who apparently then sent Campbell an e-mail meant for 60 Minutes staff, asking: “Why didn’t we tale [sic] them up on their offer to visit the sites in Ecuador?” (A CBS delegation, minus Scott Pelley, subsequently made a visit that Chevron describes as perfunctory.) A famous picture of Ms. Hannah holding up a hand covered in crude likewise came from a Petroecuador site. Ms. Kennedy has not responded to Chevron’s invitation to tour their sites.
Taking oil out of the ground can be an ugly business, environmentally and politically, and state-run oil companies historically have not been run by the nicest of men. And there is no question that Ecuador’s Indians have suffered the ill effects of pollution. Much of that has little or nothing to do with oil: A great many of the drinking-water samples collected as evidence in the Chevron case were polluted with bacteria from human and animal waste; almost none showed pollution from petroleum. The plaintiffs in the case are seeking, among other things, $9.5 billion for damages relating to 1,401 cases of cancer, but Chevron protests that the plaintiffs have not yet been able to produce any actual cancer sufferers, and that there are no names, medical records, or other forms of documentation attached to the cancer claims. A study of the carcinogen benzene found nothing approaching dangerous levels, and an American court threw out evidence of a spike in cancer rates as unsubstantiated.
Practically every issue touching the Chevron case is in dispute, but it is difficult to deny that the legal proceedings have been corrupt. The first judge was forced to recuse himself after a bribery scandal in which he was recorded discussing his intention to rule against Chevron and mulling over the possible size of the award. Relatively little is known about the plaintiff in the lawsuit, the Amazon Defense Coalition, and it is not clear whether they or Mr. Correa’s government would collect any settlement. ADC is principally represented by the American lawyer Steven Donziger, a Harvard classmate and former basketball buddy of Barack Obama’s. That connection has served Mr. Donziger well. When Chevron challenged Ecuador’s trade privileges under the Andean Trade Pact — arguing that its actions violated its treaty obligations — Mr. Donziger paid a visit to his old classmate, then a senator from Illinois not remarkable for his attention to the finer points of South American affairs. Senator Obama sent a letter to the U.S. trade representative arguing that that Ecuador’s trade privileges should not be linked to the case against Chevron.
Mr. Obama’s record here is remarkable: One of America’s best allies in the region, Pres. Álvaro Uribe of Colombia, has been neglected, and a pending free-trade pact with his country has been smothered. But as a senator, Mr. Obama did find the time to intervene in a dodgy court case that could put $27 billion at the disposal of a budding leftist autocrat, with a generous cut going to American trial lawyers. The odds are long that any of that money would end up doing much to improve the lot of Ecuador’s Indians, who want more say over the management of extraction industries and water rights in their region — a privilege Mr. Correa intends to deny them. But Mr. Correa has learned how to deal with opposition, too, with “neighborhood defense committees” recently established to terrorize his political opponents. With the overt support of Hugo Chávez and covert support from FARC guerrillas next door in Colombia, Mr. Correa is ready to fight his war on capitalism — and his campaign to get his hands on $27 billion of capitalists’ capital.