by Greg Palast
Ecuador World Bank Document
I admit, I made up the bit about the condor. But I really did stand on the equator (a goofy, but obligatory, tourist stop for travelers to Ecuador) reading through a confidential document slipped to me by unhappy employees of the World Bank.
At the Ciudad Centro del Mundo, the City at the Center of the World, loudspeakers on poles scratch out some Inca-cum-New Age music while underdressed kids squat in the dirt selling gum. These great-great-grandchildren of the Inca have no water except what they can carry in jugs up hills. The national treasury cannot afford the $5 million for vaccinations the United Nations says these children must have.
However, their parents have been hit with electric bills of $30 to $60 a month. The bills are based on a price per kilowatt-hour that is twice the average paid by consumers in the U.S. That’s one of the conditions dictated by the World Bank in the confidential agreement between Ecuador and the Bank. That’s quite a price to pay in a nation where only a minority of the population earns the “minimum” wage of $153 a month. That’s $153 a month U.S. money, and most items cost what they cost in the U.S. Try it out yourself for a month.
Why, in a nation so painfully poor, is the World Bank, an agency founded after World War II to help the helpless, requiring this nation to sock it to electricity customers? Electro-dollars, Mr. Beale. Electric utilities are marvelous cash cows. The costly systems are built with consumer and government funds, then “privatized” at pennies on the dollar. Electricity, water, and gas customers are hostages to the monopoly. To avoid the companies charging ransom instead of a fair price, these “natural” monopolies as economists called them, used to be regulated worldwide. Prices were set to match costs plus a strictly limited profit. No more.
Here’s the secret condition set by the bank on Ecuador. If you want to see how the brave new globalization order works, forget code writers in India and iPods smaller than your pinky. This is what it’s all about:
The Borrower’s [Ecuador’s] Electricity Council has issued tariffs [that means ‘set prices’]… at the longer marginal cost of electricity generation, transmission and distribution calculated using a methodology acceptable to the Bank.
Let me translate from the Techno-Croatian. Charging at “cost” sounds fine. But “cost” and “marginal cost” are two different animals, especially by the “methodology acceptable to the bank.” The cost of producing electricity is cheap in Ecuador—they have water falling right down the Andes for hydropower. But the “marginal cost” is based on the world price of oil and gas—way, way above actual costs. In effect, the Quechua families in Quito slums will be whacked with a light bill based on the price of oil set by OPEC.17
And that’s not all.
The Bank also required Ecuador to raise prices on basic foods. What is behind such devastating cruelty—forcing Ecuadorans to choose between lights and food? Always ask, qui bono?—who benefits?
Ecuador’s bondholders in Miami, for sure. But first and foremost, the privatized electric companies. Who are these guys?
There’s Duke Energy (of the Carolinas), founded decades ago by cigarette magnate James Buchanan Duke, which owns 51.5% of “Electroquil,” which, in 2004, demanded $30 million in back payments from the public. Duke’s pathway into Ecuador’s pocketbooks was paved for them by the owners of “Emelec,” the Spanish acronym for its old name, American Foreign Power and Electric Corporation. It was taken over by one of Ecuador’s richest men, also the owner of one of Ecuador’s big banks whose assets, the deposits of half a million customers, just seemed to evaporate. In 1999, that tycoon, Fernando Aspiazu, siphoned his Emelec shares out of his bank and dumped them into a Bahamas shell company to keep it out of government hands just before the police raided and seized the bank (and arrested Aspiazu, later jailed).
Aspiazu put a couple of front men in charge of selling the Emelec assets—now the government’s claimed property—and sought Uncle Sam’s political help. But Emelec was an Ecuadoran-Bahamian fugitive property by then, none of the business of the United States.
So the Bahamas shell obtained U.S. corporate citizenship through a tried and true route: The company’s operators hired Henry Kissinger’s lobbying firm, Kissinger McLarty Associates. The “McLarty” in this power duo is Mack McLarty, former Clinton chief of staff. The concerns of the Bahamian Kissinger-Americans suddenly became a crucial foreign policy concern of the U.S. Secretary of State Madeleine Albright, who personally put the screws to the president of Ecuador to get Emelec’s complaints “resolved.”
Welcome to the Flat World, Mr. Beale. In sum, the huge difference between electricity cost and price is a windfall for foreign owners, a windfall sucked right out of the Andes and sent straight to New York or to the Bahamas, or sometimes, simply pumped up the hill to the huge homes commanding the best views of Quito.
How that windfall is obtained is not always nice and rarely public. The World Bank, in its secret agreement with Ecuador, made sure the prices stayed sky high. Electro-dollars, Mr. Beale: one of the ways to squeeze dollar blood from the South American stone.
That was Margaret Thatcher’s formula. If you want to seize a nation’s economy, grab it by its lightbulbs. She used the terminology of military conquest, “seize the commanding heights,” to describe the sale of public utility systems. “Privatize” and “deregulate” public services, starting with electricity, telephone and water systems, and the rest of the economy will soon be forced to adopt the free-market nostrums of “supply-side” economics. If the nation doesn’t come along willingly, the World Bank, holding the nation’s access to credit markets in its hands, will impose a “methodology” for pricing and privatization “acceptable to the Bank” and its stockholders.
The World Bank and IMF also required Ecuador to throw away its own currency and replace it with U.S. dollars. Those $60 electric bills, for example, must be paid by Quito residents in U.S. currency. As a result, Ecuador must borrow and pay interest on the U.S. dollar bills sitting in every Ecuadoran’s wallet.
When Ecuador’s currency was “dollarized,” the wealthy took their crisp new bills with Alexander Hamilton on them and sent them, literally, to Miami. Ecuador’s banks, like Mr. Aspiazu’s, with their dollar reserves missing and stashed in the USA, collapsed. The IMF demanded the nation’s treasury bail out the banks’ private shareholders. That added a huge new debt to be paid by all Ecuadorans.
But Ecuador can afford it. Ecuador is rich. The vast nation of only thirteen million citizens sits on a pool of oil worth a quarter trillion dollars. The solution is painfully obvious: Let Ecuadorans keep their oil wealth, at least enough to keep the lights on and pay for their children’s vaccines.
But that solution runs smack up against paragraph III-1 of the World Bank’s confidential plan, the “Structural Adjustment Program for Ecuador.”
New oil wealth from a new oil pipeline will be spent per World Bank orders as follows:
…10% to social spending; 20% for contingencies…; and 70% to debt buybacks, not for regularly scheduled budgeted amortizations.
How generous: Ecuador gets to keep 10%. “Social spending” by the way, means schools and medicine. The codicil says the big bucks, 70% of its new oil wealth, will go to bondholders to buy back their bonds. (These payments are over and above interest payments.) Another 20% will go into an “oil stabilization fund”—that is, another reserve for the bondholders.
The bonds are held by speculators who, in most cases, purchased them for twenty cents on the dollar. The IMF plan calls for expediting payment at five times what these speculators paid for the bonds, a swift, neat 500% return. Who are these guys collecting the windfall? Who is squeezing Ecuador by the bonds? The nation’s President says, “The tragedy is that we don’t know who owns the bonds.” The greater tragedy is that, according to a U.N. official I spoke with, the bonds are held by the same crew in Miami that bled the nation’s banks dry.
The terms imposed by the IMF for new financing would make a loan shark
blanch. Electricity prices would rise, as well as charges for cooking gas. And Ecuador would agree to open its delicate jungle areas to oil drilling by Chevron Oil, the company that named a tanker after a corporate board member, Condoleezza.
I had traveled to Quito to meet with the President, Alfredo Palacio, to discuss with him the confidential IMF terms. That was not easy. First, an aide to the President told me the U.S. State Department had warned Palacio against meeting with me. (It’s comforting to know that someone in the Bush Administration is reading my reports.) Second, Palacio had taken office only days before, on April 20, when his predecessor disappeared out the back door of the Carondelet Palace to seek asylum in Brazil. Then-President Lucio Gutierrez was fleeing a crowd of one hundred thousand protesters, angry and hungry Quechua Indians from the hills, seeking his arrest.
“Sucio Lucio” (Dirty Lucio, a nickname I believe even his mother uses) had won election in 2002 promising to break away from the supposedly “voluntary” austerity plan imposed by the World Bank. Within a month of taking office, Gutierrez flew to Washington, held hands with George Bush (a photo now infamous in Quito) and received instruction from U.S. Treasury officials in the financial facts of life. Lucio returned to Quito, reneged on his campaign promises and acceded to every demand of the IMF to raise prices of basic necessities and cut services, from hospitals to schools. The public, after a dispirited three-year delay, revolted. Sucio fled and his Vice President, Palacio, was sworn in.
On April 25, 2005, when I arrived at the Presidential Palace, crowds were still there, chanting their suspicions that the new President would follow Sucio Lucio’s path.
But Palacio saw no reason to adopt the extreme free-market path to economic asphyxiation. At his inauguration, Palacio suggested that Ecuador might keep a little of its oil wealth for health and education needs.
That’s not what the Bush Administration wanted to hear. Secretary of State Condi Rice fired a diplomatic cruise missile, calling for new elections to get Palacio out of the way.
President Palacio seems an unlikely target of U.S. official assaults. He comes off like a cardiologist you’d meet at an AMA convention. That is, in fact, what he is: a heart doctor who practiced in the USA for a decade. Affiliated with no political party, he was brought into the government to build a national health program.
Palacio is soft-spoken, conservative in his views and pro-American—but his patient, his nation, is ill from diving into an extreme form of free-market globalization ordered by the World Bank.
He just wanted to keep a few petro-dollars for the vaccines and general welfare. “Sick people,” he told me, “are not going to produce anything.”
I showed him the World Bank confidential agreement signed by his predecessor. He was obviously familiar with the terms.
“If we pay that amount of debt,” he told me, “we’re dead. We have to survive.”
He was quite certain that Condi Rice, the World Bank and the foreign bondholders would listen to simple medical logic. “If we die, who is going to pay them?”
But they didn’t listen. Getting off the petro-dollar cycle, or at least slowing it down, is not so easy. Just by Palacio’s suggesting he might redirect some oil money, within weeks of Wolfowitz taking over the World Bank, Ecuador was cut off by both the Bank and IMF. Ecuador’s bonds were facing a boycott.
The Quechua-speaking indigenous population, the ones who drove out Sucio Lucio, were still unhappy. They reaped almost nothing from foreign corporations drilling their oil except poisoned water and a destroyed rainforest. In the summer of 2005, fed up, indigenous protesters occupied Occidental Petroleum’s rainforest oil production facilities. The nation, starved for both cash and gasoline, fell into crisis.
Then, when hope seemed lost, in August 2005, a dark stranger rode into Ecuador, wrote a check for $200 million to buy up Ecuador’s bonds and restore the nation’s credit. The Stranger from Caracas also brought along two million barrels of crude oil, diesel fuel and naphtha to keep the nation moving. Then he rode on to Argentina with a check for nearly a billion dollars to bail out that nation’s bonds.
Before we meet this Lone Ranger, let me explain why this chapter travels to Ecuador and Argentina. First, we need to illustrate that there’s more to Latin America than cheap resources. There’s cheap capital, mined from banks and public utilities, which is then lent back to them at a dear price. Second, if China is the new Saudi Arabia, offering up cheap, cheap labor, then Latin America will soon be the new China. The threat that the American dream is too costly in a Flat World is, at its core, the Haves telling you that they can hire Chinese textile workers and scientists for pennies. And therefore, you shall Have Not. Nothing has changed since railroad magnates imported Chinese workers to California during the Gold Rush to lay railroad track. Now Chinese labor is transported by Internet or in products on container ships.
But the scare of a “Yellow Peril” to U.S. and European workers has a short lifespan. In what may be one of the most important economic reports to go unread and unnoticed is a rare CIA public projection of China’s economy, Mapping the Global Future. By 2020, says the CIA, China’s GDP will be the world’s second largest, but the headlines in that year will be about China’s looming labor shortage and devastating population decline. The fanatic one-child-per-family diktats of the Communist Party will make it the oldest nation in world history. A third of a billion elderly retirees, encompassing 25% of a shrinking population, will create a production crisis beyond imagination. That leaves only one place with both a surplus working-age population and functioning infrastructure: Latin America. U.S. workers will then be kept in line with a new threat, a “Brown Tide” of employees in Ecuador and environs willing to undercut even China’s wages.
Not all Latins have been willing to play coolie to foreign operators. Decades ago, Buenos Aires was the Paris of South America, and living standards were higher there than anywhere south of our border under a government in the hands of the nation’s labor unions. But that came to an end with the thirty-year military dictatorship that began in 1955. In 1991, facing the problem of a temporary drop in its commodity prices and wild inflation, Argentina’s elected “Peronist” government swallowed every pill in the free-market remedy bottle. The nation’s electric systems, its “commanding heights,” were sold off, as was Argentina’s big state oil company. Both were gobbled up by operators from Spain and Chile. Now Argentina pays for its oil and power instead of selling it. Argentina effectively dumped its own currency by fixing it one-for-one to the U.S. dollar. It opened its borders to free trade and ended capital controls—permitting money to move in and out. Predictably, the money moved out and out. At least $189 billion of the nation’s savings in its own banks, once freed from capital controls, floated north on the Money Gulf Stream to seek a safe haven in U.S. Treasury bills and other North American securities. In return for safety, Argentines accepted 4% and 5% returns on their U.S. investments. But then Argentina’s government had to borrow it all back, paying, in 2001, a 16% interest rate to U.S. lenders. Out to the United States at 4%, back in from the United States at 16%, then out and in again—the ebb and flow, Mr. Beale—a financial suicide cycle that exploded, in December 2001, into riots in Buenos Aires, national bankruptcy and starvation in what had been South America’s breadbasket.
In 1997, the World Bank and IMF had held up Argentina as the poster child, the proud advertisement, for the wonders of the Friedman/Beale free-market future. And what was the result of their handiwork in Argentina? Manufacturing wages averaging $4.03 per hour in 1997 dove to half that ($2.12 per hour) in 2003.
Despite the dismal results of their advice, even now the World Bank and its globalization twin, the International Monetary Fund, continue to demand more sell-offs, more deregulation from Argentina. But this time, a new president, Nestor Kirchner, has said, basta!—enough! He stopped payment on some of the most usurious bonds—and told the IMF and World Bank to go fly.
Resistance paid off. Since the new p
resident’s taking office in 2003, Argentine wages have begun to rise. Still, long-term recovery for Argentina, suffering from a capital boycott by the bond market, remained in question. Then the Lone Ranger arrived with his half billion dollars.
Who is this guy, a mini-IMF unto himself, breaking the cycle of ebb and flow?
The Assassination of Hugo Chávez
On August 26, 2005, the Lord spoke to His servant on cable television and His servant told the faithful watching in TV land:
Hugo Chávez thinks we’re trying to assassinate him. I think that we really ought to go ahead and do it.
Reverend Pat Robertson has a tough time with the separation of church and hate. But Pat Robertson is not crazy. He is, in fact, one of the most ingenious, un-crazy men I’ve ever met. And the most calculating and viperous. Those who dismiss him as some cornpone, Bible-thumping Elmer Gantry fruitcake have dangerously underestimated him and his reach into political and financial power centers in Washington and abroad.
He never speaks for himself. Whether he speaks for God, I can’t say, but certainly Dr. Robertson uses his television platform to preach the evangel of the elite to which he was born. His father, U.S. Senator Absalom Willis Robertson, was the mentor of Senator Prescott Bush.
“I am not a ‘televangelist,’” he told me. “I am a businessman.”
And when he spoke of taking down Hugo Chávez, President of Venezuela, Robertson was all business. The hit the Reverend proposed was calculated for risks and rewards like any investment: