Perilous Prosperity

by Chris Jochnick

New Internationalist magazine, June 2001


Ecuador's Minister of Energy and Mines recently proclaimed that this nation of 12 million is on the cusp of a second oil boom. The Government has set its sights on the southern Amazon rainforest - 5 million acres of the most biologically diverse environment in the world - and the estimated 775 million barrels of oil that lie below it Occidental Petroleum recently announced that it was planning to drill 47 wells in the remote Eden-Yuturi area of the Amazon Industry officials have compared the project, which involves the creation of Ecuador's second transnational pipeline, to the country's first railway and have marked its construction as the beginning of a new historical era.

These are familiar promises. When oil was discovered in the Ecuadorian Amazon 30 years ago, it was heralded as the country's salvation. The first barrels were paraded through the streets and placed on public altars. Oil was used to treat arthritis and hair loss and national TV news programmes ended with gushing oil towers and the ringing phrase: 'Ecuador: Pais Petrolero!' (Ecuador: Oil Nation!)

But three billion barrels and $32 billion later, the country is no better off for its boom. Crippled by debt, wracked by inequality and political corruption, Ecuador is more oil dependent than ever. And the oil companies just keep drilling and pumping. What happened to the dream of oil-fired prosperity?

Let's go back to the beginning: Texaco discovered petroleum in the Oriente region of eastern Ecuador in 1967. By 1974 the country had

become the second-largest oil exporter in Latin America. Oil became the biggest money-spinner in Ecuador's history, accounting for more than half the country's foreign earnings and approximately half of the national budget. It also attracted billions of dollars in foreign loans.

But those figures mask another side of oil. Ecuador's Amazon covers 32 million acres of near pristine rainforest teeming with an incredible diversity of plant and animal life. It is also home to eight distinct indigenous groups with a total population of 200,000. Pre-oil, the Oriente was a neglected frontier, protected by its inaccessibility. Many native communities survived according to centuries-old traditions, living on the rainforest's resources, barely touched by outside influences.

All this changed with the discovery of oil. The government had neither the resources nor the experience to develop the petroleum. Instead Texaco was allowed to exploit the region as it saw fit. The giant US company built a network of roads slicing through the rainforest and a pipeline running the length of the country - as well as refineries and hundreds of wells. The government followed by opening up the region to

settlement as a way of relieving internal land pressures. Legal title was given to anyone who cleared and farmed the jungle terrain The result: local communities were devastated, forests were hacked down, land and rivers fouled by waste oil and toxic discharges.

Traditional indigenous groups like the Cofan, the Secoyas and the Huaorani, once numbering in the tens of thousands, were reduced to a few hundred each. The Tetete people disappeared completely. As a government study admitted in the late 1980s, oil development had placed indigenous groups 'at the edge of extinction as a distinct people'.

For two decades Texaco was the dominant player - pumping 90 per cent of Ecuador's oil and creating an environmental catastrophe in the process. An estimated four million gallons of heavy metals a day (including arsenic, benzene and lead) were dumped on to the land and into rivers and streams. Following a week-long fact-finding visit with communities in the Oriente, the lawyer and environmental campaigner Robert Kennedy described what he found: 'Sick and deformed children, adults and children with skin rashes, headaches, dysentery and respiratory ailments, cattle dead with their stomachs rotted out, crops destroyed, animals gone from the forest and fish from the rivers and streams.'

Recent studies have borne out these observations, finding an increased incidence of many diseases, widespread malnutrition and cancer rates four times higher than other parts of Ecuador. The World Bank has described socio-economic conditions in the region as 'calamitous'. Poverty levels are close to 90 per cent; basics like sanitation, potable water and paved roads nonexistent. The oil companies, including the state-owned Petroecuador, promise to clean up their act but little changes.

Despite this, the money continues to flow. Texaco alone claims to have paid $24 billion to the Ecuadorian Government over the years. Surely the other 12 million Ecuadorians are a lot better off? You would think so, but in fact the country as a whole has I fared little better than the Amazon s native people.

With more than half its reserves now depleted Ecuador has higher levels of poverty, inequality, debt and unemployment than it did before Texaco arrived and is facing its worst economic and political crisis of the past 100 years. oily

When oil was first discovered the new country was ill-prepared to handle the sudden flood of easy money, in part because Ecuador had yet to one escape its colonial past. When the country was liberated from Spain in the mid-1800s the economic and political system was dominated by a handful of powerful families who controlled the nation's export industries. Semi-feudal social relations still predominated when oil was discovered - making it inevitable that the old elite would hang on to the reins of power. As for the poor: their oil legacy would be 'the dust left by hundreds of newly imported vehicles' in the words of one commentator.

In the decadent decade of the 1970s oil hiked growth rates as high as 25 per cent. By 1981 the economy was more than 10 times its pre-oil size. Public spending ballooned, financed by oil revenues and by prodigious borrowing. Oil opened the floodgates to foreign debt, provoking a spiral of indebtedness that has today left the country with the highest per capita debt in Latin America.

Meanwhile, public spending and subsidies did little to boost employment or to address poverty or basic welfare. And agriculture was ignored. The tremendous early oil wealth was quickly soaked up by military spending, inefficient public projects and massive subsidies on petroleum products (the government kept the local price of oil at a third of the outside market value alongside predictable losses to corruption and capital flight.

When oil prices eventually collapsed and foreign credit dried up / in the early 1980s the country was hopelessly over-extended. By 1981, public spending was 20 times 1970 levels and debt servicing was consuming an ever-larger share of the national budget. So the cuts began. Throughout the 1980s and the 1990s the government slashed public services like education, healthcare and social security. By 1999, the share of the national budget allocated to health had fallen to less than three per cent, while debt service skyrocketed to more than fifty per cent.

Thanks in good measure to oil, Ecuador is today one of the world's most corrupt and stratified countries with one of the weakest political structures. Oil income has encouraged corruption, patronage and concentration of wealth And it has also shielded governments from more accountable decision-making and necessary democratic reforms With so much of the budget depending on petroleum exports and foreign loans the government has been immunized from the close public scrutiny that should have accompanied regressive tax measures and dubious social policies Even the World Bank, fully complicit in many of these policies, admits that the burden [of adjustment] has fallen most heavily on those public services paramount to fostering economic development (ie education and agricultural development), whereas the central government bureaucracy and other powerful interest groups (ie the military) have retained their relative and even absolute positions'.

Despite the continued benefits of oil, the country has suffered increasing levels of poverty, inequality and unemployment. Basic social indicators (maternal and infant mortality, child nutrition, literacy) have stagnated or gotten worse. Alongside

this social crisis a series of inept and flagrantly corrupt governments, tied to the old oligarchy, have provoked massive public outcry and uprisings, leading to six different presidents in the past five years - and Latin America's first military coup in a quarter-century.

At the same time, oil has opened the door to powerful foreign interests - including multinational oil companies (many with revenues dwarfing Ecuador's GNP) public creditors and Northern governments with a stake in oil. These are ranged alongside equally dominant local groups: the national oil industry; a wealthy industrial sector benefitting from distorted oil policies; the military; and a powerful class of higher-paid oil employees and their union - the strongest in Ecuador. Add to that mix an impoverished and desperate public weaned on promises of oil wealth and the dominant force of oil begins to take shape.

Reality check Ecuador has an estimated 10 to 20 years of oil left in the Amazon. At best the income will equal less than a fifth of the current national debt. The Government's most optimistic projections leave the country in essentially the same condition: mired in poverty and debt. As one local commentator quipped recently in response to the country's inability to gain from the high oil prices of the past year: 'Things are going so well, they couldn't be worse."


Chris Jochnick is co-founder and Legal Director of the Centre for Social and Economic Rights in Quito.

South America watch

Oil watch

Index of Website

Home Page