Trouble ahead in Ecuador

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Something hideous happened in Ecuador earlier this week. Like a feudal fiefdom, the fragmented, incoherent government of Ecuador declared it would confiscate $1 billion in assets from Occidental Petroleum, a U.S. company that is the country's leading foreign investor. Oxy has sunk $6 billion into the country over decades and was a model corporate citizen, doing things like building the only schools ever seen in the Amazonian jungle settlements where oil is produced. These schools educate about 2,000 students in primary and secondary education. It's also built clinics, roads, adult education centers, and employed locals with bona fide jobs.

The government's confiscation will certainly end all that — and end all other foreign investment in the country, too. Nobody would invest in a place capable of that kind of ripoff on a completely blameless company whose only crime was being efficient and American.

But there was an especially disastrous side effect to this tinhorn—government action against its leading foreign investor.

Ecuador's going to lose its free trade pact with the U.S. The two nations were literally moments from signing it when this happened. But there's no way the U.S. can sign off on a free trade pact with a nation like that.

So in other words, Ecuador's swapped access to an $11 trillion market and replaced it with $1 billion worth of oil—producing equipment. What a bargain.

It's also populism in action, and you don't even need Hugo Chavez involved for this kind of stupidity. What's bad is that Chavez will eventually pick up the pieces.

Investor's Business Daily has an editorial about the issue that ought to be getting more attention here.

A.M. Mora y Leon 05 18 06

Something hideous happened in Ecuador earlier this week. Like a feudal fiefdom, the fragmented, incoherent government of Ecuador declared it would confiscate $1 billion in assets from Occidental Petroleum, a U.S. company that is the country's leading foreign investor. Oxy has sunk $6 billion into the country over decades and was a model corporate citizen, doing things like building the only schools ever seen in the Amazonian jungle settlements where oil is produced. These schools educate about 2,000 students in primary and secondary education. It's also built clinics, roads, adult education centers, and employed locals with bona fide jobs.

The government's confiscation will certainly end all that — and end all other foreign investment in the country, too. Nobody would invest in a place capable of that kind of ripoff on a completely blameless company whose only crime was being efficient and American.

But there was an especially disastrous side effect to this tinhorn—government action against its leading foreign investor.

Ecuador's going to lose its free trade pact with the U.S. The two nations were literally moments from signing it when this happened. But there's no way the U.S. can sign off on a free trade pact with a nation like that.

So in other words, Ecuador's swapped access to an $11 trillion market and replaced it with $1 billion worth of oil—producing equipment. What a bargain.

It's also populism in action, and you don't even need Hugo Chavez involved for this kind of stupidity. What's bad is that Chavez will eventually pick up the pieces.

Investor's Business Daily has an editorial about the issue that ought to be getting more attention here.

A.M. Mora y Leon 05 18 06