April 15, 2009   President Rafael Correa's corrupt government in Ecuador is too expensive and needs-must cease and desist its state funds thievery and step aside to permit Ecuador to return to a law abiding nation. The Correa cartel is simply too expensive and has cost Ecuadoreans their future and their nation leaving this place in a disturbing failed state status if anyone cares to be honest, which few do although all are called upon today to be honest about these failures. Here is GOLDMAN SACHS this week on Ecuador's failures under Correa: "We expect the economy to decelerate significantly in 2009 on the back of much lower oil prices, impaired private sector investment, and binding financing constraints on fiscal spending. The decision to default on external commercial debt and the interventionist/heterodox policy mix are also likely to act as a major deterrent to foreign direct investment, multilateral financing, and other private sector capital inflows."  These "failures" are political decisions made by the Correa team of burglars to rob Ecuador of any chance of growth and stability. This is what you elected and what you want: failure. You may want to stay informed and decide that progress is a better option:
 
And when Goldman Sachs says that Correa's financial reports to you about your money is "anecdotal" or apocryphal or chock full of revisions, know that your government does this to lie, mislead and hide their fiscal picture about your money and your well being because, like all good drug couriers- which remains what Correa's team are- they are lying to you and hiding their crimes.
 
But Ecuadoreans have no one- no one at all- to blame for this state of reprehensible criminality that is the government of Ecuador, except themselves. You wanted a drug king pin to run your nation just as Correa's own father ran his family [to shame and disgrace] and watched as Correa's mother fled to the United States of America so she never had to face her own truths ever again. Running and hiding from irresponsible behaviors is what Ecuadoreans do very well these days- they run away and hide and avoid adult choices.
 
Here is a review of the state of criminal financing from Quito:
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From Goldman Sachs, 4-14-09
 
Emerging Markets Economic Research
(CLEARED FOR EXTERNAL USE)

ECUADOR-- Central Bank Reports Real GDP Grew 3.4% YoY (-0.25% QoQ) during 4Q2008

According to the central bank real GDP grew 3.4% yoy during 4Q2008, down from 8.0% during 3Q2008. On a sequential basis real GDP is officially reported to have declined only 0.25% QoQ during 4Q, slowing down from +0.77% QoQ during 3Q. According to the official figures real GDP growth accelerated to 6.5% in 2008, from 2.5% in 2007.

Early in 2008 President Correa criticized publicly and in very strong terms the real GDP figures published by the central bank, accusing the monetary authority of having a bias against the government and of failing to capture the “profound changes” the economy was undergoing. This led the central bank to interrupt the publication of the real activity figures for almost a year and to conduct a “methodological statistical review” after which the reported quarterly real GDP growth rates have been very high when compared with what anecdotal evidence would suggest. Local analysts are of the view that the integrity of the real sector data cannot be guaranteed. We detected very significant revisions to the previously published figures for growth in several sectors which is does not bode well for the perceived quality of the official figures.

For instance, during 1Q-3Q 2007 quarterly real GDP grew on average 1.4% yoy. However, after the methodological review conducted by the central bank, quarterly real GDP growth during 1Q-3Q 2008 accelerated to a large 7.6% yoy despite evidence that accelerating inflation eroded households’ disposable income and private sector investment is retrenching on the back of the business unfriendly policies being pursued by the government and the highly uncertain regulatory framework.

In all, the official figures show that domestic demand grew a solid 7.6% yoy (-0.1% QoQ) during 4Q2008 (down from 17.4% yoy during 3Q2008) with private consumption decelerating to 5.8% yoy (from 8.7% yoy during 3Q) and private investment to a still solid 11.3% yoy. Again, these very bullish figures seem uncorrelated with other more bearish micro evidence. While exports are reported to have declined 1.2% yoy during 4Q2008, imports advanced 9.1% yoy.

On the supply side the official figures show a large 9.7% yoy increase in construction activity and 6.4% yoy increase in ex-oil manufacturing production. Finally, the official figures show a 12.8% yoy contraction in oil GDP during 4Q2008, fully offset by the 5.4% yoy (-1.2% qoq) expansion of the non-oil sector. On a qoq basis oil sector real GDP has declined for 12 of the last 16 quarters. This shows the tremendous challenges and inefficiencies that beset the oil sector and the shortcomings of the public polices towards the sector.

We expect the economy to decelerate significantly in 2009 on the back of much lower oil prices, impaired private sector investment, and binding financing constraints on fiscal spending. The decision to default on external commercial debt and the interventionist/heterodox policy mix are also likely to act as a major deterrent to foreign direct investment, multilateral financing, and other private sector capital inflows.
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ECrisis has long reported that Ecuador today under Correa is unfriendly to business. That means unfriendly to trade, growth and jobs. You want a job? You will not get one in Ecuador today no matter how many lies Correa's team spews. Correa has ruined all chance of legitimate investment into Ecuador and denies not only his direct culpability in this but rather pays and pays more propagandists to lie some more about what is really taking place inside Ecuador which is the wholesale shut off of adult behaviors and a conversion to a kindergarten of human traffickers, drug runners and financial market thieves. Welcome to Correa's family values, now your family values.

And when Goldman Sachs says that growth projections do not dovetail/do not correlate with real time figures, this means that fraud and misrepresentation are underway. But do not take it from Goldman- get the facts yourself and know that this is your obligation to know what your nation is doing. Although we have yet to see the Goldman reports on Latin America report incorrectly over the last 4 years, they could one day be wrong so you are behooved to make your own studies.

Here is another, more darkening evaluation, correctly warning any legitimate investor away from the fraud underway by Correa's bond market money makers, all culpable:

Ecuador Update-Reserves At US $2.99 Billion, Down 55% Year-Over-Year

KEY POINT: The Central Bank of Ecuador reported in the last few days that the level of external reserves had reached US $2.99 billion as of the second week of April. The current level of reserves implies that there has been an erosion of US $3.48 billion in the stock of reserves since the highs reached on September 8 of last year -when reserves reached almost US $6.5 billion. The good news is that the velocity of erosion seen in the stock of deposits has slowed down somewhat in the past few months, most likely on the strong defense that the President Correa made of the dollarization regime. The continued bad news is that according to the official information coming out of the Central Bank, the trade balance continued to deteriorate in a material fashion during the first two months of 2009.

According to the official information published on the Central Bank's website, the level of external reserves is now down 55% from the peak reached in September of 2008. It is important to note that under a dollarized system like the one present in Ecuador, external reserves are somewhat of an "abstract idea", since there is no real reason for a Central Bank in a dollarized country to hold dollar denominated assets to support assets that are already denominated in dollars -since the monetary base is dollar-denominated. The relevance of reserves in Ecuador is related to the state of the balance of payments equation, because Ecuador has no access to private sector credit markets (the politically motivated default on Global bonds has made things even worse), and because the level of foreign direct investment remains very low -on the back of market unfriendly actions such as the confiscation of the Bloque 15 oil field from Occidental Petroleum. Therefore, reserves are the only cushion available to finance imports and government spending when exports fall. Evidence shows that the availability of imports is vital to sustain domestic employment -because productivity increases when industries are able to optimize production costs.

Going into the specifics, according to the official information, the erosion of reserves continues to be a function of the reduction of deposits from the government with the Central Bank, the redemption of deposits from the IESS (Social Security Agency), and the continued deterioration that has been seen in the trade balance, especially the non-oil trade balance.

The official data shows that the country ran a deficit of US $973 million in the non-oil trade balance during the first two months of 2009, materially higher compared to the deficit that the country ran in the same two months of 2008 (US $823 million). The total trade surplus went from US $1.7 billion in the January-February period of 2008 to a negative US $680 million in the same period of 2009. Our time-series models continue to show that there is a large risk that the trade balance of Ecuador will see a major erosion this year, even after accounting for the restrictions that have been introduced to importers (we are shocking the data set to show imports falling by 15% year-over-year in 2009). Extrapolating the latest official on the existing official time series data, the output remains that the trade balance will likely come at a negative US $4 billion this year, the highest reading seen since dollarization was introduced. The sharply negative reading on the trade balance, coupled with the slowing of worker remittances, will place pressure on the sustainability of the country's balance of payments.

One positive piece of evidence relates to the fact that the velocity of reduction on the level of deposits appears to be slowing down somewhat. We consider that the defense of dollarization by President Correa is helping matters here somewhat. The official data shows that deposits in private sector banks have gone from USD $13.13 billion in December of last year to USD $12.74 billion in February and to USD $12.56 billion in March. Needless to say, the reduction on the velocity of erosion on private sector deposits is an important development from the perspective of the stability of the Ecuadorian financial system. The problem is that this stability may prove futile if no major economic actions are taken by the government in the very short term.

THE BOTTOM LINE FOR THE MARKETS

We continue to think that dollarisation and the economic views of President Rafael Correa are for the most part mutually exclusive. We think that in order for dollarisation to survive in Ecuador, some key developments will need to take place in the short run. (1) One option would be for the price of oil to skyrocket again to levels close to US $100 per barrel, an event that could buy dollarization another couple of years -because the current account would once again shift into surplus. (2) President Correa would need to convert into a "neoliberal-Washington Consensus" kind of person/economist, just like Alan Garcia (sitting President of Peru) did. This change in attitude would go hand in hand with opening the doors to IMF technitians, implementing a major fiscal adjustement, reintroducing very market friendly policies for hydrocarbons investment, opening the country to trade, and implementing major investment treaties with Europe, the US, and other relevant economies. The problem is that it took President Garcia many years to realize that his economic policies were flawed. It may also take President Correa a long time to realize that he is wrong. (3) Ecuador would need to become a trading and financial hub inside Latin America, an issue that would imply that this country would need to implement very aggressive trade and financial regulation reforms right now.

We find all those enumerated events unlikely to happen in the short term. Therefore, we continue think that the risk of Ecuador exiting dollarization at some point in the next couple of years has increased dramatically, most likely above 70%, from less than 10-20% last year (before the Lehman event took place). Dollarization remains very popular in Ecuador, but the final decision on whether dollarization remains in place or goes away appars no longer to be just a function of the decision of the local political leadership. Because of the financial crisis and the inability of the Ecuadorian government to have a meaningful relationship with the international financial institutions and capitalists, dollarisation remaining in place may no longer be an issue of choice, but an issue of force. If the government is forced to introduce deposit and even more stringent capital and import controls in the future (because of lack of financing and high current account deficits), the economy will tank aggresively. If the economy tanks, tax revenues will tank as well, and the government will have no choice but to cut spending and/or fire government employees. The only alternative would be to pay workers with secondary currencies, as the province of Buenos Aires did during the 2001 crisis in Argentina (via the issuance of Patacones). Introducing a second currency is the first step in the abandonment of dollarization.

On top of that issue, we consider that locals will continue to have doubts regarding the future of dollarisation. The stability of a monetary regime is a function of credibility. President Correa has repeatedly argued that dollarisation is the worst mistake that his country has ever made, and he has consistently argued that Ecuador will exit this regime at some point. His words are comparable to telling one's wife that "in five years time I will no longer be married to you", and at the same time expect her to stick around; it just doesn't work like that in real life....

We continue to think that there is material downside in all of Ecuador's assets, even at the current distressed levels. We think that the forthcoming official offer to fix the 2012 and 2030 debacle (apparently to be announced on April 20, according to the local press) will dissapoint. We think that it is illogical to expect Ecuador to follow through with an actual debt buyback with cash at a time when the available resources of the treasury are so constrained, and even after accounting for the likelihood that between Venezuela and Ecuador these two governments probably hold around half of the outstanding 12's and 30's. We also think that the downside risk on the 15's is very significant because of cash flow issues and pari-passu concerns, and we recommend clients to stay away from these bonds irrespective of the intention of the Correa administration to continue servicing these bonds in the short term.- - Bulltick Capital Markets
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ECrisis again warns: get the facts. Never accept second hand news. Never accept dealers selling "investments" without 2nd and 3rd reviews- ever. In fact, rarely should one accept anything at face value from any Ecuadorean- they are addicted to manipulative living these days and cannot be trusted in any way. Facts are still important and cannot be cheerfully dismissed as all Ecuadoreans do today. Indeed one must venture forward and insist that honesty and straight talk once again be a daily fare.

For our part, we consider that financial integrity linked to the U.S. dollar's use and the economic stability of Ecuador are in fact mutually inclusive, contrary to the above report. No one but a fool actually believes anything out of Correa's puppet Central Bank or his pathetic Cabinet any more and neither should sane investors. Ecuador is unsafe at any level today- unsafe for investors, workers, freedom lovers and men of conscience.

Are you better off today under Correa's dishonest cartel than you were 10 years ago?

-Pedro Camargo for ECrisis