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Info Service on Biodiversity and Traditional Knowledge (Sept23/05) Montevideo, Uruguay, 11 Sep (Roberto Bissio*) — The Ecuadorean people decided by a decisive majority that the Yasuni oil reserves in the Amazon should not be exploited, due to the negative impact of fossil fuel extraction over biodiversity, the livelihood of indigenous communities and world climate, but implementation is facing unexpected resistance internally and abroad. As soon as the votes were counted, on August 23 the credit rating agency Moody’s issued a comment stating that stopping oil exploitation in Yasuni and mining activities in Choco, a referendum option that got 59% of the votes, would be a negative factor in credit terms for Ecuador. Moody’s note for the country is Caaa3, indicating high risk, and lowering it a notch would result in a default qualification and further increase the interest rate paid by the country to its creditors. There are 225 wells in operation in the area that the referendum protects, producing some 55,000 barrels of oil per day. According to the popular decision, Petroecuador has one year to close the wells and dismantle a power plant, shipping areas, twelve oil platforms, roads and pipelines. Addressing indigenous leaders in a leaked private conversation, outgoing president Guilermo Lasso, announced on September 6 that he will not abide by the referendum decision because it is “inapplicable” and “it is not possible to close an oil well overnight”. Pedro Bormeo, spokesperson of the YASunidos coalition that promoted the referendum, commented that “these statements clearly demonstrate the anti-democratic intentions of the Lasso government to violate the will of the people and further aggravate the institutional crisis”. General elections were anticipated in Ecuador because of that crisis and Lasso’s term ends next November 25, to be succeeded by the winner of the second round of elections, scheduled for October 15. Moody’s threat of lowering the risk rating of Ecuador because of the estimated economic impact of the referendum was criticized in a joint statement initiated by local and international NGOs, such as the Ecuadorean Centre for Economic and Social Rights, the Latin American Network for Economic and Social Justice, EURODAD and the Asian Peoples’ Movement on Debt and Development. The statement stressed that, “The disproportionate power of private agencies to rate country risk means that government regulatory authority and democratic decision-making is transferred to the private sector. This can create significant problems… (and) make development finance more expensive at a time when it is needed to address the climate crisis and the international economic crisis”. The statement also promotes a “debate on the role of risk rating agencies and to what extent their evaluations respond to adequate and objective criteria, given that they can affect sovereign decisions, in ways that limit countries’ energy transition and environmental preservation decisions.” It calls on the Ecuadorean government to “defend the sovereign decision of its people” and demands from the international community “to explore alternatives, such as an international mechanism to restructure sovereign debt vis-a-vis private creditors” and “the creation of a multilateral credit rating agency that can counter the current monopoly”. The three main credit rating agencies (Moody’s, Standard & Poor’s and Fitch Ratings) control approximately 95% of credit ratings in the financial markets. The statement argues that “a reform in the way credit risk is assessed could prevent countries that seek to preserve the environment, and contribute to global decarbonisation, from being penalised”. The signatories “demand international cooperation to finance decarbonization” and condemn the “new form of colonialism” resulting from “the pressure of richer countries and private lenders to repay debts”, which forces them to continue investing in extractive projects, particularly of fossil fuels. The context in which the government elected in October is mandated to implement the referendum result is a complex one. The candidate of the National Democratic Action (ADN) alliance, businessman Daniel Noboa Azin agrees with not exploiting the Yasuni oil because he does not see a real loss in income, considering oil price projections. He argues that “the average (price per barrel) will not be more than $70, if you subtract the $8 (of the differential) for being heavy crude, the Ecuadorian is $62 and the cost of Yasuni is $58. If it were to make any money it would be very little and even so there is a real possibility, however minimal, of contamination”. However, the current government quantifies the annual loss of income that would result from not exploiting the area at $1.2 billion and the candidate of the Citizen Revolution, Luisa Gonzalez, said that the $1.2 billion is very important for the economy. Additionally, the unilateral termination of international contracts exposes Ecuador to investors’ demands at arbitration panels for compensation estimated at some $10 to $15 billion. “We don’t even have enough to pay for health, education, the El Nino phenomenon, what are we going to do now if we have to pay billions in compensation?” she asked in a radio interview after the referendum results were known. Gonzalez is the candidate supported by former president Rafael Correa, who proposed a decade ago an ambitious program to leave the Yasuni oil in the ground if the international community would contribute half of the losses that the country would suffer as a result of this contribution to the global fight against climate change. Since that support never materialized, Correa decided to start the oil extraction in the area to fund health, education and social protection. This decision, in turn, made him lose support among indigenous people and environmentalists, dividing the progressive coalition and making space for a neoliberal like the now ousted Lasso. Meanwhile, Colombian president Gustavo Petro, whose election in 2022 highlighted the new wave of progressive governments in Latin America, has been critical of his predecessors’ emphasis on exporting raw materials to pay for social policies, calling those policies “extractivism”. Instead, he argues, Colombia and the region must move “to a productive economy that generates much more work” and “can have increasing and not decreasing returns, like oil and coal, and that it should be linked to the land, necessarily, to water, agriculture and the knowledge industry”. Yet, when the people of Ecuador vote decisively in a referendum to follow such a path, consistent with its climate responsibility and the achievement of the Sustainable Development Goals, they are threatened with investor-to-State dispute claims that may have international private arbitrators imposing billions in “compensation” including potential future profits and, additionally losing their credit rating and having to pay higher interests on their debt. [* Roberto Bissio is the Executive Director of the Third World Institute based in Uruguay.] +
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