Ecuador, Correa, and Hydropower

Well, we’ve finally turned the corner on one of the most divisive presidential elections in U.S. history. In my opinion, the victory went to the better candidate on our important issues – the environment and education. But instead of discussing U.S. politics, let’s head south to Ecuador, where we run Sustainable Summer adventure travel programs for high school students interested in environmental issues.

Ecuador has a presidential election upcoming in February. The incumbent, Rafael Correa, is running for a second term, notable because Ecuador hasn’t had a president finish out his first term since the ’92 election. Correa is expected to win in a landslide. Correa, who is often compared to Venezuela’s Hugo Chavez in the global press, is a populist that enjoys widespread support from the working classes and poor. He has made waves for kicking multinational firms out of the country, declaring Ecuador’s national debt to the IMF illegitimate, and, most recently, offering asylum to Wikileak’s founder Julian Assange. Under his administration, Ecuador’s economy has surged, living standards have gone up, the country’s public infrastructure has improved substantially.

He’s a controversial figure both in and out of the country. Ecuadorians love to talk politics and I’ve met educated locals on both sides of his administration’s policies. I’m going to be back in Ecuador in January, right before the election, and I’m looking forward to getting the pulse of the electorate then. But in this blog post I want to focus on one of Correa’s policies that I find illustrative of the political environment in Ecuador and the sustainability challenges there as the country continues to rapidly develop.

I had a conversation with my friend Matt Terry from the Ecuadorian Rivers Institute a couple weeks ago and we had a chance to talk about the political situation. Matt told me that Correa is effectively taxing corporations and banks and doing a direct wealth redistribution to the poor. Sure enough, he’s put forth a policy to increase taxes on bank holdings and excise taxes, which will fund an increase in lump-sum payments to Ecuador’s neediest citizens. Talk about a savvy political move to capture a substantial percentage of the electorate. I’m sure the Occupy movement and other anti-Wall Streeters have greeted this type of move with applause, but Matt was quick to point out the toxicity of this kind of policy as both economically defeating and a sign of despotism as political power is increasingly concentrated in the executive branch.

Matt also informed me that Correa has ordered Ecuador’s banks to repatriate billions of dollars of funds held overseas. Correa’s rationale for this policy is that these banks are earning less than 1% returns on their holding, but this capital could instead be deployed in Ecuador to fund hydroelectric projects at a 25% return, according to Correa. I’m sure there’s a good, economic reason why banks are not pursuing these types of investments in Ecuador and instead opting for safer deposits, most likely in low-yielding US treasuries. Ecuador’s banking system is fragile, corruption in these types of public works project is rampant, and these returns are most likely wildly overstated. What does Correa know that investors and bank executives don’t? Perhaps Correa hasn’t familarized himself with the World Commission on Dams, which released a sort of best practices to dam projects after conducting dozens of case studies analyzing the economic effectiveness and environmental impact of large dam projects. What the WCD found is that financial projections tend to vastly overstate the actual profitability of dam projects. Similarly, many dams are built for political reasons – politicians have a large public works project to point to as an accomplishment while allocating “pork” to contractors and construction companies supportive of the administration.

So there are many reasons to be skeptical of Correa’s math on this decision. But to an environmentalist, this is nothing short of alarming. Ecuador has been building dams left and right under the Correa administration. Dams, contrary to popular belief, are incredibly destructive to a region’s ecology. Small dams (micro-hydro and smaller) are much less so, but in general a dam is the environmental equivalent of a blocked artery. Rivers are the lifeblood of an ecosystem and when you stop the flow of blood, the body begins to die. For a quick overview of the environmental impact, check out International Rivers website. The definitive work on the subject is Patrick McCully’s book, Silenced Rivers, which I highly recommend for anyone interested in the subject. If you’re a high school student, or the parent of a high school students, interested in this issue, check out Sustainable Summer’s Amazon program, which focuses on water conservation issues in Ecuador’s Amazon basin.