One-Way U.S. Trade For Ecuador?, asks IBD

Ecuador’s president, Rafael Correa, who wants to dissolve his country’s Congress by an assembly with powers to rewrite the volatile nation’s constitution, a la Hugo, is knocking at our door asking for free trade:

Presidents Rafael Correa of Ecuador and Evo Morales of Bolivia, are both running notoriously anti-American regimes. They have blasted the U.S. as a capitalist oppressor, and said their whole national mission is to slip its imperialist shackles. Needless to say, they’ve been no friend to the U.S. in the United Nations. Worse yet, they’ve forged alliances with some of America’s worst enemies, like Iran and Cuba. They’ve also grown increasingly slack and obstructive in even fighting the drug war that plagues the entire Andean region. Morales has increased coca production by 8%, keeping the street price of cocaine steady even as Colombia’s production falls 9%. Ecuador has emerged as a major drug transshipment point and money laundering center – something that is evident by its well-developed illegal immigrant smuggling routes to the U.S., which are the region’s best. Ecuador has announced “irrevocably” that it will shut down a tiny U.S. military base at Manta port that tracks drug planes, in order to kick out the U.S. imperialists.

But in exchange for fighting the war on drugs, they’ve both been recipients of large amounts of U.S. aid in 2006 – $120 million in Bolivia’s case and $500 million in Ecuador’s. Along with this aid, which is both humanitarian and technical, they both have preferential “ATPDEA” trading privileges to sell their goods duty-free in the U.S. without having to reciprocate the favor to American firms.

With a setup like that, they can, in practical terms, reject and obstruct the idea of real free trade, which would ask them to open their markets to U.S. competition, as long as they retain their current trade privileges. Thus, America’s generosity to them has provided a platform for them to condemn real free trade with impunity. But under the radar, they feverishly want a continuation of these one-way US trading privileges, which is why they’re suddenly telling America they never really meant it about the ‘imperialismo’ charges and all that as the expiration beckons.

Investor’s Business Daily has more:
Foreign Relations: Should the U.S. offer preferential trade privileges to hostile anti-American regimes that view them as cheap handouts? Offering nothing in return, Ecuador thinks so. We are less sure

The U.S. doesn’t ask much from Ecuador. Sandwiched between Colombia and Peru, Ecuador has only provided a tiny “forward operating base” at the port of Manta, with 300 U.S. troops conducting aerial surveillance to keep Colombia’s FARC Marxist narcoterrorists from bringing war to Ecuador as they have to their own country.

Instead of helping on that front, Ecuador now vows to shut down the Manta base and let the skies there go unpatrolled.

The Manta shutdown ends any rationale for APTDEA. So does Correa’s refusal to recognize the FARC as a terrorist organization or to chase its operatives from Ecuadorean soil.

Worse, Ecuador has harassed Colombia with lawsuits as it tries to eradicate coca fields, making Colombia’s war that much harder.

Read both.

In other, “Gimme, gimme!” news, Castro Says U.S. Must Change Its Cuba Policy `Unilaterally’.
But, is he still wearing his jogging suit?

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Banks are booming in Venezuela, says the NYTimes

Boom Times for Banks in Venezuela

Record public spending, fueled by high oil prices, is flooding this flourishing economy with cash. Government currency controls are trapping much of that money in the country. The extra cash, in turn, is increasing consumer spending. The banks are taking advantage of that by handing out scores of loans, advertising on flashy billboards across Caracas.

And with interest rates lower than the rate of inflation, “you would be stupid not to take out a loan right now,” said Richard Francis, a director of sovereign ratings at Standard & Poor’s.

Here’s why: If the 19% + rate of inflation is greater than the interest rate on your loan, you’re better off using a loan for paying your current expenses; that is even more so if you can find the way around foreign currency controls and investing your money in financial assests in other currencies like the dollar and the euro.

Or, if you can’t invest overseas, you’ll indulge in discretionary spending: a Rolex, a Mercedes, a boob job:

In the meantime, customers have been taking advantage of the expansion in credit. Betzaida Guerra, 43, for example, said she discovered in a newspaper ad last year that a bank could finance an operation she had long wanted but could not afford. Within weeks, she secured credit for the nearly $5,000 surgery to enlarge her breasts.

“I was excited,” said Ms. Guerra, an accountant from a Caracas suburb, who has nearly finished paying off her 12-month loan. “I saw the advertisement and thought, ‘The way out has arrived.’ “

The expanded use of credit is apparent in upper-middle-class Caracas neighborhoods like Altamira, where Gabriel Jimenez was getting ready to drive his new black Mercedes-Benz C200 sedan off the lot. Mr. Jiménez had bought the same model without financing in 2000, but this time he chose a 48-month loan to pay off most of the cost at 19 percent interest. The Venezuelan-owned Banesco approved his loan in only 72 hours.

“The process is really easy,” said Mr. Jimenez, a divorce lawyer, before hopping into the driver’s seat, smelling the new car’s scent and playing with its gadgets. “Before, interest rates were so high that it wasn’t worth it.”

The problem is:

But bank directors say these advantages and current revenue are more than offset by government regulations that are making the sector more vulnerable. Banks are required to commit 32 percent of their loans to specific areas of the economy, including agriculture, housing and microcredit. Coming changes in the country’s banking law may increase that percentage, said Ricardo Sanguino, president of the National Assembly’s Finance Commission.

“Here, the norms change,” Mr. Sarkissian said. “Every day they give us more news, a new regulation. That is constant.”

The central bank, which has lost most of its autonomy from the government, announced in April that it would force private banks to double the amount of cash they deposit in their reserves, to 30 percent, in an effort to curb inflation. In the same week, Mr. Chavez ordered Fogade, the country’s bank deposit protection fund, to transfer all its assets to the government, which would then distribute the cash to the poor.

Critics also say that Venezuela’s inflation rate of more than 19 percent, the highest in Latin America, could force the government to raise interest rates. That, in turn, could make it more difficult for borrowers to pay back their loans.

There you have it folks:

  • bank overregulation,
  • currency controls,
  • the seizure of the country’s bank deposit protection fund by the government,
  • the highest rate of inflation in Latin America
  • and a large number of unsecured loans

Something tells me I’ll be posting bad news about Venezuelan banks sometime in the future. There’ll be a bust, and it won’t have to do with Ms Guerra’s.

The Devil’s Excrement has an excellent post on the current state of the Venezuelan economy:

To put the deficit in the balance of payments in perspective, it is the largest of the last ten years, at a time when oil income is booming. What this means is that once again, the economy is being run on the back of the oil cycle and it is simply oil income which is providing growth, while internal variables continue to deteriorate. Nothing new on the mishandling of the Venezuelan economy, all previous recent crisis in ‘82, ‘89, ’94 and ‘02 were not that different. What is probably different this time around is that the huge imports are destroying both agricultural and industrial capacity, as local inflation and fear of controls have limited investment and made local production less competitive.

In the end, the balance of payment numbers indicate that devaluation is looming in the horizon, no matter what the Government says. Unfortunately, the more it is postponed, the larger it will be and the bigger the crisis facing the country as these adjustments always lead to a contraction of the economy and it takes time for people to recuperate their purchasing power and for the economy to settle.

In the separate universe of Venezuelan politics, government officials point to the booming banks as an indicator of a healthy economy, while at the same time Chavez urges his followers to show they are “good socialists” by sharing their riches with the poor, just as he does.

He’s setting the example by donating the proceeds from his prize money from the Qaddafi Human Rights Prize. I kid you not.

In other Venezuelan news, Hugo’s going ahead with the purchase of Russian subs. Whose engineers and technicians will handle them, one can only guess, but I expect Putin wouldn’t sell them to Hugo unless he kept a finger in the pie, so to speak.

Fred Thompson has an article in Townhall, The Castro/Chavez Axis

Last week, when Hugo Chavez officially killed press freedoms, even a big part of Venezuela’s far left seemed to realize that they’d created a monster. Unfortunately, it may be too late. He’s already packed Venezuela’s high court, legislature and military with his loyalists. Right now, he’s operating without any check or balance.

During his rise, Venezuelans say that Chavez spent hours a day on the phone with Castro. Additionally, Castro sent thousands of his Communist apparatchiks to help transition Venezuela from a free county to a totalitarian state.

Without Cuban “help,” Venezuela wouldn’t be in the terrible mess it is today. Castro, after all, has been at this since the 1960’s and he’s given Chavez the benefit of his experience.

There’s one big difference between Venezuela today and Cuba then, however. Castro needed Soviet aid to push his so-called “revolution.” Chavez does not. One of his first moves was to bolster the Cuban dictatorship with oil subsidies — a hundred thousand barrels a day to the tune of two billion dollars a year. One of the main factors preventing Cuba’s transition towards democracy is Venezuelan oil wealth. On June 26, that wealth could increase significantly, as Chavez says he’ll nationalize the petroleum industry on that date.

The Venezuelan and Cuban axis of influence operates openly in Bolivia, Ecuador and Nicaragua. They meddled in America’s free trade negotiations with Costa Rica and support anti-American candidates and movements all over Latin America. Chavez proved and he still believes that democracies can and should be overthrown by force when he led an unsuccessful coup attempt against the democratic Venezuelan government in 1992. After his pardon, he lived in Cuba for two years.

Today, he’s building up Venezuela’s military strength rapidly — claiming it’s to prevent a U.S. invasion. Perhaps the biggest reason for concern is that Chavez has formed strong bonds with Iranian President Ahmadinejad.

In this new era, you can’t detect missile technologies with U-2 over-flights — as did the Kennedy administration. No one seriously doubts, though, that Chavez would love to get his hands on nuclear weapons. We should also remember that Cuba sold Iran the means with which to develop biological weapons. Recall that the main suspect in the recent JFK Airport terrorism plot was arrested on his way to Caracas to get an Iranian passport.

America is facing a growing threat from Latin American totalitarianism and we need to call on those who are most familiar with it to lead the resistance. And the least we can do is free Radio and TV Marti and let them fight for freedom in the realm of ideas.

Update: Latinos4Thompson translated the article into Spanish.

The WaPo states that Venezuela is a tier-two country when it comes to human trafficking, which means that its approach to trafficking is deemed deficient but not enough to face immediate U.S. sanctions. Venezuela News and Views posts on the rising crime rate:

The kidnapping industry is flourishing, in particular in the Western area of the country. Now the problem is a calamity in Tachira and Zulia, but other states such as small Yaracuy are reporting monthly kidnappings (not to mention those that are not reported since quite often the families think that they’re is collusion between police and kidnapping gangs and prefer not to say anything and negotiate on their own). When kidnapping becomes almost an open air industry you know that respect for human life and condition is reaching new lows. What else can hide behind that? The Faddul brothers crime is a constant reminder that life in Venezuela is everyday cheaper and cheaper. People willing to collaborate on such activities soon will have no problem selling children and women into prostitution.

Mario Vargas Llosa realizes that Chavez is sinking Venezuela into bankruptcy.

And Vargas Llosa is right. Only that it’s not just monetary.

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