Lenin Moreno struggles to escape the long shadow of Rafael Correa (part 2)

Aug 9, 2018

(Evan Ellis, continued from part 1)

A reset for Ecuador?

Even beyond President Moreno’s actions with respect to key cabinet posts, much of the President’s focus, and his most significant choices since taking office have been driven less by the desire to change Ecuador’s ideology, than a courageous and necessary effort to confront the significant corruption and cronyism that appears to have been left behind by his predecessor. Indeed, even in the leaked tape that forced Moreno to dismiss Mangas as his personal secretary, Mangas argued to a group of provincial governors (whom he was attempting to convince to support the February 2018 referendum key to Moreno’s consolidation of power) that they could take on the corruption of Correa’s team without abandoning the socialist ideals of Alianza Pais.

While the referendum, which successfully passed in February 2018, contained superficial restrictions on new mining and petroleum activities that appealed to Moreno’s support base among environmentalists and indigenous people who live in regions affected by such activity, the key elements on the ballot were arguably the elimination of multiple re-election—effectively ending the chances that Correa will return to the presidency—and, most importantly, the obliged renovation of leadership in the powerful Council of Citizen Participation and Social Control (Consejo de Participacion Ciudadano y Control Social), which has an oversight role over the country’s electoral and judicial organizations, including—critically—the power to appoint and dismiss judges.

Julio Cesar Trujillo

The referendum victory allowed Moreno to eliminate Correa-cronies from the council and subordinate organizations, and replace them with people who, while not always Moreno’s personal allies, were more disposed to seriously and independently investigate and prosecute President Correa and those who had been the center of corruption in his administration.  The principal example of this is the head of the Council, 87-year old Julio César Trujillo, a respected pro-business lawyer and one-time presidential candidate.  Trujillo, a conservative with a long career preceding that of Moreno, cannot be considered by any means a Moreno protégée or ally, yet has demonstrated himself to be committed to rooting out the corruption and abuses of the Correa government.

Former vice president Jorge Glas

The most visible example the new direction in investigation and prosecution was the case of Jorge Glas for illicit association regarding Odebrecht, resulting in his removal from the Vice Presidency in August 2017, and his ultimate imprisonment.  Glas may also be one of the key beneficiaries of the petroleum and construction contracts with China.

Another key figure to be brought down was the Comptroller General Carlos Pólit, who was also accused of illicit association in the Odebrecht case, and obliged to take refuge in Miami in June 2017. The leaking of a taped conversation between Pólit and fellow Manabí-province Congressman Jose Serrano (rumored by some to be a key intermediary to the Sinaloa cartel, moving cocaine through the country) sealed Pólit’s fate, paving the way for the assumption of the Comptroller General position by his deputy Pablo Celi, as well as the firing of the Attorney General Carlos Baca Mancheno, named in the tape, and who may have leaked it.

Celi thus arrived in the office under the jurisdiction of the previously mentioned temporary Council of Citizen Participation and Social Control with strong incentives to show that he would seriously take on corruption, including expanding investigations into the possible violation of the debt ceiling and a series of questionable deals signed between the Correa government and PRC-based petroleum companies and banks (Celi traveled to Beijing to speak with Chinese authorities about the case). Similarly, the Council’s May 2018 firing of Attorney General Baca and replacement by his deputy, Paul Pérez, and a similar wave of new enthusiasm to pursue criminal investigations, including the role of Rafael Correa in the kidnapping, and possible attempt to assassinate legislator and political rival Fernando Balda, as well as possible criminal wrongdoing in the ex-President’s contracts with the Chinese.

In March 2018, President Moreno eliminated the intelligence service SENAIN, created by Rafael Correa in 2009 after the Angostura incident (in which the Colombian military killed FARC commander Reyes on Ecuadorian territory), on the argument that the previous intelligence had become too penetrated by the United States. Under Correa, however, SENAIN arguably became a tool for gathering political intelligence on opponents of the regime. In April 2018, at the request of Ecuadoran Attorney General Paúl Perez, the Spanish government arrested Pablo Romero, the former head of SENAIN, for possible complicacy in the kidnapping of Fernando Balda.

Carlos Baca

The Moreno government is reportedly designing a new organization for national intelligence which will be more focused on the fight against organized crime and other threats to the state, rather than against the opponents of Correa.

Challenges remain

While Moreno has made significant progress in attacking the networks of corrupt officials of his predecessor, the country continues to be a labyrinth of powerful interests working with, and often integrated into, the government, evolved but not entirely distinct from those of the Correa regime.  While there is not public legal evidence to call these networks corrupt, they clearly exercise powerful influence and impose significant limitations on the government.

A key example of the confluence of Ecuador’s influential business and political power-brokers is Posorja, a major port and logistics complex to be constructed on Ecuador’s southern Pacific coast.  The government awarded the contract for construction to the middle-eastern logistics giant DP World, with the possible facilitation of Ambassador to Qatar Ivonne Baki, a figure in four Ecuadorian governments (from Jamil Mahuad through Rafael Correa) with longstanding business ties in the Middle East through her Lebanese family and marriage to wealthy Lebanese businessman Sam A-Bakir.  In 2004, then-Minister of Industries and Productivity Baki famously convinced then-businessman Donald Trump to hold the Miss Universe pageant in Ecuador.

Of the most important Guayaquil-based business interests affected by the project, Ecuadoran business magnate Isabel Noboa Ponton (whose son-in-law Pablo Campana, as noted previously, is the Minister of Foreign Trade) reportedly represented DP World in its successful 2016 bid for the port, while Guayaquil mayor Jaime Nebot, who initially opposed the project before embracing it, is believed by some to now also have an interest in the project.

Ecuador Trade Minister Pablo Campana

According to journalist and activist Fernando Villavicencio, one key area in which there may be an overlap between the interests of associates of Correa, those of Moreno, and Ecuadorian business figures, are the loans from Chinese banks, as well as their corresponding repayment through contracts for the delivery of Ecuadoran oil. As argued by Villavicencio in his book El Feriado Petrolero, those contracts, with terms prejudicial to the Ecuadorian government, oblige the delivery of almost all of Ecuador’s petroleum exports through 2024 to Chinese oil companies. The loans have been criticized for both the high rate of interest (owing in part to Ecuador contracting them after having defaulted in December 2008 on $3.2 billion in debt), as well as their terms, with the difference in price between what China pays for Ecuador’s heavy oil and its value on the spot market averaging $4 per barrel. A small number of businessmen tied to the Correa government reportedly receive substantial revenue from the deal, including Enrique Cadena Marin—who relocated to Miami for a time, then fled from the U.S. in advance of possible questions by authorities—and previously mentioned close friend and advisor to Moreno, Santiago Cuesta Caputi. In at least one contract, Marin’s group, Livingstone Financial of Dubai, earned intermediation fees of $1 per barrel of Ecuadoran oil, an estimated total fee $70 million..

Upon assuming office, Moreno put childhood friend Byron Ojeda in charge of Petroecuador to clean up the organization, and appointed Minister of Hydrocarbons Carlos Pérez Garcia to renegotiate new terms with the Chinese.  During that time, three respected international oil companies reportedly made offers to Ecuador to buy out the contract with the Chinese, replacing it with terms that would have freed up far more of Ecuador’s oil to export, but which would have negatively impacted those making money from the substantial intermediation contracts tied to the Chinese. The Ecuadorian government never acted on the alleged buyout offers, and ultimately settled for minor adjustments in the terms, which was accompanied by the resignation of Ojeda in November of that year.

To his credit, President Moreno appears to be supportive of the efforts by prosecutor Paúl Pérez and his predecessor to not only bring criminal charges against Rafael Correa in the Balda kidnapping case, but also to begin to seriously investigating possible criminal wrongdoing in the contracts with China, including requests for relevant data from foreign partners.  Perez’ action is a promising beginning, following years of inaction by his predecessor (who had even brought charges against Villavicencio over his work which denounced wrongdoing in the contracts).

Similarly, Moreno appears to have empowered the Comptroller General Pablo Celi to investigate the abusive terms of the contracts, including a trip to the PRC for discussions with the Chinese banks and companies involved, although it is not clear how forthcoming the Chinese were in the matter.  President Moreno himself may raise the issue with the Chinese in a potential visit to the PRC in November 2018.

“What is to be done?” (as Moreno’s namesake once asked)

The picture that emerges from this analysis is that President Moreno is a decent man with strong leftist commitments, in complicated circumstances. Moreno is trying to liberate his country from the downward spiral of corruption, isolation and collapse arising from the lethal combination constructed by his predecessor—of Chinese money, unscrupulous actors from both the business community and radical left, and centralized institutions with inadequate oversight. The qualified professionals that Moreno has, out of necessity, put in charge in the Ministries of Finance, Defense, and Foreign Affairs, and a new Attorney General and Comptroller General—that latter two apparently disposed to seriously investigate the abuses of the past—is a cause for hope, but also creates the risk of a government whose inertia in pursuing pro-market policies, re-building relations with the U.S. and prosecuting those who would use the country as their personal criminal enterprise, could create a serious confrontation with President Moreno’s support base, and perhaps his own principles. Such a political conflict could occur in multiple areas, including participation in the condemnation of abuses in Venezuela and Nicaragua in international institutions; aggressively neo-liberal economic proposals; possible new loans from the International Monetary Fund; potential security cooperation with the United States that involves the U.S. DEA or physical presence of U.S. military on Ecuadoran soil; and the imprisonment not only of Rafael Correa, but of a critical mass of those involved in illicit businesses and possible criminal activities with him.

In the present delicate and complex environment in Ecuador, it is particularly important for the U.S. to proceed cautiously, respectfully and faithfully in its support for the country, with a focus on helping the country to strengthen its institutions, build prosperity, and disempower the radical left-business-criminal axis that took root in the country with the help of Chinese money during Correa’s decade of rule.

U.S. Vice President Mike Pence and President Lenin Moreno

In the defense sector, the U.S. should be prepared to provide expanded training and professional military education opportunities to the Ecuadoran Armed Forces, needed maintenance and overhaul support for equipment such as its HMMWVs, and if desired, intelligence and technical support. If requested by the Ecuadoran Ministry of Defense, the U.S. government might also consider support through programs such as the Defense Institution Reform Initiative (DIRI) and the Center for Hemispheric Defense Studies (The William Perry Center), and possibly the return of a team of military professionals in the U.S. embassy to facilitate security cooperation, but should not expect to renew significant operations on the ground in the country.

In commerce, the U.S. should follow-up on the discussions of Vice President Pence’s visit to Ecuador to fast-track a possible bilateral free trade agreement with the country, or at least consider granting special tariff-free access to the U.S. market, such as the deal previously provided under the provisions of the Andean Trade Promotion and Drug Eradication Act (ATP-DEA), as well as tax incentives for U.S. businesses to invest in the country.

With respect to institutional strengthening, the Department of State should lend all possible technical support to the investigation of abuses of the previous regime, including U.S. Treasury Financial Crimes Enforcement Network (FINCEN) cooperation with Ecuador’s Financial Intelligence Unit (UAFE) under the new leadership of Diana Salazar, to the sharing of data and, where requested, manpower with the Attorney General and Comptroller General’s office. When the Ecuadoran government desires, the U.S. should also consider providing resources for expanded confidence testing and databases within the Ecuadoran police, judiciary, and other government institutions, as well as computers and other equipment, and expanded training programs (both within the U.S. and elsewhere).

The good news, evidenced in part through the June 2018 visit of Vice President Pence, is that Ecuador has at least a small piece of Washington’s attention. It also has, in the continuing service of Ambassador Todd Chapman, one of the most experienced U.S. diplomats at the helm of the U.S. embassy in Quito. Chapman has served in numerous key diplomatic posts, including Brazil, Bolivia, and Afghanistan, and in a senior administrative capacity in the State Department. In a similar show of seriousness, Ecuador has named Francisco Carrion an experienced diplomat and previous Vice-Foreign Minister, as its ambassador to Washington . Carrion knows the United States well through his time in New York as Ecuador’s representative to the United Nations.

The United States cannot and should not seek to marginalize the Latin American left or wish them away.  The region’s problems of corruption and underdevelopment are persistent, and left-oriented concepts for addressing those challenges are a legitimate, if often destructive, option that resonates in the region, particularly when neoliberal solutions do not appear to have adequately addressed those challenges in a timely fashion.  While a significant portion of the Latin American left continues to be driven by an agenda driven by undermining the U.S. and advancing personal gain, Lenin Moreno arguably represents a more principled part of the left. The U.S. can and must learn to deal with leaders like him in a constructive fashion.

For the United States, getting the relationship with Lenin Moreno and his team right is a key to the U.S. strategic position in the region, in showing that the U.S. can respectfully work with governments of all ideological persuasions, to help them to root out the pan-ideological threat of corruption and build strong, transparent democracies and just, peaceful societies.  But it also requires vigilance and discretion on the part of the United States. The region is watching.

Evan Ellis

Evan Ellis is the Latin America Research Professor at the U.S. Army War College Strategic Studies Institute. The views expressed in this work are strictly his own. The author would like to thank Fernando Villavicencio, Sebastian Hurtado, Adrian Bonilla, Guido Zambrano, Santiago Mosquera, Fernando Santos Alvite, Maria Belen, Javier Giler, and Lorena Herrera, among others, for their time and insights that contributed to this article.

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