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For the week of September 24 September 28, 2012

Business Amid Populism

The Andean Finance Corporation better
known by its Spanish acronym CAF can look
back at a trajectory of more than 40 years that, in
major aspects, offers a stark contrast to the lack of
institutional consolidation in much of public policy
among its very members. The bank enjoys an AAA
credit rating from ratings agency Moodys even as
several of its principal clients have succumbed to
an authoritarian populism that despises any hint of
independent institutions. Headquartered in
Altamira, an upper-middle class neighborhood in
Caracas, it has grown amidst the careless
spending binge that has characterized Venezuela
and Ecuador in particular, even as the potential
rival Banco del Sur project continues to endure a
long, unpleasant gestation period.
Starting out in 1968 as an Andean regional
development bank, as of last year, it has spread to
18 countries, including Portugal and Spain. Overall,
it has registered a fast growth of approved loans,
assets, and portfolio (see chart 1). In 1990, it was a
distant third among multilateral lenders to the
region, accounting for 8% of loans. As of 2011,

Ecuadorian Global Bonds (September 28 2012)

BID ASK
Global 2012 33.00 48.31
Global 2015 102.66 104.56
Global 2030 28.13 32.13

BCE International Reserves Inflation
In million US$

Feb2012 3375.54 14.13%
Apr 2012 3787.39 12.20%
June 2012 3930.92 3.79%
Aug 2012 4218,81 7.32%
21 Sep 2012 5213.52 23.58%

Banks Short and long term Deposits
In million US$








Ecuadorian Oil Export Prices (US$ per barrel)


$106.19
$103.33
$97.70
$87.93
$94.16
$91.76
$112.49
$113.75
$104.16
$87.32
$90.27
$98.22
$112.38
$109.15 $97.08
$82.57
$87.73
$91.14
60
70
80
90
100
110
120
March April May June July 28-Sep
WTI
Oriente
Napo
August 2012 0.29%
Year to Date 2.67%
Year on Year 4.88%
March 2012 11068.6 1.82%
April 2012 11263.9 1.76%
May 2012 11424.3 1.42%
June 2012 11571.7 1.29%
July 2012 11517.7 -0.46%
ECUADOR WEEKLY REPORT




ECONOMIC INDICATORS



Ramiro Crespo
Chairman of the Editorial Board





it grew to become the second largest lender
behind the Inter American Development Bank,
accounting for 39% of loans, while the World Bank
has fallen back to number three (see chart 2). Net
profit has not quite kept pace, but it remains
profitable and with an investment-grade credit
rating. The top three borrowers are Venezuela,
Peru, and Ecuador, with Argentina and Colombia
close behind, followed by Bolivia.
Together, Argentina, Ecuador, and Venezuela
the countries with the highest credit risk in Latin
America account for close to half of the CAFs
loan portfolio. In Ecuador, half of new highways
have some form of CAF funding, totaling $648
million. But growth has helped counter the risk from
these perceived risky borrowers. While loans to
Ecuador have increased in absolute terms under
the present administration, in relative terms, CAFs
exposure to the country has dropped over the
past six years (see table).
The vast majority of lending goes to
infrastructure, an area in which the region
continues to require massive investment.
Fortunately, this is one sector where populist
political interest meets the general need of the
economies. According to the bank, 64% in 2011
went to infrastructure, followed by 17% in the social
sector. Of the latter however, many of these
include improvements that could be classified as
infrastructure, such as a $500 million, five year plan
to connect two million Ecuadorian homes to
drinking water and sewage systems in 32 towns
and cities throughout the country. Not all loans go
to central governments, with regional and local
governments as well as public-private ventures
and private companies of differing sizes among
borrowers. Additionally, as a development bank, it
funds some small-scale social projects with non-
reimbursable loans.
Bolivian Enrique Garca has led the bank since
1991, by far the longest tenure of the five
presidents in its history, leading one investment
banker to quip that its hard to tell where Enrique
Garca ends and the CAF begins. For the
upcoming change at the banks helm, the
question of succession will be important to protect
investor confidence. All CAF presidents have been
either Ecuadorian or Bolivian, but this tradition
doesnt form part of the banks charter. Hopefully,
its shareholders will be able to continue the
institutional heritage and avoid political pressure
that has made some the regions central banks
caricatures of their former selves.

Sending a Message

Ecuador continues to milk foreign news
exposure thanks to its most prominent asylum
seeker, Julian Assange, who has by now spent
more than 100 days at the embassy in London. This
week, foreign minister Ricardo Patio and his British
peer William Hague at the United Nations
attracted the media but, unsurprisingly, the two
sides failed to find a way out of the intractable
situation. Patio sought to convince Hague that
the humanitarian aspect of Assanges plight
outweighed any legal obligation the UK feels it has
under European Union treaties to extradite the
Australian former hacker to Sweden. The UK fails to
share Patios position. In front of cameras, Patio



was his usual undiplomatic self, asking whether it
would be humane to try to keep Assange in the
embassy for months or years. He also said that, in
the embassy, he could remain holed up a decade
without right to his life or his privacy and that the
UK isnt permitting him to enjoy his asylum status.
At the same time, he insisted that Assange of
course is on Ecuadorian soil under the
governments protection. Patio mentioned the
risk of a medical emergency and that Assange is
considering the matter, as any exit from the
embassy would imply his immediate arrest.
In any event, the final decision could be up to
the Scandinavian kingdoms government, as The
Guardian explained, not the Swedish courts. Its
foreign ministry, in turn, as we have reported, has
made it clear that nobody can be extradited if he
or she faces the death penalty even explaining
that in Spanish. At the same time, it cant extradite
anyone without court approval, although the
murky rendition of Egyptians between 2001 and
2006 happened, scandalizing Swedish public
opinion and providing Assange with some
ammunition for his claims.
The evening before the Hague-Patio summit,
Ecuador had Assange speak via video in an event
suggesting that Latin Americas diplomatic asylum
practice was a basic human right, when
international law limits this interpretation to this
region alone. Assange grabbed some headlines
by criticizing Obama. While the media said he
appeared tired and unwell, at least part of this
could be attributed to it being a very late-night
contribution to the event.
The Assange publicity stunt still risks further
inconveniences. The US gave Ecuadorian journalist
Emilio Palacio asylum in August, a day after
Ecuador granted Assange the same status.
Palacio had previously traveled to Miami after he
was found guilty of libeling the president in an
opinion column in El Universo and among those
sentenced to jail and fined a combined $40
million. Ecuadorian officials have sought to
downplay the decision and likened it to the flight
of fugitive bankers to Miami in the wake of the
1998-2000 financial crisis. But President Rafael
Correa weakened that argument by arguing that
his cousin Pedro Delgado, currently the president
of the central bank, himself had had to flee to
Miami for supposedly taking a stand against
embezzling bankers during the crisis. The US thus
signaled it takes the threats to local journalists
seriously, but these show no signs of abating.
Correa also raised eyebrows on Tuesday by
saying that Mara Fernanda Luzuriaga was fired as
head of state-owned COFIEC for doing exactly
what Assange had done, i.e. leak information to
the media. She had also sought to get the
controversial $800,000 overdue loan to Argentine
businessman Gastn Duzac paid (EWR635).
Already, Ecuador saw the need to release a
Belarusian, Aliaksander Barankov, whom it stripped
of refugee status at the request of Europes last
dictatorship, only to back down amid a media
uproar. Barankov hopes the same will be done for
Grigory Basalygin, who has faced similar treatment
stripping of his refugee status and jail without bail.
The interior ministry argued that he was wanted by
Russia via Interpol for assault and drugs trafficking.



Basalygin fails to come up in a search of Interpols
public online database however Barankov does.


The editorial board of Analytica's Ecuador Weekly
Report publishes information obtained from expert
sources, public information and media reports,
and documents. Anonymity of interviewed sources
is protected.