Ecuador Seizes Banking FirmsJuly 11, 2008 12:00 am Leave your thoughts
Despite poor international coverage, the governmental confiscation of 195 firms, including two major TV channels belonging to the holding ‘Grupo IsaÃas’, has constituted a major event in Ecuador, for a variety of reasons. First and foremost the long-overdue need for the state to undertake punitive and compensatory action against those bankers whose disastrous activities in the 1990s brought about the worst financial crisis of the country, obliging the government to intervene and sacrifice a considerable part of its budget. The crisis unleashed a tragic wave of migration from the little Andean nation. The liquidity spent by the state in the banking rescue between 1998 and 2001 amounted each year to more than 30% of the GDP.
Ecuadorean President Rafael Correa (pictured) had already warned Ecuadorean bankers in his 2006 electoral campaign that the issues arising from the 1998-99 crisis would have to be addresed. The case of Filanbanco, a property of the ‘IsaÃas group’, represented in those years only the tip of the iceberg, given the epic proportions of the scandal. Induced by the process of financial liberalisation which had already made its first steps in the 1980s, Filanbanco raised interest rates to the stars, while at the same time its owners diversified their economic activities in unorthodox fashion and used the bulk of the savings to finance their own productive investments. The lax management of their assets, compounded by the maintenance of low reserve requirements, became the preoccupation of the state which, instead of designing an adequate regulatory framework, preferred to use its own funds to guarantee the deposits, a phenomenon which took place across the whole banking system, given the strong influence it exerted in policymaking circles.
Faced with an evident crisis, Filanbanco received various state handouts totalling more than $1200 million but, instead of correcting its policies, it took advantage of these funds to channel them with no interest for a 7 year-period. In 1998, the bank was taken over by the state, after which the government declared a freeze on deposits; there followed the loss of millions of dollars for common citizens. The brothers William and Roberto IsaÃas Dassum rapidly left the country in 2000, fleeing from an arrest warrant. Ever since, they have kept on directing their operations from Miami, often under false names. The various attempts at extradition have been consistently hampered by deliberate high-level obstruction, which led to the impossibility for US authorities to process the demand. The government of Correa is now looking to implement the extradition request properly.
The AGD (Agency of Deposit Guarantee), an institution whose major task is now to retrieve the money the state had to employ in the banking rescue, has finally issued the order to confiscate all the properties of the ‘IsaÃas group’. This is an unprecedented act of courage, as previous AGD heads found little cooperation from the national government.
With regard to the confiscation of the TV channels, the conservative press has not missed the opportunity to launch its umpteenth crusade against a perceived violation of the freedom of expression. The government has, however, assured Ecuadoreans that it does not intend to control the media seized on Tuesday. These, among which several radio stations are included, will shortly be sold in an auction.
Nevertheless, Tuesday’s action has triggered the resignation of the Finance Minister. After initially showing support for the measure, Fausto Ortiz refused to endorse the measure, leading the popular TV commentator Carlos Vera to accuse him of showing a lack of courage. The assemblyman MarÃa Augusta Calle has also speculatively advanced that the Minister may have been influenced by pressure from abroad. Ortiz has not yet commented on the matter. Correa has promptly substituted Ortiz with Wilma Salgado, the ex AGD director, recently amnestied by the Constituent Assembly, who has always demonstrated her commitment to punishing the bankers who brought about the financial chaos.
The measure adopted by the government has no doubt been received with great enthusiasm by the population, which had seen in the bankers the main culprit of the economic hardship that hit the country at the turn of the millennium. Especially in the Sierra region, where the IsaÃas brothers are viewed with suspicion, if not with outright hatred, the confiscation of their goods has been welcomed with particular joy.
These steps have come at a crucial moment for the governing party, plagued by the recent internal division, which led Alberto Acosta, President of the Constituent Assembly, to resign his post in disagreement over the date put forward by President Correa in which the new Constitution should be ready. Nevertheless, Acosta maintains himself in the ranks of Alianza PaÃs and has vowed to promote the YES in the referendum over the new Costitution. Moreover, Correa’s provides a timely response to those critics who had feared he was moving to the right, confirming with concrete actions his promise to change the country.
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This post was written by Samuele Mazzolini