Publications

Yasuní Blues: The IMF, Ecuador and
Coerced Oil Exploration

by Matt Finer and Leda Huta

The rainforests of the Ecuadorian Amazon are rich in biodiversity, home to numerous indigenous groups and replete with oil. This has made for a complex and destructive mix since the beginning of Ecuador’s oil boom in the early 1970s.

In the northern Ecuadorian Amazon, an unprecedented lawsuit is unfolding as indigenous groups and rainforest residents are suing the oil giant ChevronTexaco for 20 years of contamination. In the southern Ecuadorian Amazon, the indigenous people of Sarayaku are in the midst of a seven-year, and thus far successful, campaign to keep multinational oil companies off their lands.

And in the middle of the Ecuadorian Amazon sits a place called Yasuní National Park. Yasuní is home to the most biodiverse forest known on earth, and is the ancestral territory of the Huaorani, an indigenous group with the reputation as the fiercest warriors in all of Ecuador. In recognition of its biodiversity and cultural heritage, the United Nations Educational, Scientific and Cultural Organization (UNESCO) formally designated Yasuní National Park a UNESCO Biosphere Reserve in 1989.

The future of Yasuní National Park, however, is very much in doubt. The International Monetary Fund (IMF) views the huge oil reserves under Yasuní as Ecuador’s best chance to pay off its enormous foreign debt.

A cluster of major oil projects now threatens the park and the cultural heritage of the Huaorani, and if the IMF has its way, the vast majority of the oil revenue will not even be used for much needed social and environmental spending within the poverty-stricken country.

A Unique Territory

Located in the northwest Amazon, where the Amazon rainforest, the Andes Mountains and the Equator converge, Yasuní is home to extraordinary levels of biodiversity.

“Yasuní may well be the single most biodiverse forest on earth,” state some of the world’s leading biologists, including Jane Goodall, E.O. Wilson and Stuart Pimm, in a February 2005 letter to the president of Ecuador.

According to a November 2004 report by 50 top tropical scientists with research experience in Yasuní (dubbed the Scientists Concerned for Yasuní), Yasuní supports a large stretch of the world’s most diverse tree community, the highest known insect diversity in the world, record levels of bird and amphibian species, a remarkable 11 primate species, 23 globally threatened mammal species (such as the white bellied spider monkey, the giant otter and the Amazonian tapir), and numerous other “species of concern,” such as the woolly monkey, the ocelot (a kind of small leopard), the blue-headed parrot and the scarlet macaw. The Scientists Concerned for Yasuní report concluded that the greatest threat facing this biodiversity is new oil access roads that open up remote areas to colonization, deforestation and over-hunting.

The rainforests in and around Yasuní are also the ancestral territory of the Huaorani. The Huaorani are a group of hunter-gatherer-horticulturalists numbering around 2,500 individuals living in 32 communities. Prior to the late 1950s, the Huaorani were highly mobile and contact with the outside world was hostile. Following missionary contact in 1958, life for the Huaorani changed drastically; many settled in as permanent communities and the violence with outsiders subsided. In 1990, the Huaorani gained legal title for a large section of their ancestral territory when the government of Ecuador created the 6,000 square kilometer Huaorani Ethnic Territory, which shares a long border with Yasuní.

Huaorani life again changed radically with the arrival of the multinational oil companies. Major oil access roads built by Texaco in the 1980s and Maxus in the 1990s opened up Huaorani territory to major oil development.

Dr. Richard Bilsborrow, an economist at the University of North Carolina, Chapel Hill, has studied the Huaorani inside and near the park for over eight years and was a contributor to the Scientists Concerned for Yasuní report. “My research team and I have documented substantial impacts of oil company exploration and extraction activities and of roads on the livelihoods, diet and culture of the Huaorani, ” he says. These impacts “appear permanent,” according to Bilsborrow, and “are magnified when the oil activities and roads are combined.”

“Oil companies have brought many problems, many negative impacts to the Huaorani,” says Alicia Cahuiya, president of the Association of Huaorani Women of the Ecuadorian Amazon (AMWAE). “We are very familiar with the problems of pollution and illness that impact our communities because of the petroleum contamination of the water, the destruction of the forests and harm to animals.”

Enter the IMF

The IMF lends money to foreign governments, but its real power lies in its role as “gatekeeper.” Other creditors, such as the World Bank, the Inter-American Development Bank, government lenders and private creditors, typically refuse to make loans to borrowing countries unless they receive the IMF’s stamp of approval. In order to qualify, governments often must implement corporate-friendly “structural adjustment policies” that demand indiscriminate privatization, orienting economies toward exports, removing labor protections and cutting government spending, among other policies.

In April 2000, the IMF approved a $300 million loan to the government of Ecuador, which at the time was strapped with a $15 billion external debt. This loan directly mobilized $1.7 billion in additional resources, including $425 million from the World Bank and $625 million from the Inter-American Development Bank.

As a precondition for the loan, Ecuador’s agreement with the IMF required the Congress to pass an Economic Transformation Law “in a manner satisfactory to the International Financial Institutions.” A key component of this law allowed private companies to build and operate pipelines. This provision would “facilitate the construction of a new oil pipeline planned to start this year,” according to Ecuador’s statement of policies it would adopt in order to receive the loan. It cleared the way for construction of the extremely controversial 300-mile OCP (Oleoducto de Crudo Pesado) pipeline to increase oil shipments out of the Ecuadorian Amazon. The OCP’s completion doubled Ecuador’s oil pipeline capacity and is the primary reason for the significant spike in oil production after 2003.

In March 2003, the IMF approved another large loan, for $200 million, to the government. This time, the deal with the IMF required the Congress of Ecuador to adopt the Fiscal Responsibility and Transparency Law. Passage of the Economic Transformation Law and the Fiscal Responsibility and Transparency Law were both needed to comply with conditionalities for World Bank monies as well.

The Fiscal Responsibility and Transparency Law established an oil fund for the OCP pipeline royalties. This fund allocates 70 percent of OCP revenue to paying off the country’s debt and 20 percent into a fund that will be used for spending (including debt payback) in case of a sharp drop in oil prices or natural disaster. Resisting heavy pressure from the IMF to dedicate 80 percent of the fund to direct debt repayment, the Ecuadorian Congress allocated 10 percent of the OCP revenue to social spending.

In February 2005, IMF Managing Director Rodrigo de Rato visited Ecuador. Echoing statements from the Fund’s Executive Board in 2004, Rato urged Ecuador not to weaken the OCP oil fund and called on the government to implement a new legal framework to allow private companies to take over several oil fields currently managed by Ecuador’s state oil company.

Summarizes Carl Ross, director of Save America’s Forests, “The IMF pressured Ecuador to build the OCP pipeline, then pressured Ecuador to create a system where the vast majority of the pipeline profits go to paying off the debt, and is now pressuring Ecuador to open up its primary rainforests to fill the pipeline.”

A supplemental government statement connected to the 2003 IMF loan called for an environmental audit of the petroleum sector, but the study was not completed.

“The audit could have been an opportunity to promote environmental and social mitigation of new oil development in the Ecuadorian Amazon,” says Bruce Rich, co-director of Environmental Defense’s international program, “but unfortunately it was not realized.”

The IMF stands by the position that oil development in Ecuador is necessary to address the country’s high level of indebtedness.

“ Ecuador’s large debt is a source of vulnerability for the country,” says Trevor Alleyne, division chief of the Western Hemisphere Department at the IMF. “If Ecuador faults on its debt payments, interest rates will rise, and the economy will be in even worse shape. We have been working with the Ecuadorian government to minimize this vulnerability.”

Alleyne concedes that the IMF had opposed Ecuador using 10 percent of OCP profits for social spending in order that those funds instead go to immediately paying off the debt.

However, he emphasizes that since the OCP pipeline began operations in the fall of 2003, “The Ecuadorian government has not spent one dollar of OCP royalties on the external debt. Not one dollar. It has all gone towards paying the internal debt.”

Filling the Pipeline

The OCP pipeline transports oil from the Ecuadorian Amazon to the coast. The pipeline is filled and operated by a consortium of seven multinational oil companies. All seven are now managing oil concessions in the primary, megadiverse rainforests of the Ecuadorian Amazon, and five of the companies — the Brazilian national oil company Petrobras, Teikoku from Japan, Occidental from the United States, Encana from Canada and Repsol-YPF from Spain — own concessions located in and around Yasuní National Park and Biosphere Reserve.

“The construction of the OCP pipeline has created an unprecedented cumulative threat to the primary rainforests of the Yasuní region,” says Carlos Fiallo from the Ecuadorian environmental group Action for Life.

The most urgent threat at the moment is in the concession operated by Petrobras — a 15 percent owner of the OCP pipeline — which has just begun constructing a new oil access road into the heart of Yasuní National Park and Biosphere Reserve. This will be the first major road built into the park and Huaorani territory since the Maxus road more than 10 years ago. Petrobras will also build two drilling platforms, a processing facility and a pipeline within the park. The core of the operation will be within 15 kilometers of a remote Huaorani community.

In May 2005, two Huaorani leaders, AMWAE President Alicia Cahuiya and former Huaorani Council Vice President Moi Enomenga, traveled to Washington D.C. and New York to speak out against the Petrobras project. In Washington, the Huaorani leaders met with members of the U.S. Congress and Trevor Alleyne of the IMF. In the meetings, the Huaorani appealed for a moratorium on oil projects within their territory.

“We do not want the oil company, we do not agree with the oil company and we will not permit the entry of the oil company,” says Enomenga.

In New York, in a statement before the United Nations Permanent Forum on Indigenous Issues, Cahuiya stated, “The Petrobras road not only threatens the 2,000 known Huaorani, but also those uncontacted Huaorani who have chosen to live in voluntary isolation.” She called for a moratorium on the construction of oil facilities, urged the Ecuadorian government to review its oil contracts because they violate Huaorani human rights and requested that the Brazilian government withdraw its national oil company from Huaorani territory.

The Petrobras project has also sparked intense opposition from both international scientists and Ecuadorian NGOs.

“All too often in the tropics, roads into forest frontiers open up a Pandora’s box of problems,” says William Laurance, a Smithsonian staff scientist with years of experience studying land uses in tropical forests. “The road itself will have a big impact on Yasuní, but the illegal knock-on effects will be far worse.”

Roads into remote areas enable colonizers and resource exploiters to access previously unreachable areas — desirable precisely because they have not been touched by outside populations.

The first major road into Yasuni, constructed by Maxus, portends the disaster that environmentalists fear is likely to follow from the Petrobas project.

“We concluded that based on the significant ecological and social impacts triggered by the Maxus road, the Petrobras road will also be a catalyst for migration, colonization, deforestation, illegal logging and illegal hunting inside Yasuní,” says Margot Bass, lead editor of the 2004 Scientists Concerned for Yasuní report and executive director of Finding Species. The scientists stress that if drilling must occur, access should be by helicopters and with no access road construction.

“Roads provide hunters with easy access to previously untouched areas,” says Dr. Anthony Di Fiore, a professor at New York University who has been researching primates in Yasuní for 11 years. “The first road built into Yasuní in 1994 has had a dramatic impact on mammalian populations over the past 10 years, especially on populations of large primates which are especially vulnerable to this kind of human pressure.” The park’s Woolly monkey population is being unsustainably hunted out.

Fiallo’s Action for Life has been fighting against the Petrobras project for over a year. “Given the pressure on our government from the IMF to develop the oil fields, we feel it is almost impossible to stop oil extraction in Yasuní,” says Fiallo. “Our whole campaign has been about just stopping the construction of the new road.” This no-access-road position is supported by a coalition of seven Ecuadorian environmental groups and U.S.-based environmental groups Save America’s Forests, Finding Species and the Natural Resources Defense Council.

OCP has enabled other pipeline consortium members to undertake ecologically harmful projects, as well.

The Los Angeles-based Occidental Petroleum (a 12 percent owner of the OCP pipeline) has transformed what were virtually undisturbed primary rainforests of the El Eden Quichua community, located in the northern buffer zone of the park, into a major industrial oil complex in just five years. Oxy has built a new road to access its sprawling operation, running just five kilometers from the northern boundary of Yasuní National Park. Last fall, the community of El Eden filed an official complaint against Oxy to the Ecuadorian government in which the community laid out 12 specific examples of how Oxy has contaminated their territory.

Occidental contends that its road is not an “access” road, but instead an “in-field” road that is connected only to the Napo River and not to Ecuador’s road system. The corporation claims “there is no possibility” that the road can be used as a “jumping-off point for colonization in the area.”

However, the Napo River is a major transportation corridor, enabling colonizers to travel by river and then Oxy’s road into the interior.

“My research suggests that unsustainable deforestation may occur from migration largely from the river,” Dr. Jonathon Greenberg from the NASA Ames Research Center says. “Roads allow colonization even if they are not connected to a larger road network.”

In addition to Oxy, the Canadian company Encana (OCP’s largest shareholder, with a 31.4 percent stake in the pipeline) controls two concessions within the Yasuní region. Encana is already extracting oil in the far western part of the park and is performing intensive seismic testing throughout the remainder of the two concessions. Last summer, the Quichua communities that would be impacted by Encana’s seismic testing signed a document stating their strong opposition to oil activities on their lands.

And more projects may soon follow. The Ecuadorian government has plans to auction off another concession block in the eastern-most part of the park, the ITT (Ishpingo-Tapococha-Tiputini) block. Analysts have stated that the ITT block may have 1.3 billion barrels of recoverable reserves, amounting to a quarter of Ecuador’s total reserves.

The New President

Aided by the support of the nation’s poor and indigenous groups, Lucio Gutierrez took office in January 2003. Gutierrez quickly lost that support, however, as he immediately implemented strict IMF-approved policies.

The Fiscal Responsibility and Transparency Law was a prime example. In a country where 70 percent of the population is considered poor and 45 percent is below the poverty line, the Gutierrez government, in its first month of power, set up the oil fund, specifying that only a tenth of the OCP profits would be used for Ecuadorians.

Given his implementation of IMF austerity policies and perceived betrayal of his poor and indigenous base, Gutierrez was already very unpopular when the Ecuadorian Supreme Court scandal rocked the nation in December 2004. After a week of widespread street protests in response to Gutierrez having dissolved the Supreme Court twice in five months, the Ecuadorian Congress voted Gutierrez out of office on April 20, 2005.

Former Vice President Alfredo Palacio has now become the new president of Ecuador. From the beginning of his vice presidency, Palacio was a public critic of Gutierrez’ IMF-supported policies. Upon assuming the presidency, Palacio immediately criticized his predecessor’s fiscal austerity measures and ties to international lending institutions.

Palacio specifically criticized the Fiscal Responsibility and Transparency Law and indicated his intention to reform the fund and use more than 10 percent of OCP profits for social spending. The Palacio government recently released its reform plan to the Ecuadorian Congress; it would bump social spending up to 30 percent and use an additional 10 percent for a science and technology fund.

Palacio has stated that it is immoral for Ecuador to use 40 percent of the county’s annual budget on debt payments. Ecuador’s external debt now stands at $11.2 billion, more than one-third of the country’s GDP. In 2004, the government devoted 20 percent of its budget to servicing the external debt. External debt payments were roughly equal to the government’s oil revenues.

What’s Next?

In May 2005, two Huaorani leaders walked through the doors of the IMF in order to draw attention to the link between the policies of that lending institution and what’s happening in their territory in the middle of the rainforest. And an effort is now underway to work with members of U.S. Congress that would direct the IMF to reevaluate its demands on Ecuador so that debt repayments are not being made at the expense of the country’s extraordinary biodiversity, its national parks and its indigenous communities. However, with the pipeline now constructed and the new Ecuadorian government seeking to devote OCP resources to social spending, protecting the biodiversity and indigenous communities of Yasuní may become even more complicated.

Dr. Matt Finer is staff ecologist at Save America’s Forests in Washington, D.C. Leda Huta is managing director for Finding Species in Takoma Park, Maryland.

The photos accompanying the print edition of this story are provided by Finding Species. They are all of animals in the Yasuní. On page 29 is a Woolly Monkey; page 30, left to right, features a tapir, an ocelot and a Mealy Parrot; on page 31, left to right, are an Aracari, Dusky titi monkey and a Red howler monkey; on page 32 is a Scarlet Macaw; and on page 33 is a White bellied spider monkey.