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Economy minister resigns amid scandal
LADB
7/23/2002
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Mayors accused the Finance Ministry of demanding bribes.

Economy and Finance Minister Carlos Julio Emanuel resigned on June 24 amid allegations that senior ministry officials were involved in a bribery scandal.

Prosecutors issued a warrant for Emanuel’s arrest, and officials said similar orders had been issued for eight other high-ranking ministry officials. Emanuel’s departure could affect negotiations with the International Monetary Fund (IMF), which have been stalled.

The scandal broke on June 19, when Víctor Molina, mayor of the Andean town of Azogues, accused Finance Ministry officials of demanding illegal "commissions" before they would release state funds to the city.

The charges were corroborated by other mayors, who said they were asked to pay commissions of between 15 percent and 30 percent to receive additional financing. They said that if they refused, their budgets were cut.

Molina testified before the Anti-Corruption Commission in a closed session on June 24.

The accusations quickly tainted Emanuel. The vice president of Congress, Antonio Posso, threatened to begin impeachment proceedings against the minister.

Lawmaker Dalton Bacigalupo called for Emanuel to resign to allow an impartial investigation. Referring to rumors that Emanuel was considering running for president in October, Bacigalupo questioned whether the bribes were going to his electoral campaign.

Also calling for Emanuel’s ouster was former President Osvaldo Hurtado (1981-84), who said that Emanuel was "morally obliged to resign, because his closest and most intimate collaborators are involved in this mess."

Attorney General Mariana Yépez promised a thorough investigation. The Anti-Corruption Commission said that several legislators and six ministries were implicated in cases involving US$150 million in illicit payments.

At first, Emanuel said he would not resign and insisted that he would lead the investigation.

"I don’t deny that there is now, or that there have been before, acts of corruption in the ministry, just as there are in customs and other areas," he told local media on June 22. "Corruption has always existed in the ministries, and that is why I have asked Attorney General Mariana Yépez to obtain documentation from the mayors who made the complaints."

President Gustavo Noboa said that he had been aware of rumors of an extortion racket since December, but had wanted evidence before he acted.

"No one who damages [the country’s prestige] can stay in my government, and I will take appropriate measures when necessary," Noboa said. "I need to give people the chance to defend themselves, however."

Emanuel was Ecuador’s sixth economy minister in just over two years. His predecessor, Jorge Gallardo, went into exile in the United States last year to avoid an arrest warrant on charges related to economic irregularities in his previous job as president of the Banco del Pacífico from 1999-2000.

Noboa named his economic adviser, Francisco Arosemena Robles, to replace Emanuel. One of his tasks will be to restructure the Finance Ministry.

Arosemena had been working with a team negotiating with the IMF for a fresh $240-million standby loan agreement. The IMF has conditioned approval of funds on the modification of a new law that allocates to health and education 10 percent of revenues from oil exports piped through a new heavy-crude pipeline that is still under construction.

The pipeline from Ecuador’s Amazon region to the Pacific coast is being built by the OCP Ltd. consortium, made up of Alberta Energy of Canada, US-based Kerr McGee and Occidental Petroleum, Agip Oil of Italy, Spanish-Argentine Repsol-YPF, and Techint of Argentina.

The 600-kilometer pipeline has been criticized by local and international environmental groups, indigenous communities and even the World Bank, which have warned of damage to the environment and water sources that supply cities like Quito (LP, March 25, 2002).

The IMF insists that revenues from the pipeline must be used only for debt service. The bill that Noboa sent Congress stipulated that 80 percent of the revenues would go toward debt payments and 20 percent would go into a fund to be used to for debt service in case of future oil-price slumps.

Congress approved the law on May 22, but assigned 70 percent of future oil-export earnings to paying off the foreign debt and the state’s debt to Ecuador’s Social Security Institute, 20 percent to the oil fund and 10 percent to health and education.

Emanuel said recently that the 10-percent allotment for social spending was the main obstacle to IMF approval. He said he expected the differences to "be worked out soon."

Emanuel said that Noboa would try to meet the IMF requirement by getting the law amended, although it was not clear how that could be done. Bob Traa, chief of the IMF mission for Ecuador, also questioned how much maneuvering room Noboa had. He added that the discrepancies between the IMF and Ecuador "go much deeper" than just percentages.

Economic analyst Wilma Salgado said that the Ecuadoran people would not benefit from the increase in oil revenues from the new pipeline.

"Under the new law, the creditors who hold Ecuador’s public debt, most of which is external, will be the beneficiaries of 90 percent of the revenues from exports of oil transported by the OCP pipeline," she said.

Arosemena said that the Ecuadoran government intends to continue negotiating with the IMF. Financial analysts were mixed in their estimates of the new minister’s chance of success.

"The bottom line is that Ecuador still needs to comply with a series of conditions," said Leo Goldstein, an economist at Salomon Smith Barney in New York. The IMF has insisted on greater fiscal discipline, spending cuts and the liquidation of Filanbanco, the country’s largest banking group, which was taken over by the state during a bank crisis in 1999 (LP, April 26, 1999). — LADB


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