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US gets Israel’s OK for Saudi arms sale

Press TV – Oct 21, 2010

The US says it has sought Israel’s approval before agreeing to a massive arms sale to Saudi Arabia which is to become the largest US arms deal in history.

The United States announced plans to sell the Arab kingdom up to USD 60 billion worth of arms, AFP quoted Andrew Shapiro, assistant secretary of defense for political-military affairs, as saying on Wednesday.

The package is to be delivered over 15 to 20 years and includes 84 F-15 jets, 70 Apache gunships, 72 Blackhawk helicopters, 36 light helicopters and thousands of laser-guided smart bombs.

The enormous package is said by the Pentagon to give Riyadh “a whole host of defensive” and “deterrence capabilities.” The US Defense Department has also made clear that the deal will not affect “Israel’s military upper-hand in the region.”

Tel Aviv and its sympathizers in Washington had earlier voiced concern on US arms sales to Saudi Arabia.

“Our assessment is that this (sale) would not diminish Israel’s qualitative military edge, and therefore we felt comfortable in going forward with the sale,” Shapiro said.

Alexander Vershbow, the US assistant secretary of defense for international security affairs, said Washington consulted Israel as the deal took shape.

The US government always consults the Israeli regime on any arms sales to Arab countries as a matter of policy intended to ensure that Israel maintains a military superiority in the Middle East region.

“There have been high-level discussions, as well as working-level discussions. And I think it’s fair to say that, based on what we’ve heard at the high levels, Israel does not object to this sale,” he said.

US President Barack Obama’s administration has reportedly notified Congress of its plans to make the deal and the Capitol now has the authority to amend or delay the agreement.

October 21, 2010 Posted by aletho | Economics | Leave a comment

Why the U.S. has Launched a New Financial World War — And How the Rest of the World Will Fight Back

By MICHAEL HUDSON | CounterPunch | October 11, 2010

What is to stop U.S. banks and their customers from creating $1 trillion, $10 trillion or even $50 trillion on their computer keyboards to buy up all the bonds and stocks in the world, along with all the land and other assets for sale in the hope of making capital gains and pocketing the arbitrage spreads by debt leveraging at less than 1 per cent interest cost? This is the game that is being played today.

Finance is the new form of warfare – without the expense of a military overhead and an occupation against unwilling hosts. It is a competition in credit creation to buy foreign resources, real estate, public and privatized infrastructure, bonds and corporate stock ownership. Who needs an army when you can obtain the usual objective (monetary wealth and asset appropriation) simply by financial means? All that is required is for central banks to accept dollar credit of depreciating international value in payment for local assets. Victory promises to go to whatever economy’s banking system can create the most credit, using an army of computer keyboards to appropriate the world’s resources. The key is to persuade foreign central banks to accept this electronic credit.

U.S. officials demonize foreign countries as aggressive “currency manipulators” keeping their currencies weak. But they simply are trying to protect their currencies from being pushed up against the dollar by arbitrageurs and speculators flooding their financial markets with dollars. Foreign central banks find themselves obliged to choose between passively letting dollar inflows push up their exchange rates – thereby pricing their exports out of global markets – or recycling these dollar inflows into U.S. Treasury bills yielding only 1% and whose exchange value is declining. (Longer-term bonds risk a domestic dollar-price decline if U.S interest rates should rise.)

“Quantitative easing” is a euphemism for flooding economies with credit, that is, debt on the other side of the balance sheet. The Fed is pumping liquidity and reserves into the domestic financial system to reduce interest rates, ostensibly to enable banks to “earn their way” out of negative equity resulting from the bad loans made during the real estate bubble. But why would banks lend more under conditions where a third of U.S. homes already are in negative equity and the economy is shrinking as a result of debt deflation?

The problem is that U.S. quantitative easing is driving the dollar downward and other currencies up, much to the applause of currency speculators enjoying a quick and easy free lunch. Yet it is to defend this system that U.S. diplomats are threatening to plunge the world economy into financial anarchy if other countries do not agree to a replay of the 1985 Plaza Accord “as a possible framework for engineering an orderly decline in the dollar and avoiding potentially destabilizing trade fights.(1) The run-up to this weekend’s IMF meetings saw the United States threaten to derail the international financial system, bringing monetary chaos if it does not get its way. This threat has succeeded for the past few generations.

But the world has seen the Plaza Accord derail Japan’s economy by obliging its currency to appreciate while lowering interest rates by flooding its economy with enough credit to inflate a real estate bubble. The alternative to a new currency war “getting completely out of control,” the bank lobbyist suggested, is “to try and reach some broad understandings about where currencies should move.” However, IMF managing director Dominique Strauss-Kahn, was more realistic. “I’m not sure the mood is to have a new Plaza or Louvre accord,” he said at a press briefing. “We are in a different time today.” On the eve of the Washington IMF meetings he added: “The idea that there is an absolute need in a globalised world to work together may lose some steam.” (Alan Beattie Chris Giles and Michiyo Nakamoto, “Currency war fears dominate IMF talks,” Financial Times, October 9, 2010, and Alex Frangos, “Easy Money Churns Emerging Markets,” Wall Street Journal, October 8, 2010.)

Quite the contrary, he added: “We can understand that some element of capital controls [need to] be put in place.”

The great question in global finance today is thus how long other nations will continue to succumb as the cumulative costs rise into the financial stratosphere? The world is being forced to choose between financial anarchy and subordination to a new U.S. economic nationalism. This is what is prompting nations to create an alternative financial system altogether.

The global financial system already has seen one long and unsuccessful experiment in quantitative easing in Japan’s carry trade that sprouted in the wake of Japan’s financial bubble bursting after 1990. Bank of Japan liquidity enabled the banks to lend yen credit to arbitrageurs at a low interest rate to buy higher-yielding securities. Iceland, for example, was paying 15 per cent. So Japanese yen were converted into foreign currencies, pushing down its exchange rate.

It was Japan that refined the “carry trade” in its present-day form. After its financial and property bubble burst in 1990, the Bank of Japan sought to enable its banks to “earn their way out of negative equity” by supplying them with low-interest credit for them to lend out. Japan’s recession left little demand at home, so its banks developed the carry trade: lending at a low interest rate to arbitrageurs at home and abroad, to lend to countries offering the highest returns. Yen were borrowed to convert into dollars, euros, Icelandic kroner and Chinese renminbi to buy government bonds, private-sector bonds, stocks, currency options and other financial intermediation. This “carry trade” was capped by foreign arbitrage in bonds of countries such as Iceland, paying 15 per cent. Not much of this funding was used to finance new capital formation. It was purely financial in character – extractive, not productive.

By 2006 the United States and Europe were experiencing a Japan-style financial and real estate bubble. After it burst in 2008, they did what Japan’s banks did after 1990. Seeking to help U.S. banks work their way out of negative equity, the Federal Reserve flooded the economy with credit. The aim was to provide banks with more liquidity, in the hope that they would lend more to domestic borrowers. The economy would “borrow its way out of debt,” re-inflating asset prices real estate, stocks and bonds so as to deter home foreclosures and the ensuing wipeout of the collateral on bank balance sheets.

This is occurring today as U.S. liquidity spills over to foreign economies, increasing their exchange rates. Joseph Stiglitz recently explained that instead of helping the global recovery, the “flood of liquidity” from the Federal Reserve and the European Central Bank is causing “chaos” in foreign exchange markets. “The irony is that the Fed is creating all this liquidity with the hope that it will revive the American economy. … It’s doing nothing for the American economy, but it’s causing chaos over the rest of the world.” (Walter Brandimarte, “Fed, ECB throwing world into chaos: Stiglitz,” Reuters, Oct. 5, 2010, reporting on a talk by Prof. Stiglitz at Colombia University. )

Dirk Bezemer and Geoffrey Gardiner,  in their paper “Quantitative Easing is Pushing on a String” , prepared for the Boeckler Conference, Berlin, October 29-30, 2010, make clear that “QE provides bank customers, not banks, with loanable funds. Central Banks can supply commercial banks with liquidity that facilitates interbank payments and payments by customers and banks to the government, but what banks lend is their own debt, not that of the central bank. Whether the funds are lent for useful purposes will depend, not on the adequacy of the supply of fund, but on whether the environment is encouraging to real investment.”

Quantitative easing subsidizes U.S. capital flight, pushing up non-dollar currency exchange rates

Federal Reserve Chairman Ben Bernanke’s quantitative easing may not have set out to disrupt the global trade and financial system or start a round of currency speculation that is forcing other countries to defend their economies by rejecting the dollar as a pariah currency. But that is the result of the Fed’s decision in 2008 to keep unpayably high debts from defaulting by re-inflating U.S. real estate and financial markets. The aim is to pull home ownership out of negative equity, rescuing the banking system’s balance sheets and thus saving the government from having to indulge in a Tarp II, which looks politically impossible given the mood of most Americans.

The announced objective is not materializing. The Fed’s new credit creation is not increasing bank loans to real estate, consumers or businesses. Banks are not lending – at home, that is. They are collecting on past loans. This is why the U.S. savings rate is jumping. The “saving” that is reported (up from zero to 3 per cent of GDP) is taking the form of paying down debt, not building up liquid funds on which to draw. Just as hoarding diverts revenue away from being spent on goods and services, so debt repayment shrinks spendable income.

So  Bernanke created $2 trillion in new Federal Reserve credit. And now (October 2010) the Fed is proposing to increase the Fed’s money creation by another $1 trillion over the coming year. This is what has led gold prices to surge and investors to move out of weakening “paper currencies” since early September – and prompted other nations to protect their own economies accordingly.

It is hardly surprising that banks are not lending to an economy being shrunk by debt deflation. The entire quantitative easing has been sent abroad, mainly to the BRIC countries: Brazil, Russia, India and China. “Recent research at the International Monetary Fund has shown conclusively that G4 monetary easing has in the past transferred itself almost completely to the emerging economies … since 1995, the stance of monetary policy in Asia has been almost entirely determined by the monetary stance of the G4 – the US, eurozone, Japan and China – led by the Fed.” According to the IMF, “equity prices in Asia and Latin America generally rise when excess liquidity is transferred from the G4 to the emerging economies.”

Borrowing unprecedented amounts from U.S., Japanese and British banks to buy bonds, stocks and currencies in the BRIC and Third World countries is a self-feeding expansion. Speculative inflows into these countries are pushing up their currencies as well as their asset prices, but. Their central banks settle these transactions in dollars, whose value falls as measured in their own local currencies.

U.S. officials say that this is all part of the free market. “It is not good for the world for the burden of solving this broader problem … to rest on the shoulders of the United States,” insisted Treasury Secretary Tim Geithner on Wednesday.

So other countries are solving the problem on their own. Japan is trying to hold down its exchange rate by selling yen and buying U.S. Treasury bonds in the face of its carry trade being unwound as arbitrageurs are paying back the yen that they earlier borrowed to buy higher-yielding but increasingly risky sovereign debt from countries such as Greece. Paying back these arbitrage loans has pushed up the yen’s exchange rate by 12 per cent against the dollar so far during 2010. On Tuesday, October 5, Bank of Japan governor Masaaki Shirakawa announced that Japan had “no choice” but to “spend 5 trillion yen ($60 billion) to buy government bonds, corporate IOUs, real-estate investment trust funds and exchange-traded funds – the latter two a departure from past practice.”

This “sterilization” of unwanted financial speculation is precisely what the United States has criticized China for doing. China has tried more “normal” ways to recycle its trade surplus, by seeking out U.S. companies to buy. But Congress would not let CNOOC buy into U.S. oil refinery capacity a few years ago, and the Canadian government is now being urged to block China’s attempt to purchase its potash resources. This leaves little option for China and other countries but to hold their currencies stable by purchasing U.S. and European government bonds.

This has become the problem for all countries today. As presently structured, the international financial system rewards speculation and makes it difficult for central banks to maintain stability without forced loans to the U.S. Government that has long enjoyed a near monopoly in providing central bank reserves. As noted earlier, arbitrageurs obtain a twofold gain: the arbitrage margin between Brazil’s nearly 12 per cent yield on its long-term government bonds and the cost of U.S. credit (1 per cent), plus the foreign-exchange gain resulting from the fact that the outflow from dollars into reals has pushed up the real’s exchange rate some 30 per cent – from R$2.50 at the start of 2009 to $1.75 last week. Taking into account the ability to leverage $1 million of one’s own equity investment to buy $100 million of foreign securities, the rate of return is 3000 per cent since January 2009.

Brazil has been more a victim than a beneficiary of what is euphemized as a “capital inflow.” The inflow of foreign money has pushed up the real by 4 per cent in just over a month (from September 1 through early October). The past year’s run-up has eroded the competitiveness of Brazilian exports, prompting the government to impose 4 per cent tax on foreign purchases of its bonds on October 4 to deter the currency’s rise. “It’s not only a currency war,” Finance Minister Guido Mantega said on Monday. “It tends to become a trade war and this is our concern.” And Thailand’s central bank director Wongwatoo Potirat warned that his country was considering similar taxes and currency trade restrictions to stem the baht’s rise, and Subir Gokarn, deputy governor of the Reserve Bank of India announced that his country also was reviewing defenses against the “potential threat” of inward capital flows.”

Such inflows do not provide capital for tangible investment. They are predatory, and cause currency fluctuation that disrupts trade patterns while creating enormous trading profits for large financial institutions and their customers. Yet most discussions of exchange rate treat the balance of payments and exchange rates as if they were determined purely by commodity trade and “purchasing power parity,” not by the financial flows and military spending that actually dominate the balance of payments. The reality is that today’s financial interregnum – anarchic “free” markets prior to countries hurriedly putting up their own monetary defenses – provides the arbitrage opportunity of the century. This is what bank lobbyists have been pressing for. It has little to do with the welfare of workers.

The potentially largest speculative prize of all promises to be an upward revaluation of China’s renminbi. The House Ways and Means Committee is backing this gamble, by demanding that China raise its exchange rate by the 20 per cent that the Treasury and Federal Reserve are suggesting. A revaluation of this magnitude would enable speculators to put down 1 per cent equity – say, $1 million to borrow $99 million and buy Chinese renminbi forward. The revaluation being demanded would produce a 2000 per cent profit of $20 million by turning the $100 million bet (and just $1 million “serious money”) into $120 million. Banks can trade on much larger, nearly infinitely leveraged margins, much like drawing up CDO swaps and other derivative plays.

This kind of money already has been made by speculating on Brazilian, Indian and Chinese securities and those of other countries whose exchange rates have been forced up by credit-flight out of the dollar, which has fallen by 7 per cent against a basket of currencies since early September when the Federal Reserve floated the prospect of quantitative easing. During the week leading up to the IMF meetings in Washington, the Thai baht and Indian rupee soared in anticipation that the United States and Britain would block any attempts by foreign countries to change the financial system and curb disruptive currency gambling.

This capital outflow from the United States has indeed helped domestic banks rebuild their balance sheets, as the Fed intended. But in the process the international financial system has been victimized as collateral damage. This prompted Chinese officials to counter U.S. attempts to blame it for running a trade surplus by retorting that U.S. financial aggression “risked bringing mutual destruction upon the great economic powers.

From the gold-exchange standard to the Treasury-bill standard to “free credit” anarchy

Indeed, the standoff between the United States and other countries at the IMF meetings in Washington this weekend threatens to cause the most serious rupture since the breakdown of the London Monetary Conference in 1933. The global financial system threatens once again to break apart, deranging the world’s trade and investment relationships – or to take a new form that will leave the United States isolated in the face of its structural long-term balance-of-payments deficit.

This crisis provides an opportunity – indeed, a need – to step back and review the longue durée of international financial evolution to see where past trends are leading and what paths need to be re-tracked. For many centuries prior to 1971, nations settled their balance of payments in gold or silver. This “money of the world,” as Sir James Steuart called gold in 1767, formed the basis of domestic currency as well. Until 1971 each U.S. Federal Reserve note was backed 25 per cent by gold, valued at $35 an ounce. Countries had to obtain gold by running trade and payments surpluses in order to increase their money supply to facilitate general economic expansion. And when they ran trade deficits or undertook military campaigns, central banks restricted the supply of domestic credit to raise interest rates and attract foreign financial inflows.

As long as this behavioral condition remained in place, the international financial system operated fairly smoothly under checks and balances, albeit under “stop-go” policies when business expansions led to trade and payments deficits. Countries running such deficits raised their interest rates to attract foreign capital, while slashing government spending, raising taxes on consumers and slowing the domestic economy so as to reduce the purchase of imports.

What destabilized this system was war spending. War-related transactions spanning World Wars I and II enabled the United States to accumulate some 80 per cent of the world’s monetary gold by 1950. This made the dollar a virtual proxy for gold. But after the Korean War broke out, U.S. overseas military spending accounted for the entire payments deficit during the 1950s and ‘60s and early ‘70s. Private-sector trade and investment was exactly in balance.

By August 1971, war spending in Vietnam and other foreign countries forced the United States to suspend gold convertibility of the dollar through sales via the London Gold Pool. But largely by inertia, central banks continued to settle their payments balances in U.S. Treasury securities. After all, there was no other asset in sufficient supply to form the basis for central bank monetary reserves. But replacing gold – a pure asset – with dollar-denominated U.S. Treasury debt transformed the global financial system. It became debt-based, not asset-based. And geopolitically, the Treasury-bill standard made the United States immune from the traditional balance-of-payments and financial constraints, enabling its capital markets to become more highly debt-leveraged and “innovative.” It also enabled the U.S. Government to wage foreign policy and military campaigns without much regard for the balance of payments.

The problem is that the supply of dollar credit has become potentially infinite. The “dollar glut” has grown in proportion to the U.S. payments deficit. Growth in central bank reserves and sovereign-country funds has taken the form of recycling of dollar inflows into new purchases of U.S. Treasury securities – thereby making foreign central banks (and taxpayers) responsible for financing most of the U.S. federal budget deficit. The fact that this deficit is largely military in nature – for purposes that many foreign voters oppose – makes this lock-in particularly galling. So it hardly is surprising that foreign countries are seeking an alternative.

Contrary to most public media posturing, the U.S. payments deficit – and hence, other countries’ payments surpluses – is not primarily a trade deficit. Foreign military spending has accelerated despite the Cold War ending with dissolution of the Soviet Union in 1991. Even more important has been rising capital outflows from the United States. Banks lent to foreign governments from Third World countries, to other deficit countries to cover their national payments deficits, to private borrowers to buy the foreign infrastructure being privatized, foreign stocks and bonds, and to arbitrageurs to borrow at a low interest rate to buy higher-yielding securities abroad.

The corollary is that other countries’ balance-of-payments surpluses do not stem primarily from trade relations, but from financial speculation and a spillover of U.S. global military spending. Under these conditions the maneuvering for quick returns by banks and their arbitrage customers is distorting exchange rates for international trade. U.S. “quantitative easing” is coming to be perceived as a euphemism for a predatory financial attack on the rest of the world. Trade and currency stability are part of the “collateral damage” being caused by the Federal Reserve and Treasury flooding the economy with liquidity in their attempt to re-inflate U.S. asset prices. Faced with U.S. quantitative easing flooding the economy with reserves to “save the banks” from negative equity, all countries are obliged to act as “currency manipulators.” So much money is made by purely financial speculation that “real” economies are being destroyed.

The coming capital controls

The global financial system is being broken up as U.S. monetary officials change the rules they laid down nearly half a century ago. Prior to the United States going off gold in 1971, nobody dreamed that an economy – especially the United States – would create unlimited credit on computer keyboards and not see its currency plunge. But that is what happens under the Treasury-bill standard of international finance. Under this condition, foreign countries can prevent their currencies from rising against the dollar (thereby pricing their labor and exports out of foreign markets) only by (1) recycling dollar inflows into U.S. Treasury securities, (2) by imposing capital controls, or (3) by avoiding use of the dollar or other currencies used by financial speculators in economies promoting “quantitative easing.”

Malaysia successfully used capital controls during the 1997 Asian Crisis to prevent short-sellers from covering their bets. This confronted speculators with a short squeeze that George Soros says made him lose money on the attempted raid. Other countries are now reviewing how to impose capital controls to protect themselves from the tsunami of credit from flowing into their currencies and buying up their assets – along with gold and other commodities that are turning into vehicles for speculation rather than actual use in production. Brazil took a modest step along this path by using tax policy rather than outright capital controls when it taxed foreign buyers of its bonds last week.

If other nations take this route, it will reverse the policy of open and unprotected capital markets adopted after World War II. This trend threatens to lead to the kind of international monetary practice found from the 1930s into the ‘50s: dual exchange rates, one for financial movements and another for trade. It probably would mean replacing the IMF, World Bank and WTO with a new set of institutions, isolating U.S., British and Eurozone representation.

To defend itself, the IMF is proposing to act as a “central bank” creating what was called “paper gold” in the late 1960s – artificial credit in the form of Special Drawing Rights (SDRs). However, other countries already have complained that voting control remains dominated by the major promoters of arbitrage speculation – the United States, Britain and Eurozone. And the IMF’s Articles of Agreement prevent countries from protecting themselves, characterizing this as “interfering” with “open capital markets.” So the impasse reached this weekend appears to be permanent. As one report summarized matters: “‘There is only one obstacle, which is the agreement of the members,’ said a frustrated  Kahn .”

Paul Martin, the former Canadian prime minister who helped create the G20 after the 1997-1998 Asian financial crisis, said “the big powers were largely immune to being named and shamed.” And in a Financial Times interview Mohamed El Erian, a former senior IMF official and now chief executive of Pimco  said, “You have a burst pipe behind the wall and the water is coming out. You have to fix the pipe, not just patch the wall.”

The BRIC countries are simply creating their own parallel system. In September, China  supported a Russian proposal to start direct trading between the yuan and the ruble. It has brokered a similar deal with Brazil. And on the eve of the IMF meetings in Washington on Friday, October 8, Chinese Premier Wen stopped off in Istanbul to reach agreement with Turkish Prime Minister Erdogan to use their own currencies in tripling Turkish-Chinese trade to $50 billion over the next five years, effectively excluding the U.S. dollar. “We are forming an economic strategic partnership … In all of our relations, we have agreed to use the lira and yuan,” Mr. Erdogan said.

On the deepest economic plane, the present global financial breakdown is part of the price to be paid for the Federal Reserve and U.S. Treasury refusing to accept a prime axiom of banking: Debts that cannot be paid, won’t be. They tried to “save” the banking system from debt write-downs in 2008 by keeping the debt overhead in place. The resulting repayment burden continues to shrink the U.S. economy, while the Fed’s way to help the banks “earn their way out of negative equity” has been to fuel a flood of international financial speculation. Faced with normalizing world trade or providing opportunities for predatory finance, the U.S. and Britain have thrown their weigh behind the latter. Targeted economies are understandably seeking alternative arrangements.

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website, mh@michael-hudson.com

Notes.
(1) Tom Lauricella, “Dollar’s Fall Roils World: As Global Leaders Meet, Strains Rise Among Nations Competing to Save Exports,” Wall Street Journal, October 8, 2010, quoting Edwin Truman, a former U.S. Treasury official now a senior fellow at the Peterson Institute for International Economics.

October 11, 2010 Posted by aletho | Economics | Leave a comment

Behind the Coup in Ecuador – The Attack on ALBA

By Eva Golinger* | October 1, 2010

The latest coup attempt against one of the countries in the Bolivarian Alliance For The People of Our America (ALBA) is an attempt to impede Latin American integration and the advance of revolutionary democratic processes. The right-wing is on the attack in Latin America. Its success in 2009 in Honduras against the government of Manuel Zelaya energized it and gave it the strength and confidence to strike again against the people and revolutionary governments in Latin America.

The elections of Sunday, September 26th in Venezuela, while victorious for the Venezuelan United Socialist Party (PSUV), also ceded space to the most reactionary and dangerous destabilizing forces at the service of imperial interests. The United States managed to situate key elements in the Venezuelan National Assembly, giving them a platform to move forward with their conspiratorial schemes to undermine Venezuelan democracy.

The day after the elections in Venezuela, the main advocate for peace in Colombia, Piedad Córdoba, was dismissed as a Senator in the Republic of Colombia, by Colombia’s Inspector General, on the basis of falsified evidence and accusations. But the attack against Senator Córdoba is a symbol of the attack against progressive forces in Colombia who seek true and peaceful solutions to the war in which they have been living for more than 60 years.

And now, Thursday, September 30th, was the dawn of a coup d’etat in Ecuador. Insubordinate police took over a number of facilities in the capital of Quito, creating chaos and panic in the country. Supposedly, they were protesting against a new law approved by the National Assembly on Wednesday, which according to them reduced labor benefits.

In an attempt to resolve the situation, President Rafael Correa went to meet with the rebellious police but was attacked with heavy objects and teargas, causing a wound on his leg and teargas asphyxiation. He was taken to a military hospital in Quito, where he was later kidnapped and held against his will, prevented from leaving.

Meanwhile, popular movements took to the streets of Quito, demanding the liberation of their President, democratically re-elected the previous year by a huge majority. Thousands of Ecuadorans raised their voices in support of President Correa, trying to rescue their democracy from the hands of coup-plotters who were looking to provoke the forced resignation of the national government.

In a dramatic development, President Correa was rescued in an operation by Special Forces from the Ecuadoran military in the late evening hours. Correa denounced his kidnapping by the coup-plotting police and laid responsibility for the coup d’etat directly upon former President, Lucio Gutiérrez. Gutiérrez was a presidential candidate in 2009 against President Correa, and lost in a landslide when more than 55% voted for Correa.

During today’s events, Lucio Gutiérrez declared in an interview, “The end of Correa’s tyranny is at hand,” also asking for the “dissolution of Parliament and a call for early presidential elections.”

But beyond the key role played by Gutiérrez, there are external factors involved in this attempted coup d’etat that are moving their pieces once again.

Infiltration of the Police

According to journalist Jean-Guy Allard, an official report from Ecuador’s Defense Minister, Javier Ponce, distributed in October of 2008, revealed “how US diplomats dedicated themselves to corrupting the police and the Armed Forces.”

The report confirmed that police units “maintain an informal economic dependence on the United States, for the payment of informants, training, equipment and operations.”

In response to the report, US Ambassador in Ecuador, Heather Hodges, justified the collaboration, saying “We work with the government of Ecuador, with the military and with the police, on objectives that are very important for security.” According to Hodges, the work with Ecuador’s security forces is related to the “fight against drug trafficking.”

The Ambassador

Ambassador Hodges was sent to Ecuador in 2008 by then President George W. Bush. Previously she successfully headed up the embassy in Moldova, a socialist country formerly part of the Soviet Union. She left Moldova sowing the seeds for a “colored revolution” that took place, unsuccessfully, in April of 2009 against the majority communist party elected to parliament.

Hodges headed the Office of Cuban Affairs within the US State Department in 1991, as its Deputy Director. The department was dedicated to the promotion of destabilization in Cuba. Two years later she was sent to Nicaragua in order to consolidate the administration of Violeta Chamorro, the president selected by the United States following the dirty war against the Sandinista government, which led to its exit from power in 1989.

When Bush sent her to Ecuador, it was with the intention of sowing destabilization against Correa, in case the Ecuadoran president refused to subordinate himself to Washington’s agenda. Hodges managed to increase the budget for USAID and the NED [National Endowment for Democracy] directed toward social organizations and political groups that promote US interests, including within the indigenous sector.

In the face of President Correa’s re-election in 2009, based on a new constitution approved in 2008 by a resounding majority of men and women in Ecuador, the Ambassador began to foment destabilization.

USAID

Certain progressive social groups have expressed their discontent with the policies of the Correa government. There is no doubt that legitimate complaints and grievances against his government exist. Not all groups and organizations in opposition to Correa’s policies are imperial agents. But a sector among them does exist which receives financing and guidelines in order to provoke destabilizing situations in the country that go beyond the natural expressions of criticism and opposition to a government.

In 2010, the State Department increased USAID’s budget in Ecuador to more than $38 million dollars. In the most recent years, a total of $5,640,000 in funds were invested in the work of “decentralization” in the country. One of the main executors of USAID’s programs in Ecuador is the same enterprise that operates with the rightwing in Bolivia: Chemonics, Inc. At the same time, NED issued a grant of $125,806 to the Center for Private Enterprise (CIPE) to promote free trade treaties, globalization, and regional autonomy through Ecuadoran radio, television and newspapers, along with the Ecuadoran Institute of Economic Policy.

Organizations in Ecuador such as Participación Ciudadana and Pro-justicia [Citizen Participation and Pro-Justice], as well as members and sectors of CODEMPE, Pachakutik, CONAIE, the Corporación Empresarial Indígena del Ecuador [Indigenous Enterprise Corporation of Ecuador] and Fundación Qellkaj [Qellkaj Foundation] have had USAID and NED funds at their disposal.

During the events of September 30 in Ecuador, one of the groups receiving USAID and NED financing, Pachakutik, sent out a press release backing the coup-plotting police and demanding the resignation of President Correa, holding him responsible for what was taking place. The group even went so far as to accuse him of a “dictatorial attitude.” Pachakutik entered into a political alliance with Lucio Gutiérrez in 2002 and its links with the former president are well known:

PACHAKUTIK ASKS PRESIDENT CORREA TO RESIGN AND CALLS FOR THE FORMING OF A SINGLE NATIONAL FRONT

Press Release 141

In the face of the serious political turmoil and internal crisis generated by the dictatorial attitude of President Rafael Correa, who has violated the rights of public servants as well as society, the head of the Pachakutik Movement, Cléver Jiménez, called on the indigenous movement, social movements and democratic political organizations to form a single national front to demand the exit of President Correa, under the guidelines established by Article 130, Number 2 of the Constitution, which says: “The National Assembly will dismiss the President of the Republic in the following cases: 2) For serious political crisis and domestic turmoil.”

Jiménez backed the struggle of the country’s public servants, including the police troops who have mobilized against the regime’s authoritarian policies which are an attempt to eliminate acquired labor rights. The situation of the police and members of the Armed Forces should be understood as a just action by public servants, whose rights have been made vulnerable.

This afternoon, Pachakutik is calling on all organizations within the indigenous movement, workers, democratic men and women to build unity and prepare new actions to reject Correa’s authoritarianism, in defense of the rights and guarantees of all Ecuadorans.

Press Secretary

PACHAKUTIK BLOQUE

The script used in Venezuela and Honduras repeats itself. They try to hold the President and the government responsible for the “coup,” later forcing their exit from power. The coup against Ecuador is the next phase in the permanent aggression against ALBA and revolutionary movements in the region.

The Ecuadoran people remain mobilized in their rejection of the coup attempt, while progressive forces in the region have come together to express their solidarity and support of President Correa and his government.

* Translation: Machetera

October 9, 2010 Posted by aletho | Economics | Leave a comment