Highlights
– Ecuadorian government takes action against business responsible for a collapsed bank during financial crisis in late-1990s
– Debt recovery agency seizes close to 200 business, along with two television stations
– Critics state media seizure is violation of freedom; government defends its actions
– Legal battle over the status of companies likely to continue in near to mid-term, along with possible additional takeovers
Ecuador experienced a financial crisis in the late-1990s, including a series of bank collapses, general strikes and the defaulting of its Brady bonds in 1999. While economic reforms beginning in 2000, such as the introduction of the dollar as legal currency, have helped the nation regain some financial stability, growth remains limited. Continuing unrest and disappointment expressed by the citizens toward government leadership has led to the ousting of three elected presidents since 1997. Current President Rafael Correa was elected in 2006, and has continued the strained relationship with the banking industry.
To help respond to the banking crisis, the government created the Deposit Guarantee Agency (AGD), a legislation responsible for recovering funds from banks that closed or went bankrupt during the 1990s. On July 8, 2008, AGD seized a number of firms and television stations from a business that owned one of the collapsed banks nearly ten years ago, causing critics to question Correa’s and the AGD’s motive for acting now.
Recent Seizures
Most recently, AGD seized businesses from the Isaias Group (IG), claiming that the IG owes the government US$661 million related to the collapse of its bank Flianbanco in 1998. Acting to take control of “all the property of those who were administrators of the former Filambanco on December 2, 2998,” AGD seized control of two television stations and nearly 200 businesses that are allegedly affiliated with the IG. Officials, supported by police officers, raided the TV stations in Quito, and multiple businesses from insurance to farming to construction firms were taken over.
Spokesmen for IG primary shareholders, brothers William and Roberto Isaias, stated that the company has already settled its debt to the government in full. Both Isaias brothers, however, are currently in the United States and Ecuador is seeking their extradition on embezzlement charges, leading to suspicion surrounding their involvement.
Following the seizures on July 8 and 9, 2008, Financial Minister Fausto Ortiz resigned, citing disagreements with President Correa regarding the takeovers. Correa has already named a replacement, the former chief of the AGD.
Media Shutdowns
The new government control over the media stations has worried Correa’s critics, who fear that the actions are designed to suppress the freedom of expression. TC Television in Quito and Guayaquil and Gammavision in Quito, which in the past have both been critical of Correa, were both confiscated. The head of Gammavision, Alvaro Dassum, stated that the channel has nothing to do with the collapsed bank, and has no business ties to IG despite his status as a relative of the Isaias brothers. Dassum charges that the government only “wants to shut up media that has been dedicated to the truth.”
Freedom of expression groups, as well as international journalist organizations, expressed outrage over the takeover, and likened the AGD’s move to Venezuelan President Hugo Chavez’s past suppression of media within his country. However, conflicting reports indicated that the IG completely or partially owns both stations, placing them within bounds for confiscation, and it is unclear whether Correa took over the stations with ulterior political motives.
Correa’s Justification and Future Actions
Correa has defended the AGD’s actions, stating that the government intends to sell all the confiscated businesses as soon as possible to assist investors affected by the 1998 collapse recover their savings; the majority of bank customers have only recovered a portion of investments lost in the collapses. Correa stated on July 8, 2008 that the government, namely AGD, “took a key step to ending the nightmare of the great bank robbery that 10 years on, for the most part has gone unpunished.” On July 9, 2008, a government controlled assembly ordered a probe of additional companies owned by former shareholders of banks that closed during the meltdown, and government officials warned of additional takeovers “if necessary.”
While recent actions have incited fear in financial professionals, including the falling of Ecuadorian holdings on the New York markets in recent days, Correa is likely taking action now in attempts to regain decreasing approval ratings. By championing recent takeovers as attempts to help citizens affected in 1990s, Correa may experience a marginal increase in approval ratings, a necessary move for him to advance other political goals, such as a constitutional reform he is seeking.
Legal actions to determine the status of the companies and their availability will likely tie up the AGD in the near-term. As the exact terms and value of debts owed by various collapsed banks becomes known, additional firm seizures may occur in the near to mid-term.
