August 19, 2005

Ecuador warns protesters, country seeks oil loan

By Carlos Andrade and Alexandra Valencia

QUITO, Ecuador (Reuters) - Ecuador's government warned on
Friday that troops could open fire to quell protests that have
crippled oil output and forced the country to ask Venezuela for
a loan of crude oil so it can keep up exports.

The protests in two Amazon provinces pushed U.S. crude oil
futures up $2 above $65 a barrel in New York on Friday. Ecuador
is usually South America's fifth-largest producer of crude oil
and, after Venezuela, the second-largest South American
supplier of oil to the United States.

State-owned Petroecuador said it was slowly resuming oil
production as troops took control of installations in Sucumbios
and Orellana provinces.

But an official said Ecuador would ask Venezuela to lend it
crude oil so it can meet export commitments.

Security forces arrested the highest profile protest
leader, Guillermo Munoz, who occupies the senior elected post
of prefect of Sucumbios, the armed forces said.

Soldiers are authorized to use firearms against protesters
who began to invade oil camps, sabotage equipment and block
highways on Monday, new Defense Minister Osvaldo Jarrin said
just hours after he took over the job.

"If strategic installations are being attacked or there is
an attempt to destroy or sabotage them, maximum force will be
applied, depending on the situation. They can even open fire in
self-defense," Jarrin told a news conference.

President Alfredo Palacio appointed Jarrin, a retired army
general, on Friday after he asked his predecessor Solon
Espinoza to resign over his handling of the worst crisis since
Palacio took office in April.

The government declared a state of emergency in the Amazon
provinces on Wednesday.

The protesters are demanding foreign oil companies
operating in the region provide financing for infrastructure
projects and more job opportunities.

Demonstrators also want the government to renegotiate
contracts with Occidental Petroleum Corp., Petrobras and EnCana
Corp., to raise state participation.

Troops fired tear gas at protesters who tried to free the
mayor of the jungle city of Lago Agrio from a police station on
Friday, local radio reported.

Army Gen. Gonzalo Mesa told Reuters the situation in Lago
Agrio was "manageable."

Troops have retaken control of local airports and were
clearing obstacles left on the runways, he said.


Ecuador will seek a $400 million emergency loan from the
Latin American Reserve Fund to avoid balance of payments
problems resulting from the protests and import $140 million
worth of fuel, Economy Minister Magdalena Barreiro said.

Petroecuador suspended its exports on Thursday, declaring
force majeure -- a contractual clause invoked in case of events
beyond the company's control. Most of its exports go the United

The company resumed output at 27,613 barrels per day on
Friday, it said.

But its production will only return to its normal 200,000
bpd in November, Barreiro said.

Ecuadorean Foreign Minister Antonio Parra would ask
Venezuelan President Hugo Chavez for an oil loan at a meeting
in Cuba on Friday, Barreiro said.

"We need the crude loan for us to be able to export and
partly normalize our exports," she said, without saying how
much oil Ecuador wanted.

Ecuador will meet its debt liabilities despite the protest,
Barreiro said.

Ecuador defaulted on foreign bonds in 1999 but has since
grown strongly with low inflation, partly thanks to the
introduction of the U.S. dollar as currency in 2000.

The government has accused former President Lucio
Gutierrez, who was sacked by Congress in April and is now in
Peru, of being behind the demonstrations.

But Palacio himself might have helped trigger the protests
by inflaming popular expectations with moves including
diverting money from a fund previously destined for debt
payments to pay for social programs, according to Alberto
Ramos, an economist at Goldman Sachs in New York.

These moves have been harshly criticized by foreign bond

The government is "extremely vulnerable to social activism
and other rent-seeking pressures," Ramos said in a research

Three Ecuadorean presidents have been toppled amid popular
unrest since 1997.