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Ecuador Living Update – Interesting Presidential Facts

October 4, 2007

One frequent concern readers express about Ecuador regards the political stability there.

Personally I quite like Ecuador ’s current President, Rafael Correa. Our last update began a series that shares seven reasons why I believe he could be a good leader.

Correa has been painted by a lot of the overseas press as a left wing populist, much like and allied with Hugo Chavez. Our first update reviewed how Correa’s background is totally different than that of Chavez or other ruthless South American leaders of the past such as Peron and Pinochet.

Correa is also scraping with the Ecuador press…but he is trying to break the power of the old boy’s network. This will not make him popular in many local realm.

Don’t we wish we could do that here?

So much goes on in politics and governments that we never know. Just today a New York Times article entitled “Secret U.S. Endorsement of Severe Interrogations” written by Scott Shane, David Johnston and James Risen said “A 2005 Justice Department opinion provided explicit authorization to barrage terror suspects with a combination of painful physical and psychological tactics, officials said.”

This is terrible and shows how much governments hide from its citizens. The article says, “When the Justice Department publicly declared torture “abhorrent” in a legal opinion in December 2004, the Bush administration appeared to have abandoned its assertion of nearly unlimited presidential authority to order brutal interrogations. But soon after Alberto R. Gonzales’s arrival as attorney general in February 2005, the Justice Department issued another opinion, this one in secret. It was a very different document, according to officials briefed on it, an expansive endorsement of the harshest interrogation techniques ever used by the Central Intelligence Agency. The new opinion, the officials said, for the first time provided explicit authorization to barrage terror suspects with a combination of painful physical and psychological tactics, including head-slapping, simulated drowning and frigid temperatures.”

Some government officials have pussy footed around saying that these guidelines are within US law, but torture is torture. Painful physical and psychological tactics is torture no matter how you try to mask this fact with words. The US as an economic (and hopefully moral) leader should be…no must be…above this.

I believe and fervently hope that most Americans abhor torture as much as I do and hopefully the American people will kick butt over this at the polls next November.

The point here however is that it is really hard to trust what politicians say. Instead we have to watch what they do and hope that we do not miss too much of the hidden stuff.

The process of observation has given me some positive feelings about Correa. Some of the things he has said made no sense. Yet his actions did.

For example early this year he threatened to default on Ecuador bonds.

On February 12, I wrote: The Ecuadorian government has coupon payments due on 15 February. Uncertainty on whether they will be paid has pushed up the yield on Ecuador bonds. International investments will be affected by this. Times like this are rich with fear and this fear usually creates international investments value via a fear premium. You can see the huge conflict of opinion by reading what a few analysts have said about Ecuador ’s new president. This speculation may be a good value because the premium you are paid to take the risk is higher than need be. Correa has the potential of something good.”

Ecuador did not default on February 15. On February 16th Ecuador bonds jumped about 20% in one day.

This leads me to Correa’s economic acumen and a view of where his true heart may be. He does have his Doctorate in economics and was finance minister of Ecuador before becoming president. He is labeled a populist and many say he may rob the rich to give to the poor. Yet his actions to date suggest not. Immediately after his election his mantra became “If we Ecuadorians wish to have more we must become more productive”.

The truth? From a politician?

Instead of creating government handouts to buy votes, he created a 555 economic plan makes a lot of sense to me. I asked Steve, our man in Ecuador , to tell us more. Steve wrote:

“Hi Gary, The 555 Plan is an idea to stimulate small business activity. Small business people can go to a state bank called Banco de Fomento and apply for a $5,000 loan at a 5% interest rate, payable over 5 years.

“In just the Ibarra branch of the state bank, since the spring, there have been 600 applications of which 420 have been approved and $2,100,000 has been lent.

“That paints an encouraging picture for the amounts loaned throughout the country – we can surmise that more than $100 million, possibly several hundred million, has been lent because Imbabura’s business activities definitely represent less than 10% of the country’s economy and possibly only 1-2 %.

“It’s too early for the results of this stimulus to be felt yet, but what can be surmised is that there is definitely a demand for loans at reasonable rates of interest amongst the small business community.

Steve”

There you have it…an Ecuadorian economic plan that makes sense. It may work or maybe not. I do not know. The plan may be efficiently administered or not. I do not know. The system may torpedo this even it its something good. I do not know.

What I do know is that this is not a populist give away. This is a sensible idea that fits well with what I have learned about investing and business over forty years. This could help Ecuador ’s economy and paints one more positive image in my mind about Correa.

Until next message good investing and life to you!

Gary

Come join us in Ecuador this November. See http://www.garyascott.com/catalog/ecuador-tours-november-2007

At the international investment and business course in Cotacachi we will review the five multi currency portfolios we created November 1, 2006. Here is how they have performed this year.

Portfolios 2007 Mar 27 June 28 July 20 Aug 17 Sept 28
Swiss Samba 16.15% 44.80% 45.84% 15.19% 44.40%
Emerging Market 12.81% 54.31% 67.67% 30.50% 103.22%
Dollar Short 20.12% 33.81% 40.31% 9.14% 42.71%
Dollar Neutral 16.58% 37.64% 38.07% 13.56% 34.74%
Green 86.86% 178.28% 214.15% 110.93% 220.22%

Note the performance of the Emerging Market Portfolio since last November, is up 103.22%.

The 2006 model Emerging Market Portfolio we created and tracked was up 114%.

I will conduct most of the November 9-10 and 11, 2007 course in Cotacachi but have also invited Peter Conradsen and Henrik Villumsen from Jyske Bank to speak and be available for private consultations (no added cost). Jyske Bank is one of the leading international investing and currency managers in the world. Their trading room process $50 billion of business a day. So this next course makes a huge amount of global investing information available to you.

P.S. I write and speak mostly from experience not theory. This means I have my own multi currency portfolio (and have for decades). At the upcoming course we will share our investing beliefs and introduce our 2008 model portfolios.

We continue with the Green Portfolio but to make comparisons with the other new sandwiches we reset the portfolio.

We continue with the Emerging Markets Portfolio but shift the leverage One times leverage to the Swiss franc and Singapore dollar.

We add an Infrastructure Portfolio of six shares leveraged two times with yen and Swiss franc loans.

We add a Blue Chip Portfolio of six shares leverage six shares leveraged two times with yen and Swiss franc loans.

We add a Danish Health Portfolio of six Danish companies leveraged one time with a Swiss franc loan.

Plus we are adding a sixth non leveraged Dollar Short Portfolio for dollar based investor.

Join us at our Hotel Meson de las Flores for our next three courses or just the International Business & Investing Made EZ in Ecuador , November 9-10 and 11. http://www.garyascott.com/catalog/IBEZec/

We also invest in global real estate and one of our purchases is the hotel, El Meson de las Flores , where we conduct our courses.

Delegates love the warm, colonial atmosphere so conducive to learning, the friendly staff and really low room rates ($49 to $69 plus 22% service and tax). This includes a delightful and huge breakfast including fresh squeezed tropical juice, fresh fruit, granola or quinoa, eggs, ham or bacon, toast and coffee, tea or herbal tea served Al Fresco in the sunny courtyard. Ecuador ‘s weather in November is normally perfect, 50 degrees at night and mid 70s during the day with full sunshine…a nice break from northern autumn’s grey.

You can see more about El Meson, where you can stay (subject to availability) during the course at http://www.successguidelines.com/ecuador_real_estate/ecuador_real_estate_62.htm