On August 20, 2023, Ecuador voted against continued oil extraction in the Yasuní region of the Amazon rainforest. But what does this mean for the economy of the country?

With nearly 59% of people in favour of a halt to drilling, Ecuador has voted to keep oil under the ground in the Ishpingo-Tambococha-Tiputini (ITT) oil project (or block 43) area of Yasuní National Park.

The Amazon rainforest is the largest and most biodiverse zone on Earth; it spans several countries in South America, including Brazil, Peru, Colombia and Ecuador, covering an area of roughly 6.7 million square kilometres. To put this into context, the United Kingdom is roughly 243,610 kilometres squared (roughly 28 times smaller). The ecologically significant rainforest is also home to more than 30 million people and 10% of all known species on Earth. 

However, this ecosystem sits at the centre of a contentious debate as economic interests clash with the need for environmental preservation. At the centre of this debate is the issue of oil extraction, a practice that promises economic growth for nations but also raises pressing questions about environmental sustainability, indigenous rights and economic prosperity in developing countries.

As the global demand for energy continues to rise, governments and large corporations are increasingly turning to the region’s vast oil reserves. While this undoubtedly increases global economic growth and job opportunities for local communities, the pursuit of such immediate economic gains comes at a high price.

In what is described by Pedro Bermeo, spokesperson for Yasunidos, an anti-extractivism campaign group, as a “milestone in the history” of the country, Ecuador has voted against continued oil mining in Yasuní National Park. Located in eastern Ecuador, the Yasuní region is one of the most biodiverse places on the planet. The referendum result is certainly an environmental victory for Ecuador, but with such a heavy reliance on oil for their export earnings, it calls into question the future state of Ecuador’s economy.

Extractivism in Latin America

Extractivism is the removal of raw materials from a country’s natural resources, which are then sold globally with minimal processing. Rooted in neoliberal strategy, extractivism has increasingly become a crucial part of several Latin American economies, including Ecuador’s. 

Before neoliberal governments came into power in the 1980s and 1990s, the Economic Commission for Latin America and the Caribbean (CEPAL) organisation was already focused on the idea that the exploitation of the primary commodities by foreign powers in Latin America was responsible for poor economic growth and the continual underdevelopment of the region. This idea was summed up by Raul Prebisch in his Dependency Theory

Then, at the turn of the 21st century, a shift in Latin American politics towards the left swept across the region. The so-called ‘Pink Tide’ governments that came into power sought to move away from the neoliberal economic model of the nineties and instead put social welfare programmes at the top of the agenda. Increased social welfare, however, required vast amounts of capital to fund, meaning that as the pink tide came in, a return to dependence on foreign money came with it. Global superpowers like China and the United States were happy to oblige, offering international loans to Latin American governments in return for access to their supply of oil. Thus, the extractivist policies were exacerbated, and a heavy dependency on oil in the region was locked in.

This focus on extractivism in Latin American economies can therefore be explained by the underdeveloped and disadvantaged position that they were kept in through the ‘informal empires’ of foreign powers — postcolonial Latin American countries became part of the Western economic market exclusively for the production and exportation of raw materials. Furthermore, there is extensive debate surrounding the idea of rapid modernisation — once a country becomes independent from the shackles of the modernisers, the only method of wealth creation learned is to exploit their own resources to export. 

“I don’t like mining (…) but it’s impossible to think of modern life without mining and it would be irresponsible not to use those resources (…) they can be key to fight[ing] poverty.”

In 2013, for example, in Ecuador, President Rafael Correa faced criticism when he abandoned a conservation initiative that aimed to preserve the oil in the ITT area of the park in exchange for $3.6 billion in compensation. However, after six years only $200 million had been committed by the global community. Consequently, Correa justified his decision to permit oil drilling in the area once more — Ecuador needed to generate funds to alleviate poverty, after all. 

Correa, speaking at an international news conference, said “I don’t like mining (…) but it’s impossible to think of modern life without mining and it would be irresponsible not to use those resources (…) they can be key to fight[ing] poverty”. The protection of the park could have prevented the release of around 407 million metric tonnes of CO2 emissions and a further 800 million metric tonnes by avoiding deforestation. 

Yasuní: disaster to victory

99.73% of Yasuní National Park is made up of original natural vegetation, making it one of the most biodiverse places on Earth and a world biosphere, as classified by UNESCO. There are also estimated to be more than 846 billion barrels of oil beneath the ground, accounting for around 20% of all of Ecuador’s oil reserves. 

Thus far, there has been huge environmental damage as a result of neo-extractivism in this region of the Ecuadorian Amazon: over 689 hectares of land in Yasuní have fallen victim to deforestation, and, last month, state-owned oil company Petroecuador spilt 1,200 barrels of oil on the northern coastline, affecting both indigenous communities and local wildlife. In fact, over the last decade, there have reportedly been over 1,000 oil spills that have polluted the surrounding ecosystem and contributed to the destruction of such an incredibly biodiverse area of the world. 

The referendum outcome is a huge success for the Yasunidos group, which campaigned heavily for a ‘yes’ vote. It is also a success for the climate and our planet, as well as for the indigenous communities, including the Tagaeri and the Taromenani — the world’s last two communities living in isolation — who live within Yasuní. 

By becoming one of the first countries in the world to establish constraints on resource extraction through a democratic vote, Ecuador has not only prioritised environmental health over short-term economic gains but also made history in the process. To Bermeo, the vote symbolised “the defence of Indigenous peoples and nationalities, the defence of life”.

A New Economic Model?

Since 2009, Ecuador has borrowed vast amounts of money from Chinese banks on the condition that they sell crude oil back to China to cover these loans. As a consequence, Ecuador was pushed to intensify its focus on oil extraction, and deals were then made with Chinese companies, giving them influence over oil-abundant areas such as ITT Block 43. As it stands, Ecuador owes China $5 billion, 41.5% of which is tied to oil payments (the equivalent of around 120 million barrels of oil).

In 2019, 90% of oil exports sent to China were loan repayments. After using this loan money to fund infrastructure and social programmes, Ecuador had to borrow a further $10 billion from the International Monetary Fund (IMF),  an organisation dominated by the U.S., which is its largest contributor, in 2019 and another $6.5 billion in 2020.

Oil is crucial to supporting Ecuador’s economy, and it is dependent on these reserves to sustain its position on the world stage. 36% of Ecuador’s export earnings come from crude oil, its largest export. This has left Ecuador’s economy in a vulnerable position because of its over-reliance on the production of a primary commodity to export, thereby limiting sustainable development within the region. 

Considering that the Yasuní-ITT region is the most prolific of all of the oil fields in Ecuador, the country’s economy is under pressure as it contemplates a future economic model with reduced dependence on oil exports as well as having to navigate foreign debt. 

If Ecuador’s reliance on oil decreases, then it is crucial for them to consider potential austerity measures in the country and alternative development strategies as they attempt to diversify their economy. 

This scenario underscores the problems of rapid modernisation; it is clear to see how difficult it can be for a developing country, condemned to the resource curse, to remain integrated in the global market in any other way than as a global supplier of raw materials. There is a chance that with a reduced reliance on oil and a new economic model, Ecuador will simply increase its debt — a less than ideal scenario. 

It is important to be cautiously optimistic when considering the economic outcome of potentially reduced oil exports. With a new economic strategy comes the risk of (re)entering a cycle of escalating debt and loans that could impact the stability of Ecuador’s economy in the longer term.

Once the Pink Tide governments came into power, a key concept that they attempted to implement was that of Buen Vivir (which roughly translates to ‘good living’). It is an alternative to neoliberal policies that focuses on the collective (as opposed to a strong focus on individual rights) and on the relationship between human beings and between humans and nature. Eduardo Gudynas, a prominent scholar on Buen Vivir, suggests that it can be put into practice, particularly through agriculture; he argues small-scale production offers various advantages, such as the inclusion of local communities, environmental protection and a stronger alignment with local needs. He says this shift to a more localised production could challenge the dominance of large-scale industrial agriculture that caters for global export markets, and thus South American countries can focus more on regional export markets; “this would imply a certain disconnection of South America as an exporter of primary commodities for the global economy. It also implies extracting only the amount of natural resources that we need to demand in the continent itself.”

While some aspects of Buen Vivir have been implemented, such as a strong focus on social welfare initiatives, the mass production of oil and reliance on hefty international economic assistance have meant that its key message has gotten lost. Perhaps if Ecuador focused more on how Buen Vivir could be implemented practically and largely removed itself as a global supplier of primary commodities, they could become more economically independent and have a more positive effect on the environment. 

Nonetheless, from an environmental standpoint, the referendum outcome is an overwhelming victory for Ecuador and undoubtedly marks a positive step for our planet in the direction of global environmental preservation.

For more on extractivism and its impact on Latin American countries, there is an excellent book written by Eduardo Galeano, ‘The Open Veins of Latin America’, which I would highly recommend.