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Friday, 15 June, 2001, 09:33 GMT 10:33 UK
Ecuador counts cost of mudslides
Rescuers at the site of a landslide at Papallacta, 32 miles east of Ecuador's capital, Quito
Rescuers at Papallacta, where mudslides killed 36 people
By BBC News Online's Mike Verdin

For anyone wondering why the world's most prosperous countries tend to be sited outside the tropics, the disasters which have this week beset Ecuador provide a clue.

When parts of a country receive rainfall of up to 240 inches a year, as does Ecuador's northern coast, the term "favourable business conditions" takes on a more fundamental meaning.

Indeed, the weather can very easily become a matter of corporate, or political, life or death.

The ousting of Jamil Mahuad as Ecuadorian president last year followed an economic downturn prompted largely by acts of god - or of El Nino, "the Christ-child", to be exact.

El Nino, an annual climatic phenomenon of varying severity, in 1997-98 cost South American economies an estimated $20bn.

In Ecuador alone farmers lost $1bn in output, and the country put damage to bridges and roads at $800m.

But the term of his successor Gustavo Noboa had until the torrential rain of the last few days been largely free of meteorological extremes.

Now Mr Noboa leads a country in which hundreds of people have been left homeless, and at least 39 died as torrents of mud and rocks have carried away roads and houses.

The importance of oil

Financially, the storms have not only damaged agricultural land, but left the country without use of an oil pipeline which has acted as an economic umbilical cord.

The main oil pipeline in Ecuador has been damaged and cut
The main oil pipeline was cut, setting off fires
For while the country is to foreign economists most noted as the world's leading shipper of bananas, to Ecuadorians itself oil is a far more significant export.

Crude accounted for 44% of the country's exports last year, compared with bananas, which made up 17%, and shrimps, farmed at west coast sites, third with 5.6%.

So when Rodolfo Barniol, president of state-owned oil firm Petroecuador, warned that mudslides had left the pipeline out of action for 10 days, it was potentially a matter of serious economic concern.

The disruption is hitting oil exports to the tune of 120,000 barrels of oil a day, he said.

The good news for Ecuadorians is that, accordimng to Mr Barniol, the country should be able to recover the lost ground within three months of the pipeline, the Transecuadorean Pipeline (Sote), reopening.

The bad news is that this week's disruption is unlikely to be the last Sofe will suffer.

This week's leak was the 23rd within a 20-mile stretch of the pipeline since it was built 29 years ago.

New pipeline

It was unsurprising, then, that Ecuador's government only last week approved the construction of a second pipeline, which will not only help to guarantee oil supplies even in times of harsh weather, but boost the country's overall crude output at a time when Mr Noboa is attempting to underpin economic recovery.

Gustavo Noboa, president, Ecuador
Gustavo Noboa: backed new pipeline
Ecuador's economy barely grew in 1998, and contracted by 7% in 1999, as the country struggled under a downturn prompted largely by a banking collapse, itself catalysed by the ravages of El Nino.

But, once the new pipeline is built, the state will levy royalties at 23% on the oil carried, besides receiving extra corporation tax.

And the building of the pipeline will create thousands of jobs, in support services besides the construction industry itself.

Ecological concerns

One limitation of the deal is that it will, in the short term, do little to reduce Ecuador's economic dependence on crude, and the country's exposure to changing oil prices.

It will be a challenge for Mr Noboa to ensure revenues gained from the extra output are used to diversify an economy which remains so dependent on a small number of primary goods.

Another downside is that the pipeline poses a threat to an eco-tourism industry which ecological campaigners believe could be worth more than $600m over the next 20 years.

"The pipeline route chosen affects 11 protected areas, and cuts through the Mindo Nambillo Cloudforest Reserve," pressure group Amazonwatch said.

"This area is home to more than 450 species of birds - 46 of which are threatened by extinction."

The advantage of Ecuador's weather system is that, however economically disruptive, it has fostered the birth of a huge diversity of animal and plant species.

But until biodiversity can be easily converted into tangible riches, Ecuador, whose output is the equivalent of just $1,076 for every citizen, is likely to rely for economic growth on black gold rather than environmental wealth.

Like it or not, but oil represents a relatively stable earner for a country whose weather has proved even more volatile than the price of crude.

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See also:

13 Jun 01 | Americas
Ecuador landslide kills 36
07 Mar 01 | Business
EU-US banana war spirals
20 Feb 01 | Business
Ecuador adapts to the US dollar
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