Hello everyone. My first post here. I've been in ARU since Apr-06 and have been building on that position since the strike at FDN. I haven't posted here, or on that "other" board, since I've had nothing material to add to the conversation until now.

I've gone over the new tax code and the reaction in the Ecuadoran press, and what I see doesn't look good. One item pretty much says it all: the estate tax. This won't generate much revenue since there's no more than a few hundred people affected by it. This is just pay-back, and it speaks volumes about the mentality of the people behind the legislation. Another item: the exit tax. Want to take money out? That will be .5% please. Doesn't sound too bad, but give it time. It will go up. It will have to, because there won't be any new money coming in. The idle land tax is another sad joke. Now we have the government telling us whether or not it's economical to plant? How about I put a few cows out there instead? Does that get me off the hook? Actually, I see a business opportunity here, moving cows around from one field to the next, just ahead of the tax appraiser. Don't laugh. People in Ecuador are very resourceful when it comes to avoiding taxes. I know that's true because The Strap said so.

From everything I've read and heard, these people are total amateurs that will run the country straight into the ground. Sure, Correa is an economist, but so is Alan Greenspan. In the end it means nothing. Just having a degree doesn't mean you can run a country, much less manage the factions within your own party, some of which are clearly anti-mining. Which brings up another point: Was there some quid-pro-quo here? Was this windfall tax attached at the last minute to get someone's cooperation in some other area? Sure seems like it, given that it came out of the blue and flies in the face of everything previously said. This suggests to me that Correa doesn't have nearly as much control as he likes to portray, even if Espinosa does think he's the Great Decider. Also, the vagueness of this new tax has been discussed, but what about the potential for corruption? If the windfall is calculated on a case by case basis... well, draw your own conclusions.

Unrelated to the tax code but in the same hamfisted style, forcing banks to lower interest rates, as currently proposed, will be a disaster for housing affordability. There's a real estate boom coming, and you can bet Correa's pals will be out in force, flipping condos to retired gringos. What better way to get ready than by forcing down interest rates? You want to see the rise of the middle class? Keep your eyes on Alianza Pais, people. There's your new middle class.

Next up we have... wait for it.... price controls! Could it be rising input costs that are causing consumables like milk and butter to go up? Why no, it's evil speculators and sinister monopolies trying to undermine our precious democracy! This is the height of paranoia, but entirely predictable, given the ideological slant of this govt. and it's fearless leader.

I also note that Correa is becoming more strident in his speeches. Seems like all this guy knows is how to campaign. Hey Rafael! Election's over man. You won, remember? Time for reconciliation and inclusion. That's what smart politicians do. My guess is, the man truly believes he's the salvation of Ecuador and it's going to take more than a few protests or consultations with industry leaders to disabuse him of that notion. In the end, he'll go the way of his predecessors after the pain of his "reforms" becomes too much to bear. Either that, or become a dictator like his good friend... well, you know.

So, given all that, how do we come up with a price for this thing? What's it worth under the worst case scenario, which I'd say we've now seen. Is it $10? $20? Is there even a buyer now? Will some giant like RTP or CVRD buy the whole package, and maybe Corriente to boot? Or maybe the Chinese can live with this? They're building a port. What's that for? In the end it's not about gold, it's about copper. That's the game as I see it. Like Chile and Peru, he who controls the copper controls Ecuador (now that they've killed the oil industry).

It was a nice thought while it lasted. A diverse, labor intensive mining industry comprised of many junior and intermediate companies, vocational schools, local support industries, pensions plans, even profit sharing and stock options for workers. If Starbucks can do it, why not us? I wouldn't mind being part of that - improving the lives of people in Zamora-Chinchipe and elsewhere. Hell, I'd invest even more in Ecuador if I saw things moving in that direction - maybe move down there to be closer to the action - buy a house next door to Keith Barron...heh!

Now what's left? Who the hell is going to invest under these conditions? Even if they roll back the tax grab, the idea is in place and can be revisited at any time. So, who would take that chance, given the length of time you have to tie up capital in these ventures? Now that they've killed a nascent industry, who but the giants can afford to operate there? Come to think of it, one or two mining giants could make a pretty big dent in their national debt in exchange for unlimited operating rights. Was this the plan all along? Have we been sold down the river?

Am I wrong here? Am I full of it? If so, I'd like to know. I have way too much at stake to let pride get in the way of sound judgement, and so like Presidente Correa, I humbly ask for your thoughts...LOL!

Thanks.

ebear