Soon to be Republica Bolivariana de Ecuador?

One of the advantages of investing into a local opportunity through Kiva is, that you, consciously or subconsciously, keep better track of what is going on in those countries in which you invested. And therefore, when things are happening in Ecuador, it jumps to the attention as more than half of my Kiva loans are in this country.

What happened?
Late last year, Ecuador elected a new president, Rafael Correa, who closely aligned himself with president Hugo Chávez Frias from the Republica Bolivariana de Venezuela (a.k.a. Venezuela), and with president Evo Morales from Bolivia. That fact alone is scary, as both Mr. Chávez and Mr. Morales have made it clear that they see a solution to poverty not in stimulating and formalizing production by the poor and creating opportunities for them to help themselves, but through mass nationalizations of the exploitation of natural resources, redistribution of wealth and other "give-aways". This will certainly help the poor a little bit in the short term, but will leave them without a way to fence for themselves, without an international market that can help them grow, and without a stable, self-sustaining economy in the medium and long term.

The first step that Mr. Correa is taking, comes right from the script of Mr. Chávez: dissolving parliament, and writing out a referendum to form a Constitutional Assembly in charge of rewriting the constitution. This constitution can then be taken as a guideline to take away any incentive the middle class could have to succeed, just like was done in Venezuela.

There is one interesting difference between Venezuela and Ecuador: a few years ago, Ecuador changed their coin unit to be the US Dollar. Although this doesn't mean that Ecuador therefore couldn't restrict foreign imports or dollar-flight, it possibly could dampen inflation a bit, since there is no way for the government to control the actual exchange rate. Inflation will be noticed by higher prices (due to scarcity because of import restrictions), without an accompanying increase of salaries: it's not the economy that grows, it's the articles that become less available. As a result, the poor will get poorer and the rich... well... I doubt that they will wait to take their assets out until Mr. Correa stops them.

There is another fundamental difference between Ecuador and Venezuela: Mr. Chávez can actually afford to be the way he is. As a major oil exporter of the world, the oil dollars that he receives, offset his spending spree up to a point where he feels comfortable giving away oil to the needier around him: Cuba, Haiti, Nicaragua, and... the poor in New York State and Massachusetts in the US! Ecuador, although not as needy as Bolivia, simply can't afford such a splurge.

That is was time to upset the corrupt power-balance of old in Ecuador, that's something to which many people can agree. However, to replace it by something that has proven to be disastrous time and again, simply hurts.

There is a thin silver lining around the cloud: When Mr. Correa's experiment goes awry, the Ecuadoreans have been know to quickly (and sometimes violently) replace their president: the country counted 8 presidents in the last 10 years...

See here and here and here for some related BBCNews stories.

What convinced me to make my latest Kiva.Org loan

I just invested my bimonthly installment of $25 into a cattle and rice farm called Hacienda la Maria, owned by Ivan Romero in Ecuador. What made this one stand apart from all others?

First, I should say that I am overinvested in Ecuador. Initially, I thought about investing in a pulpería in Honduras, mainly because I'd want to invest more in that country. However that one didn't really pass my loose "due diligence" standards: 12-16 months repayment period for a $750 loan means to me that the revenue generated from the venture isn't enough to make a real difference. If you can't pay back a $750 at a rate of $100-$150 per month, then you should think of ways to make more money of a business, or loan more money to drastically expand what you are doing.

So I was hesitant at first to invest another loan in Ecuador. Don't understand me wrong: my initial doubts were solely based on diversification. I think that Mifex is a FANTASTIC MFI, and I have built up a relationship via email with one of their principal loan officers and executives, Luis Crespo.

What pulled me over the brink was the expansiveness of the description. Simply great! There was a section on the geographical and safety risks, the background on why the associations were formed and how they would help guaranteeing repayment and reduce risks, as well as the simple opportunity description. Another factor was, that this business *can* repay $1200 in 7-11 months, and therefore his revenue (increase) will be well in proportions to the loan.

Are there other people putting in these criteria? I heard a rumor about a discussion on this at Pondering Pig's blog, I will have to check that out.

Finally - invested again

As I wrote before, I've had quite a lot of troubles finding a new investment opportunity for the second half of January. The offer of Latin American businesses was quite low, often even zero. I even emailed Luis at Mifex to ask if there were new businesses in the pipeline-- there were, he said, and obviously my patience worked out.

There were three businesses in need listed by Mifex:

1. Esperanza Mazon
2. Helen Minota
3. Jenny Cevallos

I chose to go with #3, Jenny Cevallos. Her story was simply the most compelling. I believe that Esperanza Mazon has a good chance of paying back, but her business approach seems too small to me for her to really progress. Also, 6-10 months for such a small amount seems a very slow repayment rate. Helen Minota's business seems good, although I am not sure about how she would run a business as a single mother with three kids. I hope her family will help her out with childcare, as it often happens in Latin America. And Jenny Cevallos, who got my vote, appears to be a serious and savvy business woman. Her husband is supportive and works, she looks very dedicated, and has invested time, effort, and money in her business and store.

Let's see in a few months how things are working out!