The Chávez Model Threatens Ecuador

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No. 2, March 2011

Given Venezuelan leader Hugo Chávez's theatrical obsession with the limelight, it is easy to overlook the activities of other radical populist leaders in the Andean region. This is a dangerous oversight. In Ecuador, operating under the radar, Rafael Correa is imposing his own autocratic vision for his country's path to salvation. In doing so, he has made common cause with rogue international actors and criminal groups who care not a whit about the interests of the Ecuadorean people, but only about maximizing their destructive agendas. The Obama administration should disabuse itself of the notion that Correa is someone "with whom we can do business" and instead increase scrutiny of his activities in this critical region of the Western Hemisphere.

Key points in this Outlook:

  • President Rafael Correa is running roughshod over democratic institutions and the rule of law in Ecuador.
  • Corruption, weak institutions and anti-money-laundering laws, and lax anti-terror financing laws are making Ecuador a target for transnational criminal groups.
  • Iran is expanding its presence in Ecuador to blunt the impact of international sanctions.
  • Correa's suspect relationship with the Revolutionary Armed Forces of Colombia undermines the war on drugs.

 

While Correa may not share Chávez's flamboyant governing style, he most assuredly shares his objective of radically transforming his country and his methods of using the tools of democracy to undermine its foundations and subjugate the rule of law to his personal whims. In addition to their messianic zeal, the two leaders also share a lust for power, an intolerance of criticism, links to Colombian terrorist groups, and an affinity for international rogues like Iran. The Obama administration's belief that Correa can somehow be broken away from the Chávez fold misunderstands the centrality of confrontation and deepening radicalization to Correa's political project. Indulging Correa's antidemocratic actions for the sake of smiling photo ops not only compromises our values and principles, but also ill serves the interests of the Ecuadorean people, US national security, and the true democrats throughout the region.

Smashing the Old Order

Like Chávez, Correa rode into power on a wave of popular dissatisfaction with the old order and sees himself at the vanguard of a "citizens' revolution" to wage political and economic war against society's "enemies"--the political and business elites declared responsible for Ecuador's recurring crises. The themes are the same: breaking the power of the "political mafias" and others deemed corrupt, "reinventing" the legislatures and courts, and instituting "direct democracy," wherein the president channels the wishes of "the people" into action.

This means that traditional notions of democracy--based on independent institutions, checks and balances, and respect for individual rights--are seen as impediments to Correa and Latin America's other radical populists. In their self-professed goal to "refound" their countries, they see opposition as illegitimate, especially those identified with the old order, who are now denied a voice in their country's affairs. Following the pattern of fellow radical populists such as Chávez and Evo Morales of Bolivia, Correa rewrote Ecuador's constitution to extend his term in office, concentrate more political and economic power in his hands, and give himself the power to dissolve Congress and rule by decree if he deems it necessary.

War on the Media

Like Chávez, Correa views the independent media as an obstacle to his political project that must be defeated. In an August 2009 speech, he declared the Ecuadorean press "the biggest adversary with a clear political role, though without any democratic legitimacy."[1] Thus, he has waged an unremitting campaign of intimidation to control the means of communication.

It is not just a war of words, either. In December 2010, an elite police unit raided the offices of the Ecuadorean periodical Vanguardia, which had been investigating corruption in the Correa government.[2] Police seized computers and searched reporters' belongings. Likewise, the Tele-Amazonas television station was also subjected to systematic harassment. In August 2009, Correa demanded its closure for airing an audio tape that appeared to show Correa discussing how officials changed language in the new constitution after it had already been approved by the National Assembly.[3]

Indulging Correa's antidemocratic actions for the sake of smiling photo ops compromises our values and principles.

The Correa government has also used tax laws to take over privately owned stations and regularly threatens to shut down others.[4] At last count, the government controlled some twenty media companies, including three popular television stations (accounting at the time for about 40 percent of the country's nightly news audience) seized from the Isaias Group, a business conglomerate against which Correa has waged a particularly harsh vendetta.

Moreover, Correa is pushing a new media law--dubbed a "gag law" by critics--that would impose new restrictions on the media and increase government oversight of their content.[5] Media watchdog groups and international human-rights groups have criticized the measure as a threat to freedom of expression in Ecuador.[6]

Economic Stagnation

Correa's new constitution is profoundly anti-free market, giving the government increased expropriation powers and subjugating private enterprise to the "social interest." Moreover, Correa's fiery populist rhetoric and his repeated attacks on bankers, oil companies, and international bondholders have created a dreadful investment climate that is taking its toll on the Ecuadorean economy.[7] He has threatened foreign oil companies[8] with nationalization unless they renegotiate their contracts and has pressured bondholders to sell their holdings at substantial losses. (In 2008, Correa defaulted on more than $3 billion in global bonds--not out of necessity, but to make a political point, claiming that Ecuador's debt was illegitimate because it was incurred by previous corrupt governments.)

Not surprisingly, such moves have led to plunging foreign investment,[9] a widening deficit, and an unsustainable program of lavish spending on populist social programs. Because Ecuador's economy is dollar based, foreign investment is essential to economic growth, but Correa has further damaged the investment climate by rejecting the authority of the World Bank's International Centre for Settlement of Investment Disputes, dismissing the International Monetary Fund, and expelling the country's World Bank representative.

Given these circumstances, Ecuador's growth target of 5 percent in 2011 is wishful thinking; it would do well to achieve half that. The uncertain investment climate--brought on by Correa's attempts to assert greater control over the economy and resources--Ecuador's woeful debt record, and the absence of clear rules create a serious lack of confidence in international markets.

Corruption and Criminality

Under Correa, increased state control of the economy has produced new sources of corruption, which is ironic since Correa has made combating corruption central to his platform. The most conspicuous case under Correa's rule involves his brother, Fabricio Correa, whose company was accused in 2009 of signing some $167 million worth of government contracts under Correa's administration. (According to the new constitution, relatives of public officials are barred from government contracting.)

In the face of public pressure, Correa canceled the contracts and barred his brother from competing for state business. An incensed Fabricio responded by providing the Prosecutor General's Office his own evidence of corruption against Correa's cabinet members, including charges of taking millions of dollars in bribes for government contracts. The recriminations and investigations continue.[10]

In another high-profile case, the country's undersecretary of trade, Galo Borja, was forced to resign after it was revealed that his private company was doing brisk business with Iran, a flagrant violation of conflict-of-interest laws.[11] (Borja oversees Ecuador's bilateral trade negotiations.) According to Transparency International's 2009 Corruption Perceptions Index, Ecuador ranked 146th out of 180 countries.

It would be one thing if Ecuador's corruption problems were confined to Ecuador, but their implications extend beyond the country and have direct impacts on regional and inter-American security. As Germany's Deutsche Welle reported in 2010, as a result of pervasive corruption, weak institutions and anti-money-laundering laws, and nonexistent anti-terror financing laws, "Ecuador is emerging as a focus for transnational criminal groups, according to US and European officials. Colombian and Mexican drug traffickers as well as Chinese and African human traffickers use it as a business hub."[12] Concern about Ecuador, the report said, began in 2009 after an Ecuadorian government investigation following a Colombian air strike on a Revolutionary Armed Forces of Colombia (FARC) camp in Ecuador revealed that the drug-trafficking guerrilla group had thoroughly penetrated Ecuador's government and judiciary.

The Correa government has also come under scrutiny by the Paris-based Financial Action Task Force (FATF), a multilateral organization that combats money laundering and terrorist financing. In February 2010, it placed Ecuador on a list of countries that failed to comply with its regulations, a listing sparked primarily by a December 2008 deal whereby the Export Development Bank of Iran (EDBI) offered to deposit $120 million in the Ecuadorean Central Bank to fund bilateral trade.[13] EDBI was sanctioned in October 2008 by the US Treasury Department for helping finance Iran's weapons of mass destruction programs.[14]

The concerns over Ecuador's threats to the international financial system are unlikely to die down anytime soon. Recently, the Correa government named a far-left lawyer with known connections to the FARC, Gustavo Iturralde, as the director of the new Financial Analysis Unit.[15] Also, last December, the US brokerage firm TD Ameritrade, concerned about running astray of terrorist-financing laws, informed clients in Ecuador that it was severely restricting the types of transactions they could perform, a virtual "sell only" order.[16]

The Iran Connection

Given the dim prospects for the Ecuadorean economy, Correa has sought out new economic relationships to finance his needs through bilateral loans and credit--in particular, with Iran and China.[17] In the case of Iran, Correa has cultivated strong ties and has aided and abetted its campaign to evade UN sanctions over its nuclear program. With an invitation brokered by Chávez, Iranian president Mahmoud Ahmadinejad was a "special guest" at Correa's 2007 inauguration, and Correa followed with a visit to Tehran in December 2008, when a host of agreements were signed, including the establishment of reciprocal embassies. Since then, commercial and political ties have soared.[18]

Correa has been defiant in his embrace of the Iranian regime. He proclaimed that "[Ecuadorians] have nothing against Iran. Iran has done nothing to us,"[19] and that he was "not going to stop getting closer to Iran because [the United States] has it on a black list."[20]

Ecuador-Iran ties were reaffirmed in a September 2010 telephone call between Correa and Ahmadinejad, when Ahmadinejad said that "Iran and Ecuador enjoy deep, brotherly relations" and no one could break their bonds of friendship.[21] Earlier that month, Ecuadorean foreign minister Ricardo Patiño met with Ahmadinejad at the UN General Assembly in New York, telling him, "Ecuador shows special reverence for Iran and calls for the increase of co-operation for the two countries at all levels."[22] In July 2010, Ecuador joined Venezuela, Cuba, and others of the Chávez-sponsored Bolivarian Alliance for the Americas in condemning UN sanctions on Iran and expressing support for Iran's nuclear program.[23]

But Iran is no doubt expecting more than political support from its newfound friendship with Ecuador. As noted above, prospects for Iranian money laundering should raise alarms, as well as the benefits to Iran of new commercial opportunities to blunt the impact of international sanctions over its illegal nuclear program. In December 2009, Iran and Ecuador finalized a $30 million deal to conduct joint mining projects in Ecuador that appears to lay the groundwork for future extractive activities.[24] The fact that Ecuador possesses uranium raises troubling questions about whether Iran is attempting to gain access to resources critical to Tehran's rogue nuclear program.

"Deep, brotherly" relations between Ecuador and Iran also bring into the picture another troubling possibility: an expansion of Hezbollah's presence in the region. Iran-Hezbollah conspiracies to promote terror in the Western Hemisphere are not unknown. In 1992 and 1994, Iran conspired with Hezbollah on two bombing attacks on Jewish targets in Argentina, killing more than one hundred and injuring hundreds more. It hardly strains credulity to posit that an expansion of Hezbollah assets in the Andean region could serve the Iranian regime well should there be US military action against Iran over its nuclear program. Short of overt violence, the expanding Hezbollah presence allows it to profit handsomely from the lucrative narcotics trade.

An expansion of Hezbollah assets in the Andean region could serve the Iranian regime well should there be US military action against Iran over its nuclear program.

Hezbollah's involvement in drug trafficking in the Americas is well documented.[25] What is new, however, are Iran-friendly governments in Venezuela, Bolivia, and Ecuador that are providing accommodating environments for Hezbollah to expand its drug-trafficking involvement in the Andean region and up into Mexico. In March 2009, Admiral James Stavridis, then head of US Southern Command, testified in the US Senate, "We have seen in Colombia a direct connection between Hezbollah activity and the narco-trafficking activity. We see a great deal of Hezbollah activity throughout South America, in particular."[26]

In October 2008, Colombian and US investigators broke up an international cocaine-smuggling and money-laundering operation that authorities said used part of its profits to finance Hezbollah.[27] In March 2009, current and former US officials told the Washington Times that Hezbollah is using the same routes as Mexican cartels to smuggle drugs and people into the United States and raising money to finance its operations.[28]

The growing Iranian presence in the Western Hemisphere was noted by Secretary of Defense Robert Gates, who told the Senate Armed Services Committee in January 2009, "I'm concerned about the level of, frankly, subversive activity the Iranians are carrying on in a number of places in Latin America, particularly South America and Central America. They're opening a lot of offices and a lot of fronts behind which they interfere with what is going on in some of these countries."[29]

The Drug Problem

This dangerous game that Ecuador is playing with Iran--and, by extension, its drug-dealing client Hezbollah--takes on more significance when juxtaposed against unanswered questions about the Correa government's relationship with drug-dealing guerrillas in neighboring Colombia. For years, FARC operatives in southern Colombia have sought refuge in Ecuadorean territory and supplies for both military operations and cocaine production--to the great frustration of the Colombian government. Questions about the Correa government's complicity in FARC activities in Ecuador were laid bare in the aftermath of the Colombian air strike on a FARC camp in Ecuador that killed the FARC's second-highest-ranking commander, Raul Reyes, on March 1, 2008. Colombian commandos seized a treasure trove of FARC documents and computers that revealed devastating information about its intimate ties to both the Correa and Chávez governments.

Investigative journalist Douglas Farah, who has extensively researched the Reyes trove, writes:

There are indications from the FARC documents that the Colombian group donated heavily to Correa's campaign. It is also clear that he developed a close relationship with the FARC in the first 15 months of his presidency. This included meetings between Correa's personal envoys and cabinet ministers that touched on changing military and police commanders in the border zone where the FARC was most active, in order to help the FARC.[30]

True to form, Correa angrily denounced charges he had ties to the FARC, but offered no explanation as to why his name and those of other high-ranking Ecuadorean officials repeatedly appeared in FARC communications. Correa's lack of clarity and transparency and his propensity to airily dismiss the implications of the FARC's penetration of Ecuador are made more disturbing by the fact that a pillar of Correa's presidential campaign was the closing of a US-operated counternarcotics base in Manta, Ecuador. In 2009, he ordered the expulsion of two US diplomats involved with US counternarcotics assistance to Ecuador.

Implications for US Policy

Correa's popularity in Ecuador remains high, as his governing style of permanent confrontation and attacking the old order continues to resonate with his radical base. But that is cold comfort to the long-term interests of the Ecuadorean people. As Chávez is discovering in Venezuela, a day of reckoning will inevitably come when voters will recognize that antidemocratic behavior, discredited statist economic policies, and ostentatious posturing are no prescriptions for economic growth, security, or stability. Similarly, most Ecuadorians will rue the day their country played witting host to the likes of Iran, Hezbollah, and other criminal groups. Their stock in trade is just that--criminality--and once they establish roots, they are difficult to eradicate, as their tentacles spread through the country's institutions and companies, corrupting everything they touch. They are a plague not only on Ecuador, but on the entire region.

Given the blind alley to which Correa is leading the Ecuadorean people, and the regional threats from the expanding presence of Iran and other criminal groups, what not to do is as important to US policy as what to do. As noted above, it is counterproductive to tolerate Correa's antidemocratic actions in the name of "righting past wrongs," or to be intimidated into inaction by his "anti-imperialism" rhetoric, in the hope that some sort of separate peace can be established with his government.

While the Ecuadorean people will experience soon enough the fallout from the false promises of the radical populist, it is important that the United States not be seen as an enabler of this destructive process. Instead, the United States should consistently and repeatedly counter the radical populist siren song, speak out against abuses of power and threats to democracy and the rule of law, demonstrate solidarity with true Ecuadorean democrats, and emphasize the growing threats to regional security posed by international criminal groups.

The Obama administration should also take action by denying travel visas to the United States to any and all Ecuadorians implicated in illicit activities such as trade with Iran, money laundering, or ties to illegal armed groups such as Colombia's FARC. It should also press regional heavyweights like Brazil to better appreciate the implications for inter-American security of Correa's dubious relationships with Iran and the FARC.

Finally, the administration should be unabashed about steadfastly reinforcing the United States' vision of free individuals and free markets as the only path to stability and prosperity. The laws of economics tell us the luck of the radical populists will run out, but the less damage they do for their people, the better for all citizens of the Americas.

José R. Cárdenas is a contributor to AEI’s Venezuela-Iran Project. He served in several senior foreign policy positions in the George W. Bush administration (2004–2009) and is currently an associate with the Washington, DC-based consulting firm Vision Americas.

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Notes

1. United Nations High Commissioner for Refugees, "Freedom of the Press 2010--Ecuador," September 30, 2010, www.unhcr.org/refworld/docid/4ca44d981e.html (accessed March 14, 2011).

2. "Ecuador's Media: Just Collecting the Rent, Really," The Economist blog, December 22, 2010, www.economist.com/blogs/americasview/2010/12/ecuadors_media (accessed March 14, 2011).

3. US Department of State, "2009 Human Rights Report: Ecuador," March 11, 2010, www.state.gov/g/drl/rls/hrrpt/2009/wha/136111.htm (accessed March 15, 2011).

4. Committee to Protect Journalists, "Attacks on the Press in 2008: Ecuador," February 10, 2009, www.cpj.org/2009/02/attacks-on-the-press-in-2008-ecuador.php (accessed March 14, 2011).

5. Lindsay Green-Barber, "Ecuador's Proposed Communications Law," Americas Quarterly blog, November 18, 2010, www.americasquarterly.org/node/2002 (accessed March 14, 2011).

6. Inter American Press Association, "Reports and Resolutions: Ecuador," www.sipiapa.com/v4/index.php?page=det_resolucion&asamblea=26&resid=658&idioma=us (accessed March 14, 2011); and Human Rights Watch, "Ecuador: Amend Draft Communications Law," December 15, 2009, www.hrw.org/en/news/2009/12/15/ecuador-amend-draft-communications-law (accessed March 14, 2011).

7. A March 2011 Deloitte & Touche survey found that Ecuadorean business confidence continued at a three-month low. Thirty-eight percent of executives have a "negative" economic outlook for the first half of 2011, compared with 26 percent who are "positive." Foreign investment is unlikely to increase this year, according to 97 percent of respondents. See Nathan Gill, "Ecuador Trade Accord Expiration Hurts Business Confidence, Deloitte Says," Bloomberg.com, March 7, 2011, www.bloomberg.com/news/2011-03-07/ecuador-trade-accord-expiration-hurts-confidence-deloitte-says.html (accessed March 15, 2011).

8. Ecuador, an oil producer, is the smallest member of the Organization of Petroleum Exporting Countries.

9. According to the Inter-Development Bank, foreign investment in Ecuador fell to $312 million in 2009, down from $1 billion in 2008.

10. In a further twist, Fabricio has indicated he may run against his brother in the 2012 national election, campaigning on a platform of anti-Chavismo and reducing street crime. He says, "Statistics say that nobody wants a Venezuelan model, where food goes to waste, there is no drinking water and Caracas has become [one of the] most violent cit[ies] in the world." See César Morales Colón, "Rafael Correa's Brother Says Ecuador Adopting Venezuela's ‘Fascist Model,'" Infosurhoy.com, July 16, 2010, www.infosurhoy.com/cocoon/saii/xhtml/en_GB/features/saii/features/main/2010/07/16/feature-01 (accessed March 15, 2011).

11. Naomi Mapstone, "The Politics of Ecuadorean Bananas," Financial Times blog, June 1, 2010, http://blogs.ft.com/beyond-brics/2010/06/01/the-politics-of-ecuadorean-bananas (accessed March 15, 2011).

12. James M. Dorsey, "Ecuador Emerges as Hub for International Crime," Deutsche Welle, February 2, 2010, www.dw-world.de/dw/article/0,,5201759,00.html (accessed March 15, 2011).

13. Mercedes Alvaro, "Ecuador Won't Work with Sanctioned Iranian Banks--Correa," Dow Jones News, June 1, 2010, www.advfn.com/news_Ecuador-Wont-Work-With-Sanctioned-Iranian-Banks-Correa_43052854.html (accessed March 15, 2011). After furious lobbying by the Correa government and a promise to address deficiencies, the FATF delisted Ecuador in June 2010. By October 2010, however, FATF issued a new negative opinion, saying that deficiencies remain despite some progress. See Analytica Investments, "Ecuador Weekly Report," February 21-25, 2011.

14. US Department of the Treasury, "Export Development Bank of Iran Designated as a Proliferator," news release, October 22, 2008, www.treasury.gov/press-center/press-releases/Pages/hp1231.aspx (accessed March 15, 2011).

15. Analytica Investments, "Ecuador Weekly Report," February 7-11, 2011.

16. Analytica Investments, "Ecuador Weekly Report," February 21-25, 2011.

17. China is reportedly providing Ecuador $1.7 billion to finance a massive, and controversial, hydroelectric dam project. The unprecedented loan amount and the project have been criticized in Ecuador as "severely overpriced" and technically and environmentally "unsound." See Gonzalo Ortiz, "Chinese Loan for Dam Draws Fire," Inter Press Service, June 22, 2010, http://ipsnews.net/news.asp?idnews=51914 (accessed March 15, 2011).

18. For more information on Ecuador-Iran economic ties, see Ariel Farrar-Wellman, "Ecuador-Iran Foreign Relations," IranTracker, February 27, 2010, www.irantracker.org/foreign-relations/ecuador-iran-foreign-relations (accessed March 15, 2011).

19. "Iran Keen to Invest in Ecuador's Oil Sector," Fars New Agency, July 20, 2008.

20. "Ecuador President Heads for First-Ever Official Visit to Iran," Agence France Presse, December 4, 2008.

21. Presidency of the Islamic Republic, "Iran, Ecuador Presidents Call for Further Ties," September 30, 2010, www.president.ir/en/?ArtID=24252 (accessed March 15, 2011).

22. Presidency of the Islamic Republic, "President Meeting Foreign Minister of Ecuador: The Brotherly Relations of the Two Countries Are in Favor of the Two Nations and the Whole Region," September 23, 2010, www.president.ir/en/?ArtID=24065 (accessed March 15, 2011).

23. Renata Giraldi, "Venezuela, Bolivia, Cuba, Ecuador and Nicaragua Announce Support for Iran's Nuclear Program," Offnews.info, July 16, 2010, www.offnews.info/verArticulo.php?contenidoID=23574 (accessed March 15, 2011).

24. José R. Cárdenas, "Iran's Man in Ecuador," Shadow Government blog, February 15, 2011, http://shadow.foreignpolicy.com/posts/2011/02/15/irans_man_in_ecuador (accessed March 15, 2011).

25. The Drug Enforcement Administration has tracked Hezbollah's links to drug trafficking in the tri-border area of Brazil, Argentina, and Paraguay since the late 1980s or early 1990s. See Drug Enforcement Administration, "Transnational Drug Enterprises (Part II): Threats to Global Stability and US Policy Responses," March 3, 2010, www.justice.gov/dea/pubs/cngrtest/ct030310.pdf (accessed March 15, 2011).

26. "US Military Commander Warns of Iran-Hezbollah Influence in Latin America," Voice of America, March 17, 2009, www.voanews.com/english/news/a-13-2009-03-17-voa44-68678507.html (accessed March 15, 2011).

27. Chris Kraul and Sebastian Rotella, "Drug Probe Finds Hezbollah Link," Los Angeles Times, October 22, 2008.

28. "Hezbollah Uses Mexican Drug Routes into US," Washington Times, March 27, 2009.

29. "Gates Warns of Iranian Influence in Latin America," Voice of America, January 28, 2009, www.voanews.com/english/news/a-13-2009-01-27-voa65-68761592.html (accessed March 15, 2011).

30. Douglas Farah, "What the FARC Papers Show Us about Latin American Terrorism," NEFA Foundation, April 1, 2008, www.nefafoundation.org/miscellaneous/FeaturedDocs/nefafarc0408.pdf (accessed March 15, 2011).

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