Index trend
Previous Quarterly Editions
Expropriation risk: 65 65 65 65 ► Political violence risk:51 51 51 51 ►Terrorism risk:68 68 67 65 ►Exchange transfer and trade sanction risk: 54 55 54 54 ►Sovereign default risk:65 65 65 65 ►
Overall Risk Temperature: 63 (Significant) TREND ►
Special topic: Relationship with the 'global rules-based order'
Ecuador has aligned more with the liberal international order since the departure of left-leaning former President Rafael Correa (2007 – 2017). His government's heterodox economic policies challenged the liberal order by criticizing free trade and occasionally implementing trade controls. It also withdrew from international mechanisms for resolving investor disputes, defaulted on foreign public debt and heavily relied on loans from Chinese agencies. His government has also tightened media regulations and supported alternative Latin American organizations such as the Bolivarian Alliance for the Peoples of Our America.
Since 2017, the country has been more clearly aligned with liberal international institutions. The Lenin Moreno (2017 – 2021) government abandoned heterodox economic policies and started a process of economic liberalization and fiscal consolidation. His government secured a US$4.2 billion loan from the International Monetary Fund (IMF) in 2019. This was followed by a US$6.5 billion loan in 2020, which replaced the earlier agreement. The right-wing Guillermo Lasso (2021 – 2023) government followed the liberal economic conditions attached to the IMF loan, which concluded in late 2022.
Loans from the IMF enabled the Moreno and Lasso governments to reduce their dependence on Chinese agencies for credit; however, the Lasso government increased its commercial ties with China by agreeing to a free trade agreement with the country.
The adherence of the Moreno and Lasso governments to liberal economic policies has generated significant social conflict and political instability, including two massive protests in 2019 and 2022 against economic liberalism and austerity policies.
The protest in 2022 started a concerted effort from the opposition to remove Lasso from office. Facing impeachment, Lasso dissolved parliament and triggered new elections in 2023.
Daniel Noboa won the 2023 presidential elections. He will serve until mid-2025, when the current presidential term ends and new elections will take place. He will almost certainly seek reelection, and his current approval ratings make him the favorite candidate to win a four-year term in office.
Noboa has continued along a similar path to Moreno and Lasso. He has aligned closely with liberal international institutions. His government is expected to agree to a new multi-billion-dollar loan with the IMF in the coming months. Noboa is seeking to amend the constitution in a referendum in April to facilitate international investor dispute settlements, a core liberal international institution.
The Noboa government has taken a tough line on criminal gangs connected to drug trafficking. This has involved closer security and military cooperation with the U.S., enhancing the military’s involvement in tackling crime and violence and declaring a state of emergency.
The government has bound the military to international humanitarian law; however, there are concerns that the militarization of the country is undermining human rights, especially in the prison system but also in relation to everyday life and popular protests.
A collapse of the liberal institutional order would give the Noboa government more freedom to ignore human rights concerns in its pursuit of maintaining social order while extending liberal economic reforms.
In early April, Noboa instructed the police to remove former Vice President Jorge Glas from the Mexican embassy in Quito after he had been granted political asylum by the Mexican government. The surprise move was widely condemned by overseas governments, including the U.S., for breaking the Vienna Convention on Consular Relations.
The political environment is volatile, and economic policies could change significantly if Noboa fails to win the 2025 elections.
TREND ►
Noboa has followed and extended the liberal economic policies of the Lasso government, and short-term expropriation risks are low. His government has worked hard to attract international investment, including introducing tax breaks, creating space for international investors in the energy and mining sectors, and attempting to change the constitution to facilitate international dispute settlements. It is also seeking a new loan with the IMF, signaling its intention to remain committed to economic liberalism and fiscal consolidation. The biggest risk of expropriation is in the oil and mining sectors because of widespread social opposition to these industries. Extortion by criminal groups is a risk, especially in the coastal regions and along the Ecuador-Colombia border.
Political violence has surged in Ecuador over the past five years. Political assassinations, threats and attacks have become commonplace, including the assassination of the presidential candidate Fernando Villavicencio before the first round of the presidential elections in August 2023. In response to a surge in crime and violence in early January, Noboa declared the existence of an armed internal conflict, introduced a state of emergency across the country and increased the role of the military in maintaining order. Crime and violence have fallen as a result of these measures; however, the security situation remains highly precarious, and the risk of political violence is elevated. Investigations into criminal groups have revealed links between drug traffickers and police, judges and politicians, indicating the challenge the Noboa government will face in addressing criminal activity.
As part of its clampdown on crime and violence, the Noboa government classified 22 criminal groups as terrorist organizations. This includes the Choneros, the Lobos and the Latin Kings, all of which have links with international drug cartels, especially from Mexico and Colombia. The government has increased military cooperation with the U.S. to help combat this threat. During her visit to Ecuador in January, General Laura Richardson of the U.S. Southern Command announced a $93 million package, which includes military equipment and military and intelligence training and exchanges. The government will increase military and defense spending this year; however, criminal groups linked to drug trafficking will continue to present a significant risk to internal security.
The Noboa government is firmly committed to dollarization, which was introduced in 2000. It is also a supporter of free trade and economic liberalism. The legislature has approved the Ecuador-China trade agreement agreed by the Lasso government and will come into effect this year. Noboa is likely to seek further trade agreements, especially if he wins the 2025 elections.
The 2024 budget is set to rise to $35.6 billion in 2024 — 13% more than the 2023 budget, partly because of increased military and defense spending. The budget deficit is expected to widen to $4.8 billion (4% of GDP). Public debt servicing will also increase, and the government will have to repay or refinance $6.6 billion in debt and liabilities in 2024. The total adjusted amount it will need to find to cover the budget deficit and debt obligations is $10.9 billion, nearly double the amount required in 2023. A new multi-billion-dollar agreement with the IMF will help plug this gap, and fresh credit from multilateral organizations such as the World Bank and Inter-American Development Bank is also likely to be forthcoming. The government has also raised value-added tax from 12% to 15%. The increase is not included in the budget, as it did not come into effect until April. This new tax revenue will fund the budget and military and security spending. The Noboa government will prioritize debt servicing, and a new IMF agreement will give international investors greater assurances.
