Index trend
Previous quarterly editions
Expropriation risk: 65 65 66 66 ► Political violence risk:51 51 50 50 ►Terrorism risk:68 67 65 50 ▼Exchange transfer and trade sanction risk: 54 54 54 54 ►Sovereign default risk:65 65 65 65 ►
Overall Risk Temperature: 63 (Significant -1) TREND ►
Special topic: Gray zone aggression
Degree to which the country relies on outbound grey zone action to achieve its strategic objectives1 = Not at all5 = Gray zone action is a core tactic
2
Impact of inbound gray zone attacks on the country1 = Negligible impact5 = Significant impact on economic growth and/or political stability
Ecuador does not have the economic, military or intelligence capability to engage in significant gray zone aggression against other countries. This is especially true since the former President Rafael Correa (2007 – 2017) left office, and his successor, Lenin Moreno (2017 – 2021), dismantled the national intelligence services, cut security spending and became more reliant on the United States for military and intelligence support.
The current president, Daniel Noboa, who replaced Guillermo Lasso in 2023, has followed a similar approach but has increased military spending in response to escalating crime and violence linked to the trafficking of cocaine. The president has also strengthened military and intelligence ties with the U.S. and has recently proposed changing the constitution to allow foreign military bases in Ecuador, which could allow the U.S. to increase its military presence in the country.
While this cannot necessarily be labeled gray zone aggression on the part of the U.S., Washington has successfully strengthened its influence over Ecuador over the past seven years. This has increased the role of the U.S. in confronting the gangs and cartels that are involved in the trafficking of cocaine in the country.
Noboa declared the existence of an armed internal conflict in January and classified 22 criminal groups as terrorist organizations. This includes the Choneros, Lobos and Latin Kings, all of which have links with international drug cartels, especially from Mexico, Colombia and Albania. All of these groups have engaged in adversarial action aimed at harming the Ecuadorian state, including political assassinations and infiltrating local governments, state agencies and the judicial system.
Ecuador has arguably also experienced some gray zone aggression from China, including industrial-scale fishing around the Galapagos Islands, which has proved difficult to control in the context of unequal economic relations between the two countries.
The Ecuadorian state has arguably engaged in some recent gray zone aggression too. In April, the Noboa government ordered the police to use force to remove the former vice president of Ecuador, Jorge Glas, from the Mexican embassy in Quito after Glas, who faces corruption charges and sentences, was granted political asylum by the Mexican government. This use of force was interpreted as adversarial action, which broke international diplomatic norms and violated Mexican sovereignty. The Mexican government launched a complaint with the International Court of Justice, while the Ecuadorian government submitted a counter-complaint because Mexico granted asylum to Glas.
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President Noboa has followed and extended the liberal economic policies of the Lasso government, and short-term expropriation risks to foreign investors are relatively low. His government has worked hard to attract international investment, including via introducing tax breaks and encouraging international investment in the energy and mining sectors.
In late May, the government signed a new $4 billion loan agreement with the International Monetary Fund (IMF), signaling its commitment to economic liberalism. However, the Noboa government’s efforts to change the constitution to allow Ecuador to reenter international investor dispute settlement mechanisms was overwhelmingly rejected by voters in a national referendum in April.
The largest short-term risk of expropriation for international investors is in the oil and mining sectors because of widespread social opposition to these industries. Extortion by criminal groups is a growing risk to foreign investors, especially in the coastal region and along the Ecuador-Colombia border. While this is unlikely to lead to expropriation, it might make the profitable running of some businesses impossible.
Political violence has surged in Ecuador over the past five years, and political assassinations, threats and attacks have become commonplace, including the assassination of the presidential candidate Fernando Villavicencio in August 2023 and the murder of several local politicians in the coastal region in 2024.
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, including in prisons.
Violent deaths declined after the introduction of these measures but then steadily increased through to June. The security situation remains precarious, and the risk of political violence is extremely high. Relations between the executive and legislative branches have deteriorated in recent months, and political tensions will remain elevated as the country heads toward presidential elections in February 2025.
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As part of its clampdown on crime and violence, the Noboa government classified 22 criminal groups as terrorist organizations, all of which have links with international drug cartels, especially from Mexico, Colombia and Albania. The government has increased military and intelligence ties with the U.S. to help combat this threat. In September, Noboa announced his plans to modify the constitution to allow foreign military bases in Ecuador, 15 years after the U.S. military base in Manta was closed.
The government has increased military and defense spending this year. However, austerity policies and weak economic growth will limit investment in security, and 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, and is also a supporter of free trade and economic liberalism. The Ecuador-China trade agreement has come into effect this year, as has a trade agreement between Ecuador and Costa Rica. The Noboa government has also held preliminary talks with the Canadian government about a free trade agreement.
The diplomatic crisis between Ecuador and Mexico has prevented further negotiations about a trade agreement between the two countries, which prevents Ecuador from becoming a full member of the regional trade bloc, the Pacific Alliance. All the main contenders in the 2025 presidential elections will pledge to continue dollarization, but should a candidate from the left win, the risk of trade sanctions will increase.
The Noboa government agreed to a 48-month, $4 billion loan with the IMF in late May and will use some of these funds to service public debt, including with the IMF. The budget deficit is expected to widen to $4.8 billion (4% of GDP) this year as the government increases security spending.
The government increased value-added tax from 12% to 15%, which will increase government revenues. However, the tax hike has contributed to the continuation of the weak economic growth that Ecuador has experienced for several years. The Ecuadorian central bank expects GDP to increase 0.9% this year, while the IMF forecasts 0.1% growth.
The country has experienced electricity rationing since late 2023, due to a prolonged drought and the lack of investment, and this has had a significant impact on economic activity and government revenues.
Following the referendum in August 2023 that mandated that oil operations in and around the Yasuni National Park should cease, the Noboa government announced the gradual closure of the oil fields in August. This will reduce government revenues from the oil sector, although the government hopes to increase oil production elsewhere in the Amazon.
The Noboa government will prioritize debt servicing, and a new IMF agreement will give international investors greater assurances over the question of possible sovereign debt default.
