Previous Quarterly Editions
Expropriation Risk: 64 65 65 65 ►Political Violence Risk:50 51 51 51 ►Terrorism Risk:64 68 68 68 ►Exchange Transfer and Trade Sanction Risk: 55 54 54 54 ►Sovereign Default Risk:65 65 65 65 ►
TREND ►
Protest intensity to date* 2022 2023 Very-High Low Unrest risk in 2024**Cost of living: HighAnti-austerity: Very-High
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Ecuador has one of the worst debt risk profiles in Latin America. This is largely due to the intense political crisis the country has experienced during the government of President Guillermo Lasso (2021 – 2023), which resulted in the president dissolving the legislature and triggering new elections in August 2023.
The buildup to the elections was marked by significant political violence, including the assassination of Fernando Villavicencio, a center-right presidential candidate and anti-corruption activist. His death intensified international concerns about the political crisis in Ecuador and drove up investment and debt risk indicators above the levels recorded during a mass anti-government protest in June 2022. The June protest, which was led by CONAIE, the country’s most powerful indigenous movement, opposed the austerity politics and liberal reforms of the Lasso government, which the International Monetary Fund (IMF) has supported.
Efforts to reduce the size of the public sector and decrease public debt under the guidance of the IMF started during the Moreno government (2017 – 2021). This came after public debt steadily increased in the second half of the presidency of Rafael Correa (2007 – 2017). His government retained a distance from the IMF and turned to China for multi-billion-dollar loans to support public spending.
Included within the Moreno government’s austerity policies were the lowering and removal of fuel subsidies. The policy move triggered a large-scale protest in October 2019 that ultimately forced the government to reverse its decision.
Despite the opposition faced by Moreno, Lasso continued along a similar path. This culminated in the protests in June 2022 and efforts to remove the president from office. The political party aligned to Rafael Correa led this process, which came to fruition in May, forcing Lasso to trigger new elections to avoid impeachment. Given his low approval ratings, the president did not stand for re-election.
The first round of the elections on August 20, 2023, saw Luisa Gonzalez — the left-leaning candidate for the party led by Correa — securing 33% of the vote and Daniel Noboa — a member of one of Ecuador’s wealthiest families — coming in second with 24%. The two candidates will face each other in a second-round runoff on October 15.
Ecuador’s risk indicators have remained elevated due to the uncertainty over who will form the next government and concerns that the political crisis will continue.
Oil revenues are another source of concern. On the same day as the first round of the elections in August, 58% of the electorate supported a referendum that seeks to cease oil production in the Ishpingo-Tambococha-Tiputini (called ITT) oil fields located in and round the Yasuni National Park in the Amazonian region of the country.
Whichever candidate wins the second round of the elections, the incoming president is likely to delay or prevent the closure of the fields, which account for around 12% of national production and a significant proportion of government revenues. Nonetheless, the referendum represents a risk to future oil revenues, not least because it indicates a strengthening environmental movement that opposes oil production and the expansion of the oil frontier.
Lasso’s austerity policies and liberal reforms buoyed international investors but have been impossible to implement fully because of intense social and political opposition. The second round of the presidential elections will decide whether Ecuador continues along this path but with a president in Noboa who is likely to take a more pragmatic approach or whether the country reverts to more state-centric economic policies in the hands of Gonzalez.
A Noboa victory would ensure expropriation risks remain relatively low; however, the political climate will remain uncertain. Whoever wins as the incoming president will have to face new elections in 2025, when the current presidential term ends.
Expropriation risks will remain highest in the mining and oil sectors, as indicated by the Yasuni/ITT referendum result. The result of a local referendum that backed efforts to prohibit mining in Choco Andino, a region north-west of the capital city, Quito, point in the same direction. Nearly 70% of voters in Metropolitan Quito supported this referendum, which also took place on the same day as the elections in August.
Political violence has surged in Ecuador over the past five years, and political assassinations and attacks have become commonplace. The assassination of the presidential candidate Villavicencio in the days before the first round of the presidential elections was preceded by several other violent acts, including the assassination of the mayor of the populous coastal city Manta.
Regardless of who wins the runoff, the political climate will remain highly charged and the risk of more political violence will remain elevated. Investigations into Lasso’s alleged corrupt activities will be a source of tension, and the president might decide to flee the country to escape possible charges.
The upsurge of political violence is linked to the expansion of criminal networks connected to international drug trafficking. Homicide and crime rates have continued to rise, and drug cartels and street gangs are resorting to more extreme forms of violence, including the use of explosive devices and public executions.
The coastal region and the Colombia-Ecuador border are hot spots for organized crime and gang activity, but this has spread throughout the country, as evidenced by the assassination of Villavicencio, which occurred in Quito. The perpetrators of the crime are believed to have links to international drug cartels.
The investigation that resulted in Lasso being charged with corruption and stepping down from office has also implicated high-ranking police officials, potentially questioning the capacity of the police forces to deal with the growing threat of international criminal networks.
Lasso has been a staunch defender of dollarization and has introduced measures to retain the policy, which has been in place since 2000. Both candidates in the second round of the presidential elections — Daniel Noboa and Luisa Gonzalez — have committed to retaining dollarization, and any short- or medium-term policy change is unlikely.
The Lasso government has made efforts to sign trade deals, including with China. A Gonzalez victory would see greater efforts to sign trade agreements that favor local producers and increase the risk of trade restrictions. Noboa would favor more liberal international trade arrangements, representing broad continuity with Lasso.
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The Lasso government has reduced the budget deficit and limited borrowing; however, this has stoked popular protests, which raises doubts over the sustainability of this approach. Whether Noboa or Gonzalez wins the elections, the next government will come under pressure to raise public spending in advance of the next elections in 2025. Growing opposition to industrial mining and efforts to limit oil production will reduce future revenues from the oil and mining sectors, forcing governments to seek alternative revenue sources.
