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Expropriation Risk: 53 49 53 55 Political Violence Risk: 72 72 78 80 Terrorism Risk: 55 56 56 56 Exchange Transfer and Trade Sanction Risk: 43 43 43 48 Sovereign Default Risk: 65 63 65 69
TREND ▲ OUTLOOK ▲
Ecuador has been one of the Latin American countries worst affected by COVID-19. By the start of April 2020, it was behind only Brazil and Chile in the total number of recorded cases, although the numbers for cases and deaths are acknowledged to be substantially higher than official figures because of the lack of mass testing and the number of people who have died at home. The health system has been put under enormous strain, with the crisis particularly acute in the coastal city of Guayaquil. This is the country’s largest city, and it is where President Moreno was forced to temporarily relocate the government after protests drove it out of Quito in October 2019. Ecuador appears to have been particularly badly impacted because the virus was brought back by the large number of migrant workers in Spain and Italy. The country is also a popular tourist destination and its borders remained open to international travel until the middle of March 2020, when the Moreno government stopped international flights and introduced other measures to contain the spread of the virus. These included a ban on travel within and between towns and cities, the closure of public spaces, and an order for people to stay at home. Yet the size of the informal economy and the lack of safety nets for workers meant most Ecuadorians needed to leave home in order to earn money, and the virus continued to spread. Economic conditions were already weak before the outbreak, with growth expected to be below 1% this year, and the country is now bracing for one of the worst recessions in its history. Moreno, who was already vulnerable after his decision to remove fuel subsidies triggered the mass protests last October (2019), has come under further pressure as the extent of the crisis was brought home by graphic reporting from Guayaquil. His political party, Alianza Pais, is getting weaker and he is seen by many as responsible for the government’s response to the virus. His visit to the White House in February 2020 in the hope of securing closer trade ties with Washington has also proved divisive at home. The economic downturn will create space for the former president, Rafael Correa, and his supporters to re-claim political ground ahead of the 2021 elections. Prosecutors opened a trial against Correa and 20 other former politicians and businesspeople on February 10 2020, accusing them of involvement in a 7.7-million USD bribery scheme in which businesses allegedly made payments to Correa's former party in exchange for construction contracts. The outcome in early April 2020 was an eight-year prison sentence for Correa, who was tried in absentia, together with a ban from any political activity for 25 years. However, the former president has two opportunities to appeal while presenting himself as a political martyr. The protests in late 2019 made it questionable whether Moreno would manage to remain in office until the presidential election in February 2021, and this remains the case.
Despite the crisis, the government will adhere as far as possible to the economic and fiscal programme agreed with the IMF as this will ensure continued access to promised tranches of the 4.2-billion USD loan agreed in 2019. The IMF is likely to show flexibility in return, at least in the short term, as Moreno tries to cope with the impact of the virus. However, that impact will make austerity policies even harder to implement. The government will make even greater efforts to attract private investment but the prospect of a return to the anti-business policies associated with Correa after next year’s election will make this even more difficult. Anti-mining activists have drawn strength from seeing that the October 2019 protests were able to force Moreno to reinstate fuel subsidies, and resistance to new mining projects during 2020 and 2021 will be buoyed by the evidence that protests can force a change in policy.
The protests that swept across the country in October 2019 revealed a new level of popular discontent with the government and showed the capacity of social movements to bring people onto the streets to derail its economic policies. Correa and his supporters will attempt to use the virus crisis to undermine Moreno and create more political instability. In response, the government will step up efforts to prevent supporters of Correa from participating in the 2021 elections, risking a spiral into further violence. There will also be renewed conflicts between local tiers of government and Quito as politicians seek to avoid blame for the handling of the COVID-19 crisis..
TREND ► OUTLOOK ▲
The government has pointed to the involvement of criminal networks in the protests in late 2019, suggesting that narcotics networks are seeking to destabilise the country. These networks have become more important in recent years as transnational drug cartels fight for control over distribution routes for drugs, especially cocaine, that are produced in Colombia and then shipped to lucrative overseas markets via Ecuador. The government’s ability to combat drug trafficking and the violence that accompanies it will be hit hard by the virus-related economic crisis. Criminal networks will seek to capitalise on widespread disorder and the numbers of people now forced to find new ways to make a living.
Moreno has restated his commitment to dollarisation during the COVID-19 crisis. However, the scale of the global and national economic crisis, and the approach of next year’s elections, suggest that calls to abandon the US dollar will grow if the recession deepens and persists. The government will continue to explore new bilateral trade deals as well as bidding for full membership of the Pacific Alliance, the trade group for those Latin American countries that border the Pacific. While Correa had refused to consider membership, Moreno is keen to join but the economic crisis may push full membership from this year to next, when it may become an election issue.
The government will work with the IMF to keep open its existing lines of credit, but it may well need more support. In late March 2020, Moreno announced that he had approached the World Bank for a loan of 500 million USD. Loans from international organisations have become increasingly important because volatility in international financial markets has made the cost of borrowing even higher for the government. With the collapse in world prices severely impacting the country’s oil revenues, the government would need to offer high bond yields to offset the perceived risk of default, which is something that happened under Correa.
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