Previous Quarterly Editions
Expropriation Risk: 60 60 57 61 ▲ Political Violence Risk: 57 57 57 51 ▼ Terrorism Risk: 58 58 58 59 ► Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ► Sovereign Default Risk: 57 57 47 57 ▲
TREND ▲
In May, President Guillermo Lasso started his four-year term in office, having narrowly won the second round of the presidential elections in April. Political infighting marked the start of Lasso’s presidency. The fragile right-wing alliance that supported his presidential campaign collapsed after Lasso’s party, Creando Oportunidades (CREO), failed to back the candidate for presidency of the National Assembly put forward by Partido Social Cristiano (PSC) and opted for Guadalupe Llori of the indigenous party, Pachakutik (PK) instead.
The surprise decision enabled Lasso to win some support within PK and gain stronger representation within key legislative commissions. However, the balance of power within the legislature remains stacked against Lasso and this will complicate his liberalising economic reform agenda. This was evident in July when the National Assembly condemned Lasso’s decision to re-join the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). The motion, which was initiated by the coalition of parties that support the former President Rafael Correa, deemed membership of ICSID unconstitutional and demanded the Constitutional Court re-examine the issue.
In July, Lasso announced plans to overhaul the oil sector, introducing new contracts to incentivise private investment, scaling back the operations of the state-owned oil company, Petroecuador, and inviting offers for the operation of new oil fields in the Amazonian region. The president hopes that these reforms will bring USD12bn of new investment and double national oil production. However, his plans to expand oil production in the Amazonian region will be challenged by environmental and indigenous movements, who will point to a series of recent oil spills which have caused considerable socio-environmental damage.
Indigenous movements have also demanded that the Lasso government re-instate fuel subsidies to reduce the cost of living and alleviate poverty. Initial dialogue between the government and indigenous leaders ended without any significant advances.
Despite a challenging opening few months of his presidency, Lasso has been bolstered by the acceleration of the COVID-19 vaccination programme, with 40% of the population fully vaccinated by the end of August -- well above regional and global averages and generating hope of a stronger-than-expected economic recovery.
Lasso’s election victory buoyed international investors and further reduced the risk of expropriation. His opening months in office have demonstrated his desire to attract and protect international investment. He has announced a series of liberal economic reforms and pushed for the rapid full integration of Ecuador into the free-trade block, the Pacific Alliance.
He also re-entered Ecuador into ICSID after the former president, Rafael Correa withdrew the country from the arbitration mechanism in 2009. However, opposition to this move in the National Assembly shows the challenges he will faces implementing his reforms. The 2008 constitution proscribes membership of international arbitration mechanisms, and the Constitutional Court will investigate the matter. The greatest risk to investment remains in the mining sector, due to strong environmental and anti-mining movements.
TREND▼
Lasso’s relatively high approval ratings in the opening months of his presidency have assuaged concerns of near-term political unrest. Protests have taken place against his government, but these have been relatively small-scale and non-violent. However, dialogue between the government and indigenous leaders is ongoing and failure to reach agreements is likely to result in larger mobilisations.
Limited public funds and weak economic conditions will limit Lasso’s capacity to reduce opposition to his reforms, in the short-term, at least. He will also face pressure from cash-strapped local governments and government agencies.
The continued expansion of criminal networks in Ecuador will increase the risk of violence and disorder.
TREND ►
Criminal networks connected to international drug trafficking expanded in Ecuador during former President Lenín Moreno’s presidency and have remained very active during the opening months of Lasso’s term. Conditions in the country’s overcrowded prisons have deteriorated because of spending cuts and COVID-19. In July, at least 27 prisoners were killed in coordinated disturbances and a further six were killed in a separate incident in August. This came after rioting in several prisons left 79 prisoners dead and hundreds of prisoners and staff injured in February.
Rising poverty will support efforts to recruit new members into criminal networks, which are fighting to control lucrative drug trafficking routes to the United States and Europe. Lasso’s initial response to the prison and crime crisis has been inadequate, raising fears that crime and disorder will escalate out of control.
Lasso is a staunch defender of dollarisation and will support measures to retain the monetary policy, which has been in place since 2000. A law explicitly aimed at protecting dollarisation and the autonomy of the central bank was approved by the National Assembly in late April. During an official trip to Mexico in August, Lasso pushed for the swift integration of Ecuador into the Pacific Alliance and has further reiterated his desire to strengthen bilateral trade relations and pursue liberal trade policies.
Lasso has drawn on credit lines from the International Monetary Fund, including a USD950mn loan in August, and expects to receive a further USD1.5bn disbursement before the end of the year, to cover the budget deficit. International investors have been buoyed by the rapid rollout of the COVID-19 vaccination programme, stable world oil prices, and increasing economic activity. However, the rapid build-up in public debt over the last five years and the fragility of the domestic and international economy remain sources of concern.
Return to contents Next Chapter
