Previous Quarterly Editions
Expropriation Risk: 61 62 63 64 ▲Political Violence Risk:51 51 51 51 ►Terrorism Risk:58 59 59 64 ►Exchange Transfer and Trade Sanction Risk: 45 55 45 55 ▲Sovereign Default Risk:57 57 57 65 ▲
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
President Guillermo Lasso, who narrowly won the 2021 presidential elections, has extended the pro-Western liberal policies of his predecessor, Lenin Moreno (2017-21). This marks a change from the state-centric political project of Rafael Correa (2007-17), which limited engagement with the U.S. and the International Monetary Fund (IMF) and strengthened relations with China.
Lasso’s pro-Western stance has been evident in the close relationship it has developed with the IMF and the efforts it has made to comply with the conditions attached to the USD6.5 billion loan the Moreno government agreed with the organisation. Further indicating his desire to align Ecuador with liberal global economic institutions, Lasso has re-entered Ecuador into the World Bank’s state-investor dispute mechanism and maintained Moreno’s decision to withdraw Ecuador from OPEC.
The wave of violence that has swept across Ecuador since Correa left office in 2017 has intensified during Lasso’s presidency and his government has turned to the U.S. to attempt to strengthen the state’s intelligence and security capacity. This has included inviting U.S. intelligence officials to help investigate drug and gang-related crimes. Efforts have also been made to strengthen trade and investment relations with the U.S.
While the Lasso government has pursued pro-Western economic and foreign policies, it has not turned its back on the East. The president made an official visit to China in February 2022 and his government has since started negotiating a bilateral trade agreement with the country.
Improved relations with the IMF and international investors have reduced the Lasso government’s dependence on China for external funding. However, Ecuador still has significant debt obligations with China, while Chinese firms also have large investments in Ecuador, including in the mining sector.
Ecuador has weaker relations with Russia. However, Russia is a major market for Ecuadorian exports and the fallout from Russia/Ukraine crisis in February 2022 has significantly disrupted trade in some sectors, especially the export of cut flowers. The Lasso
government’s efforts to align Ecuador with Western institutions and countries has not gone unchallenged. His agreements with the IMF have been strongly criticised by social movements and left political parties, and the weakness of his government makes the political outlook unstable.
The possibility of Lasso being removed from office before the end of his four-year term cannot be ruled out and a government with strong links to the former president, Correa, would follow a less pro-Western stance.
While Lasso’s pro-Western stance and liberal economic agenda have buoyed international investors and lowered the risk of expropriation, the opposition his government has faced has dampened initial optimism. In June, the indigenous movement, CONAIE, spearheaded a national strike which lasted for eighteen days and caused significant economic disruption. The protests involved occupying public spaces and blocking roads, especially in the Andean region.
Some businesses were also targeted, including flower plantations and oil fields. The Lasso government agreed to some of CONAIE’s demands to end the protests and has entered negotiations with the movement. The protests have forced the government to dilute some of its reforms and have revealed the extent of opposition to its liberal economic programme. The greatest expropriation risk remains in the mining sector, due to strong environmental and anti-mining movements and popular opposition to industrial mining.
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Violence escalated during the strike in June. To attempt to control the protests, Lasso introduced states of exceptions which gave the military and police greater presence and powers. State repression was linked to the deaths of several protestors and the injury of thousands of others. Leonidas Iza, the president of CONAIE, was arrested during the protests and also survived an assassination attempt. Rioting and looting also occurred in some towns and cities, including in the capital city, Quito.
The inability of the Lasso government to control the protests and the state repression it authorised led opposition forces in the National Assembly to attempt remove the president from office. While Lasso survived the motion, 80 of 137 legislators voted in favour of removing the president, indicating the degree of opposition he faces in the legislature. This will limit his ability to introduce further economic reforms. The risk of violence in the build up to the 2023 local elections is increasing, especially in the coastal region, where drug cartels and street gangs are the most active.
Criminal networks connected to international drug trafficking remain very active in Ecuador and the insecurity has continued to deteriorate this year. Murders doubled in 2021 and have continued to increase in 2022. The latest illustration of this came in August when a bomb was detonated in the coastal city, Guayaquil. The attack left five people dead, and dozens injured. Houses, cars, and businesses were also destroyed in the blast. Lasso described the blast as an act of terrorism and issued a state of exception in Guayaquil for 30 days.
The attack is part of a broader trend of explosive devices being used by organised crime groups to assassinate people and spread fear. There have been 145 explosions so far in 2022, significantly higher than in previous years. The coastal region and the Colombia-Ecuador border are hotspots for organised crime and gang activity but there are signs that it is spreading throughout the country.
Lasso is a staunch defender of dollarisation and will support measures to retain the monetary policy, which has been in place since 2000. During a visit to China in February 2022, Lasso and China’s President Xi Jinping signed a memorandum of understanding to negotiate a trade deal between Ecuador and China and the first round of negotiations started in July.
The Lasso government hopes to conclude the agreement by the end of this year. Negotiations over a bilateral trade agreement with Mexico continue. Concluding this deal will pave the way for Ecuador’s entry into the Pacific Alliance trade bloc, which would give the country greater access to Asian markets.
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The central government budget registered a USD2 billion surplus in the first five months of the year, as higher world oil prices boosted revenues. However, the budget is expected to fall back into deficit in the second half of the year as the impact of the June protests and increased public spending filter through to the public finances and world oil prices retreat from recent highs.
The Lasso government will continue to draw on credit lines from the International Monetary Fund, World Bank, and other multilateral institutions. The June protests and political instability have increased Ecuador’s risk profile, which has complicated the issuance of bonds on international markets. Despite the recent improvement in the public finances, 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.
