Previous Quarterly Editions
Expropriation Risk: 56 53 53 51 Political Violence Risk: 72 69 71 72 Terrorism Risk: 52 54 54 55 Exchange Transfer and Trade Sanction Risk: 46 45 45 43 Sovereign Default Risk: 70 70 68 65
TREND ▼ OUTLOOK ►
Ecuador went to the polls in March to choose all of its local and provincial governments. The elections were a test of the popularity of President Lenin Moreno and the strength of Alianza PAIS (AP), the party he nominally leads. Having dominated Ecuadorian politics for a decade, the AP has splintered and weakened since former president Rafael Correa left office in 2017, and then the party itself a few months later. Results from the March elections signal AP’s collapse as a national political force as it lost ground across the country, failing to win major political contests and gaining only a small proportion of the total vote. Jorge Yunda, a former AP member, won the mayoral rise in Quito but the task of governing the capital city will be complicated by his narrow margin of victory and the strong performance of candidates for Fuerza Compromiso Social, a party closely associated with Correa. Its notable victories elsewhere in the country indicate the extent to which the former president, currently living in Belgium to avoid legal charges, can still command a following. The traditional right-wing Partido Social Cristiano strengthened its hold on the southern coastal region, reversing the historic AP gains made under Correa. In Guayaquil, Cynthia Viteri won over 50% of the vote to become the mayor of the populous city. She was hand-picked by the former long-standing mayor and figurehead of the traditional right, Jaime Nebot, who was forced to stand down by term limits, but he will maintain effective control of the city as he prepares to campaign for the presidency in 2021. The other major political force on the right, CREO, failed to build on the showing of its leader Guillermo Lasso in the 2017 presidential elections, when he only narrowly lost to Moreno. While CREO registered a decent share of votes cast at the national level, it lost the most important contests, suggesting it is stagnating rather than becoming a truly national political party. The most startling result came in the southern highland province of Azuay where Yaku Perez Guartambel was elected as prefect with a convincing majority. Perez, the president of the indigenous movement, Ecuarunari, and a prominent anti-mining and water activist was standing for the leftist indigenous party, Pachakutik. The party also performed strongly in other Andean and Amazonian regions, suggesting it might be well placed to profit from the AP collapse. Weeks before the local elections, the Moreno government agreed to a series of liberal economic reforms in order to access a 4.2-billion-dollar loan from the IMF. The agreement effectively marks the end of the state-directed political and economic project started by Correa a decade ago. However, the government will face social and political opposition as it attempts to implement the reforms, which include liberalising the labour market. Marking another high-profile break with the Correa regime, in April the Moreno government revoked the political asylum at the Ecuadorian embassy in London that Correa had granted to Julian Assange, the founder of WikiLeaks.
The IMF agreement is a further indication of the Moreno government’s determination to create a more business-friendly environment in Ecuador, and the reforms that the IMF requires should improve conditions for international investors. However, the results of the local elections will complicate investment in the mining sector. The victory of Yaku Perez with twice the vote of his nearest opponent in the prefectural elections in Azuay indicates the degree of anti-mining sentiment in the province. Further evidence of the strength of feeling on the issue came from the canton of Giron, where a popular consultation on the Quimsacocha mine was held on the same day as the local elections. Residents voted overwhelmingly against the mine, which is located close to water sources and fragile ecosystems, bringing its future, and the future of other mining projects, into doubt.
TREND ▲ OUTLOOK ▲
The local elections laid bare the tensions that have continued to build between Moreno and Correa, and Correa’s important victories with his Fuerza Compromiso Social will provide a platform to challenge Moreno and build for the 2021 elections when AP will no longer be a significant political force. Correa continues to live in Belgium with his family but remains a very influential figure in Ecuador. Indicating the level of tension, Ricardo Patiño, the former foreign minister and one of Correa’s key political allies, fled Ecuador in late April after being accused of inciting political violence between supporters of Moreno and Correa.
Tensions along the Ecuador-Colombia border were evident during the local elections when violent incidents were reported in Esmeraldas, the northern coastal province. Political tensions in the province are linked to territorial struggles between transnational drug cartels over the control of distribution networks for illicit drugs, especially cocaine, that are produced in Colombia. The task of containing the crisis is being complicated by a restructuring of internal security agencies as Moreno closes the National Intelligence Secretariat, established under Correa, following claims that it had been used to monitor the political opposition.
The Moreno government’s commitment to dollarization remains unflinching and the IMF agreement is designed to provide additional support to the policy. Credit available through the IMF should also ease the balance of payments situation. The government is committed to free trade and is exploring the possibility of new bilateral trade deals as well as joining the Pacific Alliance, the trade group for Latin American countries bordering the Pacific.
The IMF agreement will give extra impetus to the process of fiscal consolidation that the Moreno government started soon after taking office. The budget deficit dropped to 2.4% of GDP in 2018 as the government combined ministries and other government functions in an effort to reduce spending on salaries. While overseas debt will continue to rise in the short term, the interest rates attached to the IMF loan are significantly lower than the rates demanded by international financial markets and will help reduce debt servicing costs.
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