Ecuador – Not out of the Woods Yet

The second half of 2020 has produced some noteworthy political victories for President Lenin Moreno, whose government has managed to pull Ecuador back from the precipice of sovereign default on which the country stood after losing access to IMF loans and incurring a significant loss of oil income, the source of roughly one-third of state revenue, as the negative economic fallout from the COVID-19 pandemic sent crude prices into a tailspin in early March. The enhanced stability created by the agreement to restructure some $17.4 billion of debt has been reinforced more recently by an agreement to restructure Chinese loans and a new 27-month, $6.5 billion EFF arrangement with the IMF.
Unfortunately for Moreno, those accomplishments have done nothing to reverse an erosion of popular support that prompted him to forego a re-election bid even before the outbreak of protests last fall. With no campaign to prepare for, he has instead sought to salvage a positive legacy for his presidency by doing what he can to ensure the election of a successor who is committed to honoring the promises his government made to prevent an economic implosion.
Available polling data provides a weak basis for making any confident predictions of the outcome of next year’s presidential election. Most polls point to a close two-way race between Andrés Aruaz, the candidate backed by allies of exiled former President Rafael Correa, and Guillermo Lasso, a businessman and founder of the center-right CREO party, neither of whom has established a strong claim to front-runner status.
The general expectation is that an administration headed by Lasso could be counted on to make a genuine effort to implement the reform program underpinning the new EFF. For his part, Aruaz has made little attempt to reassure nervous investors. However, some reservation of judgment is probably warranted with regard to what Aruaz’s campaign rhetoric might portend for investors if he becomes president, as the reality of Ecuador’s financial situation could very well force him to adopt a less populist posture once he faces the challenge of governing.
Indeed, given the indications that the presidential contest will be a closely fought affair, it is quite possible that whoever emerges victorious might fall short of securing a majority in the Congress. While a divided government scenario would protect against a revival of the leftist populism of the Correa era that contributed to the current debt problem, it would also pose an obstacle to implementing the reforms required to remain in the good graces of the IMF and retain the confidence of foreign investors.
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