Ecuador Politics April 2017

Ecuador

Ecuador: Ecuadorians vote for policy continuity but challenges lie ahead

April 10, 2017

On 2 April, former vice-president Lenín Moreno of the ruling left-wing Allianza País party won the run-off presidential election by a narrow margin. His challenger, conservative candidate Guillermo Lasso, has refused to concede defeat after three out of the four exit polls indicated he had won. He alleges the vote was tampered with and is asking for a recount. However, the result is unlikely to change after the head of the Organization of American States, which had sent observers to monitor the election, acknowledged Moreno as the winner.

Moreno’s victory signals a degree of policy continuity. He has vowed to expand social spending, boost wages and pensions, and fight corruption. At the same time, he has indicated he would ease restrictions on freedoms of the press, a departure from his predecessor’s approach to democratic norms.

The implementation of Moreno’s policies will prove challenging—not least on the corruption front, where his hand has been considerably weakened by his vice-president’s involvement in the Odebrecht scandal. The fraud allegations surrounding his win could weaken his mandate for policy continuity, at least during the early stages of his presidency. But even if the allegations prove to be false, the election result highlighted the deep polarization of Ecuadorian society, which could force him to seek compromise.

On the economic front, Moreno will inherit an oil-dependent economy considerably weakened by the fall in oil prices over the past two years. He will have to contend with tight fiscal constraints—the fiscal deficit has averaged over 5% of GDP since 2013—and a high external debt burden, a situation made more difficult by the country’s dollarization. In the second half of 2016, Ecuador issued USD 2.75 billion in global bonds, which carried yields of around 10%--very high compared to its regional peers. Moreno’s policy platform calls for a more gradual fiscal adjustment process than Lasso had advocated. The majority of the cuts are likely to fall on capital expenditure and government spending on goods and services, which will take a toll on the economy. However, Moreno could seek support from international lenders should the dollar strengthen and oil prices remain subdued.


Author:, Economist

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