Ecuador: Newly elected right-wing president Lasso is facing a challenging presidential term
Right-winger Guillermo Lasso surprisingly won Ecuador’s April presidential run-off. He ran against Arauz, a left-wing populist protégé of former president Rafael Correa. Arauz – who said he would renegotiate the vital IMF loan – clearly won the first round but Lasso was able to overcome his 13% deficit between the first and second round, and decisively won the run-off elections. Lasso will take office in May and is expected to continue incumbent president Moreno’s orthodox macroeconomic policies. Essentially, the IMF agreement that forms the basis for policymaking is expected to continue to be the linchpin of policymaking.
President Lasso will face a challenging 4-year presidential term. Last year, the country restructured its sovereign debt but despite fiscal consolidation efforts, a fiscal deficit of 2.4% of GDP is in the cards for 2021. As a result, public debt will be pushed to 65% of GDP at the end of 2021, a high level for the country. Hence, adherence to the IMF programme and fiscal consolidation will remain vital. Though Lasso seems committed to the IMF programme, his party is the smallest in Congress (holding 12 out of 137 seats). Left-wing and centre-left legislators dominate Congress, complicating alliances for his right-wing party. Furthermore, Lasso’s task will be made even more difficult in a country that is infamous for alliances falling apart almost as soon as they’ve been formed. Hence, governability and fiscal consolidation measures will prove to be challenging. Additionally, fiscal austerity at a time of increased hardship is very likely to be a source of unrest, especially in a polarised country such as Ecuador. In the past, such protests have already led to backtracking of fiscal consolidation and derailing of IMF programmes. Besides the public finances, tackling the Covid-19 pandemic will be another important task for Lasso. Despite high death rates due to the virus, Ecuador has inoculated barely 2% of its population, one of the lowest rates in Latin America. On top of that, a very contagious and possibly more deathly variant of the Covid-19 virus is currently raging through Latin America. The combination of low vaccination and a more contagious virus might lead to a prolonged pandemic and social unrest. Furthermore, it can hamper real GDP growth, which is forecasted at a modest 2.5% in 2021 after a deep contraction of 7.5% last year.
There is a positive outlook for both short-term and medium- to long-term political risk ratings if the country will be able to adhere to the IMF programme without triggering major unrest. That being said, uncertainties remain huge as many downside risks loom, such as volatile or lower oil prices (Ecuador is an oil exporter), natural disasters (e.g. the earthquake in 2016) and possibly difficult access to financial markets and capital outflows due to rising MLT interest rates in advanced economies.
Analyst: Jolyn Debuysscher – firstname.lastname@example.org