OPINION: Filling Correa's shoes
Edwin Guttierez, Head of Emerging Market Sovereign Debt at Aberdeen Asset Management, offers his view on Ecuador's presidential election
Ecuador appears to be in the mood for change.
Lenin Moreno, the anointed successor to President
Rafael Correa, was predicted to win but now looks unlikely to
avoid a run-off in elections this weekend. The polls have been
narrowing and now even more so after Moreno’s
running mate Jorge Glas was implicated in the Petrobas
A poll last week by Quito-based CEDATOS gave
Moreno just a 32 percent share of the vote. He would need to
secure a majority of all valid votes or win over 40 percent
with and a 10 point difference with his closest rival.
Moreno’s threat comes from
conservative candidates Guillermo Lasso and Cynthia Viteri. The
CEDATOS poll gave Lasso, a banker, 21 percent share of the vote
and center-right lawyer Viteri 14 percent.
Both Lasso and Viteri would be broadly welcomed by
international investors. They would represent a pro-business
break from the market unfriendly policies of Correa.
But the drop in oil prices has hit the country
hard. Oil accounts for over half of Ecuador’s
export revenue and nearly a third of government revenue.
Unfortunately, the country did not use the good years of
high oil prices to sufficiently diversify its economy. Industry
and manufacturing are taxed heavily, companies have not
invested enough and remain uncompetitive. The state has swollen
even as the private sector has failed to flourish. An
inflexible labour market hinders growth.
All of this has seen the country’s
external and bilateral debt to China grow again.
Last year’s earthquake has compounded
the effect of the decline in oil revenue. The upshot is that
Analytica estimates that the economy contracted 2.5 percent in
2016 and it is predicted to decline by 1 percent this year.
One of Correa’s legacies is the
establishment of a middle class which grew as oil revenues
created growth. But that middle class has now grown weary of
corruption, inefficiency and stagnation. The election winner
will have to prescribe tough medicine to them, and the rest of
the country, but who does the prescribing remains to be