OPINION: Filling Correa's shoes
February 16, 2017
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 scandal.
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 seen.