Source: Rodrigo Buendía/AP
After the election on February 7, Ecuador is now faced with a runoff between Andrés Arauz and Guillermo Lasso on April 11. Regardless of the outcome, the challenges facing the country’s economic future are enormous. This is partly due to the uncertainty surrounding the results of the future runoff. But also, the main actors’ capacity for dialogue and cooperation remains unclear. What is clear is that the country has short- and medium-term economic challenges that require action.
Today, Ecuador continues to face massive economic challenges that had been present long before the pandemic, with a fiscal deficit of eight percent, and a public debt comprising approximately 70 percent of its GDP—with China being Quito’s main creditor. To access Chinese financing, Ecuador had to agree to a reduced price per barrel on future oil exports. In addition, it is worth noting that Ecuador is a dollarized economy, therefore, it does not have the independence to issue its own currency. This by no means would be a solution to the country’s economic woes (just remember the Sucre crisis in 1998), but it does make it even more vulnerable in the economic landscape because it cannot wield its monetary policy as an instrument of competition. Poverty and inequality will continue to be the main causes of death and social conflict in Ecuador, according to a recent United Nations report.
In the political arena, there are fragile alternatives. On the one hand, there is the potential return of Correaism, but now in a different context from the original Correa era (2007-2017). Ecuador does not have an oil fund, nor a devalued dollar, nor an oil price of more than USD $60-$70 per barrel. Thus, the viability of expansionary government spending is in question. Arauz—the Correista candidate—has said that he can pull from the Central Bank’s reserves to finance a transfer of USD $1,000 to every family, disregarding the consequences for the bank’s balance sheet and the expectations of economic agents.
On the other side of the presidential ticket is a candidate who needs to build bridges, and likely very wide ones. Trailing behind in second place is Guillermo Lasso—a conservative banker. If Mr. Lasso wants to win, he will have to call on his rival (Yaku Perez) and his voters. This will not be easy. There are considerable ideological and pragmatic differences; enough to call into question the credibility of an electoral agreement. However, the electoral weakness of Lasso and Perez is also their greatest strength.
The two candidates who sought second place barely obtained one-fifth of the total votes. To win, the remaining candidate will need to open their campaign to other proposals, and potentially, open their government to other political parties. This need to form a coalition may translate into greater social support. In a context of fiscal, economic, and health difficulties, whoever becomes the next president needs a broad social and political base from which they can build. When seen in this light, the need for a broad coalition is not simply an option, but rather a survival strategy.
On the other side, Andres Arauz has his own dilemma. Rafael Correa is his main strength and weakness. Arauz can lock himself in Correaism and keep both his vote and his political support while he tries to scratch a few more votes. Alternatively, he could detach himself from Correa and attract a broader electorate, but at the cost of alienating his original voters. Will Arauz be the second ‘traitor’ of Correaism? In either case, if he were to become president, he would have a vulnerable political base, which would make his proposed redistribution policy less viable. Beyond the electoral result, Ecuadorean politicians need help from outside their base to govern.
Raúl Aldaz (@raulaldaz) is a professor at Universidad de las Américas – Ecuador.
Nicolás Albertoni (@N_Albertoni) is a professor at the Universidad Católica del Uruguay – Uruguay.