Guillermo Lasso’s victory in the final round of Ecuador’s presidential elections in April was a surprise. Yet even more shocking has been the success of his first 100 days. On his first day, executive order 68, cut red tape for private-sector exporters. Another executive order looked to improve efficiency in the oil sector. Crucially for investors, Ecuador rejoined the International Centre for Settlement of Investment Disputes (ICSID).
Yet by far the most important success has been with vaccines. As Maria Alban Guillermo, an Executive Director at London-listed, Ecuador-focused mining company, SolGold, notes in our recent Ecuador Report, Lasso’s “primary focus is the vaccination programme. He knows that unless Ecuador defeats the pandemic then any economic plans are just pipe dreams. He pledged to disburse 9 million Covid-19 vaccines in the first 100 days.” Lasso met that target easily creating an “immediate economic boost, as schools reopen and people get back to work.”
These measures have already had a positive impact on the economy. The last few months have seen employment move up, while bank lending is also increasing and interest rates are falling. Lasso, also has the most important presidential trait – good fortune. High oil prices have helped to stabilise – at least temporarily – state finances and also attract an inflow of dollars. All of this is reflected in the country’s bonds, which are among the best performing in emerging markets. This article covers the main points but for in-depth analysis register to download the Ecuador Report for free.
More to do for Lasso
Yet despite the early wins, serious challenges remain. Lasso’s victory signalled the end of 14 years of Correismo, which began in 2006 with the ten-year rule of populist, leftist Rafael Correa, continued for four more with his errant protégé Lenín Moreno, and had been expected to continue with Andrés Arauz – the Correista defeated by Lasso.
Lasso inherited a country in crisis. A combination of high government spending, low tax revenues and weak economic growth had pushed debt to unsustainable levels forcing Ecuador to seek a bailout from the IMF in 2019. Then came the Covid-19 pandemic in 2020, which hit Ecuador particularly hard. According to data from the Financial Times, Ecuador has the second-highest excess deaths per capita in the planet. That exacerbated its economic woes, with GDP contracting almost 8% in 2020. The pandemic also exposed the country’s institutional weakness. A series of corruption scandals involving the collapsed health system particularly enraged the public.
Lasso plans to attract international investment to key sectors, such as mining, oil and gas and agroindustry, to create employment, improve public services and pay off the country’s debt. In the report we analyse the specific measures needed to attract investment, but suffice to say that after 14 years of ‘21st-century socialism’ Ecuador requires profound economic reform. Nobody doubts Lasso’s ability to diagnose the problems and find solutions but it remains to be seen if he can implement the reforms in a country prone to protest.
In Ecuador we look to the ‘Macri Experience’… Hopefully we don’t go down that pathDaniel Pino
Daniel Pino, Managing Partner of Pino Elizalde Abogados, a Guayaquil-based corporate law firm, believes Lasso should learn from the region’s history. “In Ecuador we look to the ‘Macri Experience’. When Mauricio Macri won the Argentine presidential election he was in a similar position to Lasso today. There was hope but Macri’s government was slow in implementing changes. And hopefully we don’t go down that path, because if we do, those mostly affected by the changes won’t see the difference. They are still thinking of the good old Correa years when they had food or medicine, but it was all because of the higher price of oil, but as soon as the price went down there was no money. There was not a structural change. Lasso needs to work on structural change.”
One of Lasso’s challenges is that his party only commands 25 seats in the 137-seat assembly, leaving him dependent on unreliable alliances to pass legislation. “In theory he doesn’t look politically strong”, says Javier Salazar, Managing Partner, EY Ecuador. “He is not known for his political management or instinct, as he is seen more as an administrator. However, Lasso may benefit from one legacy of Correismo. Former president Correa passed a new constitution that made Ecuador a hyper-presidential state. The president of Ecuador now has more power than most presidents in Latin America, which means it is easier for Lasso to get stuff done without congress.”
Alban agrees that Lasso can implement some reforms without the Assembly. “In the first 100 days he will use presidential decrees to remove some of the restrictions that the previous governments had placed on the private-sector and society in general.” But his biggest political capital comes from the successful vaccination programme, says Alban. “A successful vaccination programme wins him support from a wide base of society and that will give him the political breathing space to pass economic reform regulation.”
Another big social issue is rising violent crime. Ecuador is the second-safest country in Latin America, measured by homicides, yet recently there has been an uptick in high-profile murders. “Ecuador had enjoyed peace for many years”, says Pino. “But more recently, with all the measures that Correa took in removing the US Air Base in Manta and then legalising the small possession of drugs, so networks of drug dealers could expand without being captured. Also, U.S. efforts in combatting terrorism in Colombia led to some terrorists seeking refuge in northern Ecuador. Ten years after, we now see an increase of violence in Ecuador. Lasso knows this clearly and has already expressed his decision to fight it directly.” Like the vaccine, it’s a domestic issue that matters a lot more to people in Ecuador, yet success here will give Lasso the political capital for further economic reform. In this report we interview the key members of Lasso’s new government – including an exclusive letter from the man himself to our readers. But we also speak to international investors and local experts to discover if Ecuador is finally ready to make the most of its world-class natural resources.