A burst of fresh air
The victory of Guillermo Lasso in the second electoral round for president brought a burst of fresh air not only for the 52% of the population who voted for him, but also for international markets, which reacted positively to the news. As a result, country risk fell a historical 345 points or 30% between April 9 and April 12. He was not elected because he was a banker − on the contrary, his past likely took away votes. Nor did he win because his program was from the orthodox right wing. He won because he promised unity, tolerance and inclusion. Lasso’s triumph reflects not only hope for better economic days and employment opportunities, it is also a loud and clear message from more than half of Ecuadorians in favor of peace, democracy and respect for free expression and human rights. It was not only a vote in favor of Lasso; it was also a vote against Correa.
Lasso does not have a smooth road ahead, however. The Socialism of the XXI Century, represented by Andres Arauz as an extension of Rafael Correa, still has the support of 47% of the people and will have a majority of 48 legislators in the next Assembly. Working out and achieving consensus with the other important political forces − Pachakutik (27 legislators), the Social Christian Party (19 legislators), and Izquierda Democratica (18 legislators) − will prove critical for governability at all levels, including macro-fiscal sustainability.
CREO, the newly elected government party, will have only 12 legislators, and even though it has an alliance with the Social Christian Party, together they are not enough to fight the Correistas. Thus, obtaining support from the other two large forces to reach, at minimum, the necessary 71 votes necessary to approve any important executive initiative, would most probably be achieved by supporting Salvador Quishpe of Pachakutik for president of the Assembly and candidates from Izquierda Democratica and the Social Christian Party for the two vice-presidencies, respectively. The good news is that in this context, the expectation that Pierina Correa will be elected president of the Assembly has lost ground, but she is entitled to lead the first session as the legislator who received the most votes.
Together with the good political news, GDP performance for 2020 brought some hope, as did its y/y fall at 7.75%, which was less than the 9.6% expected by the Central Bank. Q4 showed a setback from the vigorous recovery of Q3 2020, but the improvement in each quarter is evident: -12.8%, -9.1% and -7.2% for Q2, Q3, and Q4, respectively.
In addition, the current account ended with a 2.5% of GDP surplus thanks to a trade balance surplus of $3240 million, partly boosted by the decrease in imports as a result of the economic contraction. Such a result reduces external vulnerability and shores up dollarization – the main economic target in these times.
Although foreign direct investment has been marginal compared to that of Colombia and Peru, in 2020 it was 5.6% higher than in 2019, thanks principally to a strong increase in mining activity, which accounted for 40% of the increase.
On the dark side, the Assembly approved the so-called "Intercultural Bill", which raises teachers’ salaries by roughly 42% without complying with the constitutional requirement of backing it up with appropriate financing. According to Minister Mauricio Pozo, this raise would imply an increase of at least $1.5b in the budget. We cannot hide our surprise that the executive did not veto this bill.
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