Indigenous groups stronger, Moreno weaker
Despite a large national consensus regarding the complicity of the indigenous groups in the violent riots of last October, there is no doubt that they emerged stronger from the protests while Moreno and the government are now weaker than before. Democracy, if we believe is there one in Ecuador, enjoyed a small victory as the undeniable plans to put Moreno out of office failed.
Sending a controversial economic law in this context was inauspicious, and early positions from Correistas and Social Christians against the project were soon supported by other legislators, including some from the official party. The lengthy and difficult-to-analyze bill did nothing to help reach a legislative agreement but, on the other hand, in our opinion, positions from legislators had already been taken before the bill was sent. In the end, the archive and rejection of the project was not a surprise.
Those positions reflect a political re-arrangement that leaves us perplexed and uneasy. It appears clear that the consensus of CREO legislators was to vote against the Social Christians – no surprise here as their leaders Nebot and Lasso will most probably be opponents in the presidential race of 2021. But is unsettling to see the division and lack of cohesion within the official party, and even worse to see Social Christians aligning with Correistas in a recent friendship that does not look casual and seems suspicious.
However, even though the government will have to sit with the IMF again and rework the agreement, we do not see the above-mentioned legislative results as catastrophic from an economic point of view. The budget for 2020 was submitted showing an overall fiscal deficit of $3397 million, with an evident overestimation of oil revenues of around $1.3 billion, and underestimation of interest payments of close to $225 million, but also with a large overestimation of capital expenditures at $7.5b – or $2.2b above our forecast for 2019.
The inclusion of $2.0b coming from the possible concessions of CNT, Sopladora and Oil Camp Sacha as part of revenues for next year is a risky bet (except, perhaps, for Sacha) given the difficult political scenario we have described. But there are degrees of freedom, with capital expenditures as the adjusting variable. Thus, our estimate for the deficit including these concessions is $3,936 million, which would force the government to raise some $700 million above the initial financing needs estimate.
Amidst this social conundrum, Correa is being investigated for bribery, and preventive prison has been ordered for him by the presiding judge. This is a crime that does not have a statute of limitations and makes his return as a possible candidate for the vice-presidency in 2021 quite difficult. However, nothing is impossible in Ecuadorian politics.
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