The political winds blow hot and cold for President Lasso

ECUADOR - Report 22 Dec 2021 by Magdalena Barreiro

The Comptroller General exonerated President Lasso from any involvement in the Pandora papers. In this context, the case was archived, and the dark clouds of a possible impeachment blew away.

But the relationship with the Assembly is still complicated and even more uncertain than at the beginning of the period after nine legislators from Pachakutik broke with the bloc and declared they will only respond to CONAIE – or more specifically to Leonidas Iza, whom the President recently referred to as an “anarchist”. Even though they cannot form a new legislative bloc, they could easily join forces with UNES to block any initiative from the government. On the other hand, the government could take advantage of the weakness of the remaining 14 legislators to secure support for future proposals.

In addition to its fiscal and economic challenges, Ecuador is now facing a clear and present danger from drug-related crime. US Ambassador Michael Fitzpatrick revoked the visas of two retired police generals whom he accused of being “narco-generals”. The recent horrendous massacres in national jails, as well as the increasing crimes carried out by hitmen, clearly speak of a problem that is escalating from the streets into high levels of authority. Ecuador will need international cooperation to put this problem at the top of the list of priorities for next year.

On the bright side, the fiscal deficit of the General Government might end approximately $1b lower than the official estimate from last August, and the overall deficit of the Non-Financial Public Sector could also end well below the IMF estimate for 2021. The Republic will not receive the last IMF disbursement of $700 million expected for December, as the review of compliance with the goals under the agreement has been postponed until January. Thus, the goals for net RILD and deposit accumulation will change. In this fiscal context, President Lasso announced a reduction of 0.25% per quarter, or 1% per year, of the capital outflow tax until it reaches 1%. The announcement received positive reactions from the productive sector.

A new landslide caused by Rio Coca forced another closure of the OCP pipeline. Crude oil exports might fall to 15% of this month’s estimate, but even taking this reduction into account, we expect a trade surplus of around $4.0b for the sector, which will cover the probable $2.0 deficit of the non-oil sector.

At 15 COVID contagions for every 100,000 people, Ecuador was way ahead of the 400 contagions on average in other, richer countries. However, 19 cases of the Omicron variant have already been reported as of December 21, 2021. The government announced it will not mandate another lockdown, but new measures, including the requirement to present a vaccination certificate for access to public offices and likely other public places, is being implemented. We hope that the 70% of people fully vaccinated, together with ongoing efforts to expand this number and apply boosters, will help to contain contagion from this new mutation.

We want to finish this report by wishing all our subscribers Happy Holidays and a great 2022!

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