Transition government: Bridge over troubled waters
The president elected on October 15 will have to confront the problems of violence from organized crime and violence from nature. Experts have announced that El Niño this year will be stronger than in previous years, although not as extreme as those of 1982 and 1997.
On the other hand, violence from crime is already disrupting the day-to day-life of Ecuadorians and affecting many sectors. Education in certain areas is captive of narco-gangs that are disputing territory. Some schools have been forced to close, at least temporarily, in Guayaquil, Esmeraldas, and Manabi, and there is growing absenteeism from students because parents are unwilling to expose their children to the danger of stray bullets, which have already killed two boys.
Many businesses are forced to close early or close all together because they are victims of extortion. The so-called payments for “vaccines” are hitting small businesses especially in Guayaquil, and are also behind the increase in migration as Ecuadorians crossing into Panama or Mexico have told the press.
Violence and political instability are also halting incoming direct investment, which was already small compared to that received by our neighbors Peru and Colombia, despite their own political problems. This situation is particularly evident in the oil and mining sectors—two important pillars of our economy. Central Bank information shows that while in Q1 2021 and 2022 this sector received flows of $51m and $50m, respectively, in Q1 2023 investment fell to $5m. Also, in annual terms, FDI into the sector is down $724m between 2020 and 2022 (from $535m to -$190m).
The General Government overall balance is negative at $2.72b from January-August, and if this trend persists, it might reach $4.2b to $4.6b by the end of the year (around 4% of GDP). This deficit is still below the deficits in 2013 and 2016, but it might not be subdued next year, requiring total financing of at minimum $8b and an increase in arrears, which by August 2023 had reached $1.7b.
Navigating these waters will prove difficult for the new government even in the event that it takes money out of the RILD. While this is an alternative that has been part of Luisa Gonzalez’s government plan since the beginning of her campaign, Daniel Noboa surprised everyone on September 12 when he also stated that in case of need, he, too, would take some $1.5b from these deposits. The newly elected president will have to change the existing law with 70 votes from legislators in order to use reserves for fiscal purposes. Therefore, the composition of the legislature is extremely important. Daniel Noboa declared he is sure to assemble a group of at least 80 legislators, but the definite number will not be known until elections for legislators in voting centers abroad takes place, at the same time as the second round, on October 15.
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