Economics

For Lenin Moreno, Ecuador’s Economy Is a Key to Staying in Power

Moving forward, President Moreno will need a new strategy that is more gradual and less socially traumatic to pursue macroeconomic and fiscal reform.
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Ecuador news, Ecuador economy news, Ecuador Lenin Moreno, Moreno economic policies Ecuador, Ecuador IMF loan, Ecuador protests, Rafael Correa news, Ecuador politics news, Ecuador election news, Ecuador economic program

General strike in Puyo, Ecuador, 7/10/2019 © jarno verdonk / Shutterstock

February 10, 2020 07:57 EDT
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Last October, Ecuador witnessed some of the largest mass protests in its modern history. Concentrated mainly in the capital city of Quito and, less intensely, in Guayaquil, Cuenca and Portoviejo, the protests ignited on October 3, when President Lenin Moreno’s government announced the elimination of long-standing fuel subsidies for gasoline and natural gas. The cancellation of these subsidies provoked a major increase in prices and overturned a national welfare program that had been in place since the 1970s, at an average annual cost of $1.3 billion.

This fiscal measure was part of public spending cuts that Moreno’s administration had negotiated with the International Monetary Fund (IMF) in return for a loan that would allow Ecuador to borrow $4.2 billion over three years. In recent weeks, Moreno held a meeting with the IMF in Davos in order to discuss the loan terms and review the relationship between the country and the organization.

By eliminating the fuel subsidies, which are no longer affordable, the Ecuadorian economy expected to ease its debt burden and reduce the fiscal deficit incremented during previous administrations. Nonetheless, the fuel subsidies are only one component of the so-called package of economic and labor reforms that Lenin Moreno pretended to implement in order to obtain IMF funds. The reforms also include labor reform and pension adjustments.

The Government Buckles

In previous decades, Ecuador witnessed the dramatic end of more than one presidential tenure. In 2000, Jamil Mahuad, elected in 1998 and responsible for the dollarization of the country, was ousted when the armed forces withdrew their support and mass protest engulfed the country. Similarly, Lucio Gutierrez, democratically elected in 2002, was displaced in 2005 due to unpopular political measures that devolved into mass protests.

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It should, therefore, come as no surprise that President Moreno was overly cautious in responding to the 2019 mobilization, which included provisionally moving the seat of his government out of Quito to the city of Guayaquil. Moreno’s predecessor and former political ally, Rafael Correa, also had to deal with major public discontent.

The social spark that started with the withdrawal of fuel subsidies quickly turned into a long list of grievances ranging from indigenous rights and rural reform to corruption and social welfare. Ultimately, the Moreno administration backtracked on its elimination of the fuel subsidy and announced that it would seek alternative ways to overcome the budget deficit. Once the demonstrations subsided toward the end of 2019 following a compromise with the protesters, President Moreno appointed new officers to the country’s top military posts after allegations that the armed forces had abused the curfew in order to suppress public dissent.

A Structural Issue

Currently, Ecuador’s socioeconomic predicament is due mainly to its historic reliance on income from fossil fuels and other commodities, as well as the failure of previous administrations to maintain a rainy-day fund during times of economic boom. Additionally, the protests have had a severe economic impact (similar to Chile’s case), having brought the country to a standstill until the UN and the Catholic Church stepped in to broker an agreement.

Moving forward, President Moreno will need a new strategy that is more gradual and less socially traumatic to pursue macroeconomic and fiscal reform. Simultaneously, the government needs to enact institutional changes to facilitate a leaner administration and reshape the national economic model to reduce its dependency on the export of commodities.

Lastly, Ecuador needs to comprehensively address the issue of the more than 250,000 Venezuelan migrants now living within its borders, putting a strain on the small nation’s economy. The global reduction in commodity prices, coupled with the onerous social spending programs that Moreno inherited, has created a fiscal conundrum that his government is tasked with solving.

Correa’s Opposition

Underlying the social and economic issues Moreno faces is a strong political tension within Ecuador. The rift is between the president’s right-wing supporters, including the country’s economic elites and, on the other hand, the partisans and supporters of former President Rafael Correa (in office between 2007 and 2017), who is still very popular with constituents both in and outside the country.

Having served as Correa’s vice president between 2007 and 2013, Moreno was elected to the presidency as the heir of Correa’s left-wing, progressive agenda. However, shortly after his ascension to the presidency, Moreno broke with the Correista agenda and, nowadays, Moreno and Correa exchange nothing but blows.

At the end of 2019, Ecuador’s national court of justice ratified the preventive detention against Correa’s ally and former vice president, Jorge Glas, on charges of alleged bribery, illicit association and influence peddling. Correa himself, who has settled in Belgium since leaving office, has been charged by Ecuador’s judiciary with similar crimes and misdemeanors. The former president and his numerous allies denounce the charges as political prosecution and write Lenin Moreno off as a traitor who deceived Ecuador by running his campaign under the Correa brand, but who governs as a right-wing technocrat.

For his part, Moreno also denounces the influence of Correa and his “pink tide” allies in the region, including Venezuelan President Nicolas Maduro, have in the protests and other plots that have disrupted his administration and cost millions of dollars for the commerce and transportation industries.

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As Ecuador prepares for presidential elections in February 2021, right-wing figures, like Jaime Nebot and Guillermo Lasso, are seeking to return the country toward proper conservative and market-friendly governance. However, these traditional right-wing parties are finding that Lenin Moreno has shifted to occupy the center right of the political spectrum and already incarnates many of the policies that the right champions. Simultaneously, serious mobilization and debate are ongoing among Ecuador’s populist and progressive parties, including talks of Rafael Correa’s potential return from exile.

As Ecuador celebrates 20 years since it adopted the US dollar as its official currency, the country’s economy — and its relationship with the United States and organizations like the IMF — remain contentious issues that will mark its political future during the upcoming year.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

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