Ecuador – Economic Collapse, Coronavirus and the Caudillo


Quito, Ecuador

Ecuador faces three crises. It’s economy, already reeling from low oil prices and a decade of mismanagement, now suffers the commercial consequences of the worst outbreak of COVID-19 in South America. Third, and most critical, is the protection of Ecuador’s hard-fought democratic reforms established in constitutional reforms that were approved in 2018.

Devastated by the Coronavirus

Although there are no reliable numbers, the City of Guayaquil, Ecuador’s largest metropolis, appears to have the highest per capita mortality rate from coronavirus in the world. The medical system, which was inadequate to handle the crush of cases, was quickly overwhelmed. In many cases, the stricken died on the steps of clinics while waiting to be admitted. Dead bodies lay uncollected in streets and in homes. Mortuaries were overwhelmed. The smell of death was, according to witnesses, overwhelming.

When all administrative functions collapsed, President Lenin Moreno ordered Ecuador’s Navy to assume control of Guayas Province. Ecuadorian Marines (fucileros navals) now patrol the streets, and escort medical supplies and doctors to crisis locations. The economy, already reeling, is now in a free fall.

Pummeled by a decade of economic mismangement

The preexisting economic crisis is partly due to the precipitous decline in the price of crude oil, Ecuador’s primary export. That problem, however, was compounded by the decade of mismanagement by former president, Raphael Correa. In office from 2007 to 2017, he followed the economic model initiated by Hugo Chavez in Venezuela, which surprised many in that he earned a doctorate in economics from the University of Illinois. Now in exile in Belgium, Correa heaped benefits on the poor but failed to build a self-sustaining economy.

His critics now say that he and his cronies also burned through a multi-billion dollar emergency fund that was designed to deal with a crisis such as the coronavirus pandemic. Correa also placed his friends and supporters in critical government positions of key ministries, notably including the Ministry of Health. Their incompetence contributed to the poor response to the current coronavirus crisis.

Correa chose his vice president, Lenin Moreno, to succeed him and assumed that Moreno would follow his socialist policies. Notwithstanding a first name that suggests that he is a leftist, Moreno instituted neo-liberal policies and turned to the International Monetary Fund (IMF) for help. The Fund produced a rescue package including a $10 billion loan at favorable rates. The IMF loan allowed Moreno to reduce the fiscal deficit by more than half, from eight to three percent of GDP. However, in return the IMF demanded that Ecuador cut spending further. Moreno did so by cutting both public-works programs and social spending, including a fuel subsidy that cost the government $1.3 billion per year.

Cutting the fuel subsidy was economically sound but disastrous politically. Cheap fuel benefitted both needy and affluent consumers. There is evidence that a significant amount of cheap fuel was smuggled out of Ecuador for resale across the borders in Colombia and Peru. Ending the subsidy made perfect sense in an economic terms. When fuel prices increased, violent protests broke out in Quito and other cities. To mollify protesters, the fuel subsidies were restored and the effort at austerity was at least partially abandoned.

Preserving democratic reforms

Moreno’s most important reform, however, was to reverse many of Correa’s anti-democratic policies. Correa had styled himself as a “caudillo,” the supreme leader who claims to be the savior of the nation and savages institutions and laws designed to avert a dictatorship. When the economy collapsed, Correa would not tolerate criticism. He took over one television station and attacked newspapers that criticized him. He packed the courts and used them to harass his critics. He neutralized the National Assembly and put his cronies in positions to enforce his edicts while lining their pockets. He was allegedly complicit in the kidnapping of a political opponent and is now under indictment for that crime.

Once Moreno took office he issued new guarantees of a free press. He then pushed through several constitutional reforms to protect against the types of authoritarian policies established by Correa. The reforms won overwhelming support in a 2018 referendum and overturned much of the political legacy of his predecessor. It also blocked Correa from returning to office by putting a two-term limit on the presidency. These political reforms were popular and gave Moreno a 77 percent approval rating. But that fell to just 7 percent after the austerity program was implemented and rioting broke out in Quito.

Canceling the cost-cutting measures averted more violence in the streets, and possibly saved Moreno’s job. Prior to the current coronavirus crisis, his approval ratings inched back up to 30 percent. Now as he enters the final 12 months of his four-year term, most observers doubt his ability to win reelection in next year’s presidential election, which is set for February 28, 2021.

Pending elections will be critically important

In normal times, the economy would drive politics but these are not normal times. With low oil prices and little left of the IMF line of credit, Ecuador’s economy will very likely languish well after the COVID-19 crisis ends. Recovery will require international support and private investment as well. Both will require a competent government and adherence to the rule of law, particularly the sanctity of contracts and integrity of the government procurement process.

While the economy will likely drive the election, much more is at stake. The election will determine the durability of Moreno’s democratic reforms. The history of Latin America is replete with cases where, during a crisis, the population supports a “strong leader,” or Caudillo. Historically, such a leader came to power through a “golpe d’estado,” or “coup d’etat” as we say in English. Make no mistake, a caudillo is often popular at the start of his tenure and could be chosen in a fair election. Some in Ecuador worry that Correa will attempt to return, notwithstanding the criminal charges pending against him.

Ecuador exemplifies the challenge of society trying to recover both politically and economically from an period of autocracy. Notwithstanding the importance of ideology – supporting business or helping the poor – the most important criterion for the coming election will be a commitment to democracy and the rule of law.

Ambassador Richard Holwill served as U.S. Ambassador to Ecuador from 1988 to 1989 and has extensive experience in Asia, Latin America, Europe, and the countries of the former Soviet Union. From 1990 to 1993 he served as Counselor to the U.S. Arms Control and Disarmament Agency. He most recently served as vice president of public policy at Alticor in Washington, D.C. - the parent company of the Amway Corporation - where he managed worldwide government affairs efforts. He chaired a trade advisory committee for U.S. Trade Representative and the Asia Task Force at the U.S. Chamber of Commerce. He has testified before Congress on international trade issues and U.S. policy toward China. He has published two books on public policy and numerous articles in major publications. His areas of expertise include international trade, international investment disputes, and the resolution of business problems in foreign markets

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