Ecuador–Economic Collapse, Coronavirus and the Caudillo

AMBASSADOR RICHARD HOLWILL


Ecuador faces three crises. First and second are the current economic and health crises. Its 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 crisis related to the need to protect Ecuador’s hard-fought democratic reforms, established in constitutional reforms that were approved in 2018.


Devastated by the Coronavirus

The City of Guayaquil, Ecuador’s largest metropolis, made headlines earlier this year with an uncontrolled surge of COVID-19 and, for a brief time, 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.


That was in March and April, but by summer Guayaquil emerged from the crisis and began sending medical teams and equipment to treat COVID-19 victims in other parts of Ecuador. City officials say that the city’s history contributed to its resilience. It is a place whose tropical climate, crowded neighborhoods and exposure to foreign travelers set the stage for repeated infections. Indeed, throughout history, Guayaquil has been an epicenter for epidemics of malaria, yellow fever, dengue and bubonic plague. Guayaquileños thus readily accepted draconian public health restrictions this year and emerged from the worst of the crisis to help others.


Ecuador is now managing the COVID-19 caseload as well as can be expected, with infection and death rates below those of its immediate neighbors, Peru to the south and Colombia to the north. It is paying informal workers $60 per month to stay home. The economy, however, is in serious trouble, with the 2020 debt expected to exceed $12 billion, which is well over 10% of the country’s GDP.


Pummeled by a Decade of Economic Mismanagement

It is important to note that the economic crisis existed before the COVID-19 lockdown. It 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 Ecuador’s 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 Correa 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 COVID-19 pandemic. Correa also placed his friends and supporters into critical government positions in key ministries, notably including the Educador 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 that included a $10 billion loan at favorable rates. The IMF loan allowed Moreno to reduce the fiscal deficit by more than half, from 8% to 3% of the 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 economic terms. However, 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. In April, he was convicted, along with 20 of his cronies, of accepting more than $8 million in bribes from the Brazilian company Odebrecht.


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. The reforms also would block Correa from returning to office by putting a two-term limit on the presidency. These political reforms were popular and gave Moreno a 77% approval rating. But that fell to just 7% 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%. 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.


The 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 ensuring the sanctity of contracts and the integrity of the government procurement process.


What Ecuador does not need is the return of a caudillo. There is reason to believe Correa will attempt to return and that one candidate in particular, Andrés Arauz Galarza, plans to issue a pardon for his crimes, which would allow Correa to return from exile.

Arauz is currently the leading leftist candidate for Ecuador’s presidency. He is among 18 candidates who are running in the February 7 primary. The top two finishers will meet in an April 11 runoff election.

Most expect only three or four candidates to dominate the race. Guillermo Lasso, president of Banco Guayaquil, is thought to be the dominate candidate of Ecuador’s conservative factions. Yaku Sacha Pérez Guartambel, who was, until earlier this year, prefect of Azuay Province, will be a strong candidate, as he will likely do well in the indigenous communities. Pérez, proud of his indigenous roots, changed his name from Carlos to Yaku Sacha, which means “water of the mountains” in his native language, Kichwa-Kañari. Pérez is a lawyer and was nominated by Pachakutik, a “Movement for Plurinational Unity.” Observers also expect to see a candidate emerge who will represent the center-left.


Ecuador exemplifies the challenge of a society trying to recover both politically and economically from a period of autocracy. Notwithstanding the importance of ideology—supporting business or helping the poor—the most important criterion for Ecuador’s coming election will be a commitment to democracy and the rule of law. Ecuador faces major challenges over the next four years. It will be better able to deal with them if its next president proves the durability of Moreno’s democratic reforms.

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 the U.S. Trade Representative and the Asia Task Force at the

U.S. Chamber of Commerce.


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