Even more in debt due to COVID, Ecuador elects its president

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Ecuador, which is preparing to elect its new president on Sunday, is facing chronic external debt, as well as a financial crisis aggravated by the pandemic and the instability of oil prices, its main export product.

After the oil windfall enjoyed by his predecessor, the socialist Rafael Correa (2007-2017), the current president Lenin Moreno argues that he had to manage serious economic difficulties, to the point of having to ask for help from the International Monetary Fund (IMF).

“Using the Fund is a way to bring order with good advice,” analyst Pablo Lucio Paredes, professor at the private University of San Francisco in Quito, told AFP.

This strategy was the lifeline of a dollarized Ecuadorian economy. But external debt rose from around $ 26.8 billion to $ 42.3 billion (44% of GDP) between Mr. Moreno’s arrival to power in May 2017 and last November, according to the most recent data from the Central bank.

The situation, attributed to the waste of correism according to its critics, worsened with the appearance of the coronavirus and the restrictions aimed at curbing the contagion, which also generated a health and social crisis in this country of 17.4 million inhabitants. .

“In a climate of weakening, of economic mismanagement, the virus found us unprepared and amplifies all the problems,” said analyst Alberto Acosta Burneo, of the Spurrier group.

The pandemic caused more than $ 6.4 billion in losses and worsened unemployment, which reached 8.59% last September.

Budget deficit

Ecuador’s economy is expected to contract 8.9% in 2020 and growth to only 3.1% in 2021, according to official forecasts.

The main challenge of the next government, which will take office on May 24, will be to “reduce a budget deficit that is close to five billion dollars”, underlines Mr. Acosta, pleading for “the orthodox way, to put the accounts in order. tax, like expenses ”.

The favorites for the presidential election are left-wing economist Andrés Arauz, 35, runner-up to ex-President Correa, and former right-wing banker Guillermo Lasso, 65, with indigenous leader Yaku Perez far behind them , 51 years old, left aligned.

In counterpoint, there is “the other way, the heterodox or the creative in quotation marks, according to which austerity is bad”, adds the analyst in allusion to Mr. Arauz.

To free itself from its dependence on oil, Ecuador opened up to industrial mining in 2019, hoping that the weight of this sector in GDP will drop from 1.6% to 4% in 2021.

Lenin Moreno “has done several things well” such as “reducing spending, labor reforms, the fight against corruption, advancing a free trade treaty with the United States,” said Mr. Paredes.

In order to reactivate the economy in the midst of a pandemic, Andrés Arauz plans to pay $ 1,000 to a million families during his first month in power, while Guillermo Lasso and Yaku Perez propose to create a million jobs in the first year.

Quito managed to strike a deal with its creditors to restructure around $ 17.4 billion of its debt into bonds.

This is “Moreno’s main achievement,” Acosta adds of the reduction of about $ 1.5 billion on principal and a decrease in the average interest rate from 9.2% to 5.3. %.

“All creditors can be sure that we will respect the renegotiation”, assured Guillermo Lasso, while Andrés Arauz estimated that “this gives the country a breathing space for several years”.

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