When the government of Ecuador eliminated fuel subsidies, thousands of people took to the streets of Quito in October 2019 to protest against President Lenin’s economic adjustment plan Moreno.
Led by indigenous organizations and opponents of the government, the social outbreak revealed a political polarization that, on the occasion of the presidential elections this Sunday, has resurfaced.
Although they participate 16 candidates in the elections, who lead the career in the polls are economist Andrés Arauz, a dolphin of former leftist president Rafael Correa (2007 – 2017) and the banker and businessman Guillermo Lasso.
The two candidates represent the so-called “Correísmo” and “anticorreísmo” that deeply divide the country and that embody two opposing models of economic development.
One of the most important themes of The campaign has been the economy, which although dragging on serious problems for years, is now in a critical situation due to the effects of the covid pandemic – 20.
The next government will have to take over a country whose economy suffered a contraction close to -9% in 2020 and that it has very few funds to start economic reconstruction.
Added to the pandemic is the persistent drop in the oil price from 2014 -which is the country’s main export product- and that generates about a third of public income, while the rest comes from e tax collection.
Being a dollarized economy , which cannot print money or play with monetary devaluation, the country has faced a financing crisis that has put the road uphill.
The public debt borders the 70% of Gross Domestic Product and the fiscal deficit exceeds 8%, according to the latest estimates of the International Monetary Fund, IMF.
Whoever is the winner of the electoral contest will have to take charge of a country with high levels of labor informality and poverty, which have become even more pressing amid a global economic crisis.
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In the absence of official statistics, organizations such as the United Nations Children’s Fund, Unicef, estimated that poverty has skyrocketed by 38% and extreme poverty about 25%.
Considers In a high-risk country due to international investors, President Lenín Moreno sought external financing with multilateral organizations such as the World Bank, the IDB, the CAF and the IMF, the latter being the institution that committed the greatest amount of resources.
The last loan agreed with the IMF was $ 6, 500 million dollars, of which about $ 4 has already been delivered, 10 million, and the remainder will be disbursed to the extent that the conditions required by the agency.
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Conditions that appeal to fiscal austerity to clean up public accounts, reduction in the size of the State and an increase in the Value Added Tax (VAT), which are resisted by the lower income sectors as they are considered a synonym of hunger and misery.
What do the main candidates say about the agreement with the IMF?
The businessman Guillermo Lasso has said that it will respect the country’s agreement with the multilateral organization, except in one point.
“We are not going to ignore the agreement with the International Monetary Fund. What we are not going to do is raise the VAT ”, affirms Lasso, clarifying that the fiscal accounts can be put in order without increasing the consumption tax.
Even the candidate assures that it will be even “bolder” than the goals set by the IMF.
“They talk about reducing the deficit, I talk about reaching a zero deficit , because the day Ecuador reaches a zero deficit, there will be no more debt.”
Lasso proposes doubling oil production to obtain greater resources, efficient government management, incentives for foreign investment and the fight against corruption.
From his perspective, “returning to correísmo” could lead Ecuador to become a new Venezuela .
On the other hand, the economist to of 38 years Andrés Arauz assures that he will not comply with the conditions imposed by the IMF.
Andrés Arauz has proposed reactivating social spending and breaking with the austerity supported by the IMF. “Welcome to the support of the IMF to our own economic program, but to submit to the conditions negotiated by Moreno, we are not going to do it, “he said in an interview with Reuters.
During his campaign he has stated that one of his objectives is to reactivate social spending and break with the austerity supported by the IMF.
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With that horizon has promised to open lines of credit for small and medium-sized companies, to give a bonus of US $ 1. 10 to a million families in the first week of government. finance part of the hiring of new employees by companies and rehire public sector workers, such as teachers and doctors, who had lost their jobs.
The resources would be obtained from the funds of the Central Bank of Ecuador and changes to the tax system so that “the rich pay more taxes.”
The great challenges of economic reconstruction
At the center of the presidential campaigns has been the issue of employment, which is precisely one of the greatest concerns of citizens, according to the latest polls by opinion.
“About half of the workers are in the informal economy. The problem is not so much unemployment, but underemployment “, Susana Herrero, an academic at the Faculty of Economic Sciences of the University of the Americas, tells BBC Mundo. Quito.
A 70% of the country’s employment is generated by small and medium-sized enterprises. The problem is that many of these micro businesses disappear shortly after they are created.
“We are the most entrepreneurial country in Latin America and the one that fails the most,” explains Inty Gronneberg, scientist and businessman environmental.
“In Ecuador talent is lost because there is no alliance between the public and the private. The great challenge is how to get out of those visions so polarized “, he points out.
Augusto de la Torre , professor at Columbia University and director of the Center for Economic Research at the University of the Americas, argues that the reconstruction economic requires fiscal, economic and social measures.
“The government that comes will have to manage the scarcity ,” he says in dialogue with BBC Mundo.
To reduce the fiscal deficit, it proposes to increase the VAT of 15% to 16% -the same as indicated by the IMF-, reduce the size of the State, cut excessive fiscal expenditures and replace fuel subsidies with direct aid to lower-income families.
Economically, it maintains that private investment should generate new jobs and not the State, especially in sectors like the oil tanker and the miner.
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Although he recognizes that a fiscal adjustment in the midst of the pandemic is the opposite of what other countries are doing to reactivate their economies, their position is that in the medium and long term it will bear fruit.
And on the social front, de la Torre, who is part of the Council of External Advisers of the current government, argues that the new president should implement policies to to improve nutrition, education and the health system.
A completely different vision is that of Carlos de la Torre, who was Minister of Economy at the beginning of Lenín Moreno’s government, but who is currently an economic advisor to the opposition candidate Andrés Araúz.
“We have to get Ecuador out of the economic abyss “, he tells BBC Mundo.
For this, he explains, the economy requires a rapid injection of resources to activate consumption and generate jobs.
Those fiscal funds would be distributed through direct subsidies to families; savings and credit cooperatives to provide financing to companies; the co-payment of the salaries of the new workers hired from between 18 Y 28 years for a period of one year, in addition to the delivery of credits through the Development Bank of Ecuador for, for example, infrastructure works .
That gigantic level of fiscal spending would be financed, explains de la Torre, with loans from the Central Bank of Ecuador and of measures that would increase tax collection.
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Among them, the decrease in tax evasion, the collection of unpaid debts to large taxpayers, improve tariff collection to avoid “cheating exemptions” and apply a progressive tax to companies that favors those with fewer resources.
In addition, it proposes the creation of a Differentiated VAT between products that generate employment and those that are imported.
In this plan, the IMF conditions do not have space. “The IMF wants to implement measures that are functional to the country’s elites,” he points out.
The issue of attracting foreign investment is another point on which some of the economists interviewed by BBC Mundo insist.
“Ecuador has to fix its public accounts, lower country risk and build trust,” says Jaime Carrera, executive director of the Observatory of Fiscal Policy, OPF. “We have no other option.”
A similar opinion has Pablo Lucio Paredes, director of the Faculty of Economics at the San Francisco de Quito University.
“We must open the economy to the world” and make reforms in sectors such as the labor market or the retirement system, in addition to eliminating unproductive expenditures of the State.
In the middle of the discussion on how to rescue an affected economy due to structural problems, but which also bottomed out with the pandemic, there is a governance problem that complicates things even more.
“This country is on the verge of a great social explosion ”, says Alberto Acosta, former president of the Assembly National Constituent.
The economist regrets that when the country had the opportunity to make profound changes, such as a productive transformation and a redistribution of wealth, during the government of Rafael Correa, it did not make them .
And from his point of view, the Moreno government has further aggravated the problems. “The situation is dramatic” , he points out, because in the midst of the pandemic, Ecuadorian society has not shown solidarity with those most affected, nor respect for a more model of development. sustainable.
“Those who have more money have to contribute more to society,” says Acosta.
The uncertainty about who will take the reins of the country is high. The biggest challenge for the candidates will be to overcome the indifference and indecision of an electoral process that is taking place in the midst of a pandemic that has hit Latin America hard.
And if there is not a winner in the first round, they will have to go to a ballot scheduled for 12 of April.
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