Ecuador: End To The Socialist Era Problematic, Even With The Departure Of President Correa

The first round of presidential elections in Ecuador, failed to deliver President Rafael Correa the result he desired. Held on February 19^th the socialist candidate Lenin Moreno, failed to receive the 40% required, to prevent a second round in April.

Correa has already threatened to dissolve both the executive and legislative branches of government, if Mr. Moreno is not elected president.

President Correa may well decide to invoke an obscure procedural rule, that would in effect nullify the results of a national election. It would then force a new round of voting, where it is expected Correa will do what he can, to ensure the victory of his hand picked successor Moreno.

Lenin Moreno was a former Vice President under Correa from 2007 to 2013. If he is defeated at the ballot, Ecuador will follow the same political shift to the right, that has occurred already in Argentina, Brazil and Peru.

Lenin Moreno only received 39.3% of the vote tally, just under the requirement set be the electoral commission. The winner must also demonstrate, a margin of victory of at least 10%. His opponent, the conservative former banker Guillermo Lasso, came in second with 28.1% of the vote.

There were a total of nine candidates in the first round of elections.

Correa has already declared the major policy proposals of Lasso, that is liberalizing the economy and bringing more trade to the country, as unconstitutional.

An observer should not be surprised, since the Correa Administration has professed strong support for the governments of Raul Castro in Cuba and Nicolas Maduro in Venezuela. He has also expressed sympathy for the regime in Iran and had remained a outspoken critic of the United States.

Lasso on the other hand, has stated a reduction in taxes, additional foreign investment, and the creation of a million new jobs in four years, as essential to move the country economically forward. He remains quite critical of the high government spending, that has taken place during the decade Correa has been in power.

Another issue of contention between the two candidates, is the situation concerning Julian Assange. President Correa has provided him sanctuary at the Ecuadoran embassy in the United Kingdom. Candidate Lasso has pledged to finally end this asylum, that has lasted for years.

Mr. Lasso has a good chance of winning the second round of elections, because conservative voters from other parties, are likely to rally behind him. In addition, a growing segment of the population is tiring of the socialist order of business.

Candidate Lasso has already alleged fraud in the vote count, held earlier this month. The electoral council continues to insist, there is no evidence of vote tampering.

President Correa remains resistant to the idea, that is socialist ideology will finally be rejected by a majority of the electorate after 10 years of being in office.

However, even if Guillermo Lasso would somehow win the election, much of his agenda would be thwarted, since the socialists would still dominate the legislature. It will take time and another election, to start changing this reality.

There are two major reasons why President Correa feels the need, to have a socialist and political supporter follow him in office. The first being what might happen, if there is a real change in government.

Lasso as president, could well order an investigation into the finances and conduct of the former president. This might lead to charges of bribery and corruption.

A situation similar to what is happening in Ecuador, has already occurred in Argentina. A runoff election there in 2015, led to the defeat of a successor chosen by former President Cristina Fernandez de Kirchner.

The electoral victory of the current president Mauricio Macri, has brought dramatic change to the economy and politics of Argentina. This would not of happened, if Daniel Scioli had been successful in his electoral bid.

Macri a center right and pro-business leader, has been moving to dismantle a political machine that was 12 years in the making, by the former president and her husband.

It had been kept in place by generous payments and subsidies to various constituencies, as well as constant interference in other governmental institutions. In the end, it practically bankrupted the country.

It also explains why the former Argentine president, is now facing charges of corruption.

The second reason, is the political future of Rafael Correa himself. Even after winning two terms as President, he will only be 54 years old when he leaves office.

When he took office in 2007, the former economist won praise for bringing stability to Ecuador. The severe economic crisis the country was undergoing, had driven three previous presidents from office.

More recently, the criticism of his tenure has escalated, as Correa has become increasingly authoritarian. He has been practically dictatorial, in his political moves against the independence of the judiciary and press. Actions taken against opponents, have been underhanded and repressive.

President Correa having served to full terms in office, is not eligible for re-election.

Earlier his supporters formed an organization to campaign for a constitutional amendment, allowing him to run again. The group was required to gather signatures from 8% of the electorate, in order to hold a referendum. Although his advocates far surpassed the number needed for the vote, Correa made the decision that he would not attempt a third consecutive run in 2017.

Rafael Correa no doubt will attempt to remain one of the most powerful political brokers in the country, once he is out of office. Whether this will include being the president of Ecuador again in 2021, is uncertain.

Observers may wonder why President Correa would rather be out of office, for the next five years?

The President has maintained his popularity by rather generous social spending. This included significant growth in the public payroll sector and cash transfers, to well over 1 million low income citizens. These outlays had been made possible, by rising global prices for commodities, especially oil.

Correa doubled public spending, which increased the debt to GDP (Gross Domestic Product) ratio substantially.

The President also made the decision at the end 2008, to not pay $30.6 million USD (United States Dollar) in interest to lenders, on a $510 million USD loan. He accused these investors of being monsters, in expecting to be paid the interest due.

He then went a step further and declared the $3.8 billion USD foreign debt negotiated by previous administrations was invalid, because it was authorized without an executive decree.

These actions by the Correa administration, caused a precipitous drop in foreign investment in the subsequent years. It is now at the exceptional low rate of just 0.06%.

In addition, government policies created an environment that led to a constriction, in the amount of domestic private sector investment as well. This has ultimately slowed the overall rate of growth for the domestic economy. It has resulted in Ecuador having one of the least competitive economies in South America.

As the world price of oil dropped near 50% during his second term, the annual budget deficit went from a low of -0.1% in 2011 to -5.3% of GDP already by 2014.

The sale of crude comprises more than 50% of Ecuadorian exports and it accounts for 11.5% of the GDP. As is quite evident, the nation relies on the sale of oil. This one source of revenue, finances more than 25% of the national budget.

As external debt rises, foreign exchange reserves continue to drop. In a space of one year between 2014 to 2015, international reserves plunged from $4 billion USD to $2.5 billion USD.

The near collapse of commodity prices in 2015, subsequently forced the economy of Ecuador into recession. Previous high levels of government spending, curtailed the ability of using additional expenditures, to better assist with domestic consumption.

The government has been unable to increase the amount of money in circulation either, as the official currency of the country is the American dollar. The government adopted the United States currency in 2000, because inflation had wiped out the value of the sucre in the preceding year.

This economic reality has forced President Correa, to reduce overall government spending by billions of dollars a year. As a result he has become less popular, with the segment of the population that relies on government largess. These citizens make up a crucial part of his constituency.

The efforts to raise more money through higher taxation, on those individuals that are reliant on the private sector for their livelihood, has simply added to the social unrest.

The country is becoming even more dependent on its chief benefactor, China. In the form of loans and investments, various Chinese institutions as well as the government, have become a major factor in the economy of Ecuador. These investments now comprise over 25% of the Ecuadorian GDP.

The cost to service these numerous loans, continues to grow. China now controls a majority of the natural resources of Ecuador. Far more troubling, is the fact that nearly 90% of the country’s oil exports, are now being used to finance the loans, that were originally acquired from China.

Rafael Correa’s  determination to chart a true socialist path, has proved to be ruinous to his country’s economy. The still relatively low price for international oil, is still not generating sufficient revenue to help Ecuador out of its present financial crisis.

This is despite the recent decision made by OPEC (Organization of the Petroleum Exporting Countries) of which Ecuador is a member of, to scale back production and  sales of its crude, by nearly 1% in 2017. This is being done in an international effort, to help create a higher price structure for global oil.

The recent rise in oil prices, may at least help Ecuador to emerge from recession in 2017. Nonetheless, growth is likely to be only a meager 0.1% this year and possibly as high as 0.7% in 2018.

In comparison, economic growth was at 7.9% as recently as 2011 and was still a respectable 3.7%, as late as 2014.

President Correa therefore, would rather not be held responsible, for the nearly catastrophic effects or recent developments, on the economy of Ecuador.

This might well allow him to return to power in 2021, with his reputation and popularity somewhat intact.

His successor of course, would necessarily carry most of the blame for the difficult period, that most likely lies ahead for the country over the next five years.

The Correa plan may well include installing a government, that will hold power until he is ready to resume the presidency once again. A deal that may already be in place, would resemble what occurred in Russia with Vladimir Putin and his Prime Minister.

There are substantial risks to this political scheme. One could be, his chose successor may not wish to relinquish power at the end of his first term. According to the constitution of Ecuador, Lenin Moreno would be eligible to run for re-election.

A sluggish economy over the next five years, could well undermine electoral support for Alianza Pais, the party that President Correa dominates. Without a working majority in the legislature, Correa would be far more limited in the exercise of power, even is he was able to stage a political comeback.

These alternate realities are all unknown. However, the closest threat remains the strong possibility, that Guillermo Lasso might bring the conservatives back into power.

This electoral result would lead to at least a partial dismantling of the socialist economy. It could also bring a possible legal indictment against Correa. At the same time, it would make a re-election of Correa highly improbable in 2021. This is why Correa will pull out all the stops in the effort to prevent a Lasso victory.

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