Ecuador is the latest Latin American nation whose voters are looking to change their political path. On Sunday, February 19, they narrowly denied the ruling presidential candidate a victory in the first round of voting, going to the streets for several days to defend the vote and ensure that the government-dominated electoral commission could not successfully prevent a run-off. A second round will now be held on April 2, pitting Lenin Moreno, the hand-selected candidate of outgoing populist president Rafael Correa, against Guillermo Lasso, a banker from Ecuador’s business center Guayaquil. Although Moreno won the first round handily, the pendulum could now shift toward support for Lasso to the extent the previously-divided opposition consolidates its support. Early indications are that this will in fact occur.
For the past 18 months, voters in every Latin American nation where they have had an opportunity to do so, have voted for change—from Argentina to Peru to Venezuela. The only exceptions have been Nicaragua, where the election results were essentially pre-determined by the government, and the Dominican Republic. The palpable desire for change was also behind the removal from office of the president of Brazil, although that was done via the impeachment process and not through the ballot box.
What’s going on? Very simply, the easy money has run out as commodities markets softened and economies slowed to a crawl, in several instances slipping into grinding, multi-year recession. Populist leaders elected across the region instituted spending and debt accumulation policies that have proven to be unsustainable. Meanwhile, governments seduced by high commodities prices and growing economies felt little need or desire to either save a portion of the national wealth or to make political and economic reforms designed to diversify and strengthen economic growth for the inevitable downturn. As economic uncertainty increases, voters are less willing to excuse populist excesses, including creeping authoritarian governance and growing, even massive, corruption. As interest rates rise in the United States and the dollar appreciates, making dollar denominated debt more difficult to service, emerging market nations which have not already taken macro-prudential measures could bear significant adjustment costs.
This is the scenario facing Ecuador right now. President Correa has been in office for 10 years but, as he is prevented from running for re-election, put forward former Vice President Moreno as the standard-bearer of correismo. In other words, Moreno promises to pursue the decade-long path laid down by Correa, and in fact has promised to increase spending on social programs and further increase Ecuador’s debt load to do so. At the same time, as a previous member of the Correa government, popular rejection of government corruption and the natural desire for a change in political scenery after a decade of continuity is weighing on his support. For his part, Lasso has promised to seek additional direct foreign investment by improving the investment climate, diversify and open the economy to increased global contact, reduce corruption, and seek a debt relief package from the IMF.
Both candidates also sharply differ in another important if primarily symbolic matter: Moreno supports the continued ability of Julian Assange to remain at the embassy in London, while Lasso has indicated publicly that he will ask Mr. Assange to depart.
The people of Ecuador will be choosing the fundamental direction of their nation on April 2, and they have a distinct choice. And the choice they make will also impact Ecuador’s relations with its neighbors and also international partners including China and the United States. For example, Correa has actively sought Chinese investment in Ecuador and, when President Xi traveled to Quito in November 2016, consummated a bilateral “strategic alliance.” Much of Ecuador’s oil sector, for example, is now dominated by Chinese interests. Moreno, likely, would continue such an approach, looking first to Beijing for additional investment as well as support for debt renegotiation. Lasso has explicitly called for a renewal of closer ties with Washington, and to look to the United States for the direct foreign investment he seeks and for support with international financial institutions on debt and economic support.
Equally importantly, Ecuador has fallen dramatically behind its neighbor nations in the Pacific Alliance—Colombia, Chile, Peru, and Mexico—despite being geographically an attractive, and logical, choice for membership. To the extent that the Pacific Alliance is becoming the most important vehicle for regional economic integration in the Americas with the demise of the Trans Pacific Partnership, a focus by Quito on economic reform and renewed regional engagement based on market principles would make the nation a more attractive potential partner over the medium term. There is little likelihood that membership in the Pacific Alliance would be possible with Lenin Moreno as president; with a concerted effort at reform, it becomes a conceivable though uncertain possibility under Guillermo Lasso.
Except for the devastating earthquake in 2016, Ecuador has not recently been in the headlines prior to the recent elections. As the people exercise their right to vote on April 2 and have the opportunity to restore the country to a more sustainable economic footing with strong democratic protections, the country may become the latest whose voters have cast off populism for pragmatism. The course that they decide will have profound implications for the nation, for its relations with its neighbors, and for trade and investment partners around the world.