The advance to general elections in the short term will contribute another element of instability to a market that had been slowly recovering after the June 2022 protests. "This is the best decision to provide a constitutional solution to the political crisis and internal commotion that Ecuador is enduring and to return to the Ecuadorian people the power to decide their future in the next elections," says the president on his Twitter account.
This Wednesday morning, Ecuador and all of Latin America woke up with a message to the Nation from President Guillermo Lasso in which he decreed the dissolution of the National Assembly and the call for early general elections.
This, after the Ecuadorian president appeared before the plenary session of the Legislature on Tuesday, due to the impeachment trial for alleged embezzlement and for which opposition legislators sought his censure and dismissal.
Although this decision has generated a great shock in local politics, it remains to analyze what the repercussions will be on the economy of the Andean country and its neighbors.
For Felipe Ribadeneyra, Executive President of the Ecuadorian Federation of Exporters (Fedexpor) , this new political crisis implies instability in terms of business and investments, above all.
“Not because of the cross death itself, but because of the democratic election processes that are coming. Whenever there are electoral processes, everything falls. Now, we are going to be involved in two elections. One in 2024, in January or February, for the rest of the period and the next for the period from 2025 to 2029. We are going to have two periods of democratic elections for assembly members, president and vice president of the Republic, in an average of two years, which obviously generates cost, uncertainty and volatility. This was something that no one wanted, however, the President of the Republic had that power,” he tells AméricaEconomía .
Along these lines, economic analyst Pablo Lucio Paredes commented to the newspaper El Universo that this situation is negative. “(It is) bad because we will live in elections. (It causes) uncertainty because what Lasso does in these months (for example the tax reform that he has just launched) is subject to the new Assembly approving or rejecting it,” he points out.
Paredes also foresees fiscal problems because there will be no international support until there is a new government, "although perhaps it is the opportunity to really make an effort to reduce non-productive expenses."
This stage of elections, as usually happens in most countries, implies that investments remain on standby until the electoral results are known and who will be the person in charge of leading the Andean country. Paralysis because many people and companies will wait to make new large or small investments.
Regarding exports, the representative of Fedexpor affirms that in the case of non-oil and non-mining exports he does not see an impact in the short term and emphasizes that a slowdown scenario was expected due to the international environment. And after a good 2022, the year in which Ecuador closed with about US$ 18,000 million in non-oil and non-mining exports, a growth of 15% compared to 2021, for 2023 an expansion of only one digit is already projected in the face of a potential global economic recession, high costs of raw materials, as an effect of the war between Russia and Ukraine, among others.
“The export sector has become an extremely important source of investment, foreign exchange earnings, job creation, development and well-being in the country, and we want it to continue growing,” says Felipe Ribadeneyra.
In that sense, the ratification of the FTA signed with China just six days ago is also pending. This agreement is key for the country's economy, since close to 99% of its exportable supply would arrive in China with zero tariffs. Also, the ratification of the Trade Association Agreement with Costa Rica signed at the beginning of March is pending.
This time, the ratification of both trade agreements will be in the hands of the Constitutional Court, since after the dissolution of the Legislature, Guillermo Lasso will govern with executive decrees of economic urgency that will be previously reviewed by the highest body of Constitutional Justice in Ecuador.
The agenda of the Constitutional Court will be reloaded. Time is ticking and before the National Electoral Council (CNE) calls early elections for the remainder of the management period, the Court has to approve several decrees on economic matters. The first to be submitted immediately after the dissolution of the National Assembly is the tax reform, called the Law for the Strengthening of the Family Economy.
According to the Government, the proposal is intended to alleviate the tax burden of the middle class. “There will be US$200 million that will remain in the pockets of Ecuadorians,” said Lasso while announcing the signing of Decree 741, known as crossed death.
“The Constitutional Court is going to have to create a precedent because we are experiencing something totally new. The Court is called precisely to legislate something that has never been experienced in the country, such as the decree laws in this period, while the extraordinary elections take place to complete the same period. It is a confusing, complex issue, but the (Constitutional) Court is going to have to be very agile, because the stability and tranquility that we can have in Ecuador will also depend on it,” says Ribadeneyra.
NEIGHBOR COUNTRIES
For the neighboring country of Peru, Ecuador is an important trading partner. Alfonso Medrano, president of the La Libertad Chamber of Commerce, told local radio RPP Noticias that it is still premature to say what the economic impact will be in Peru. However, he highlighted the importance that Ecuador has for some economic activities that take place in the north of the country.
It should be noted that after two years of pandemic, according to CAN, trade between Ecuador and Peru, member countries of the Andean Community, managed to recover in 2022.
But how important is Ecuador in Peru's economy, especially in the northern part where both countries border. “It depends on the sector. For example, in the agricultural sector there is a strong relationship with the poultry sector, there is a lot of exchange of eggs and chickens, and exports of fertile eggs,” Medrano told the radio station.
Colombia, another neighboring country, is, along with Peru, one of Ecuador's main partners not only in trade but also in cooperation.
According to data from ProEcuador, 96% of the shrimp consumed in Colombia are Ecuadorian, while 94% of the tuna is of Ecuadorian origin.
LASSO CROSSED THE RUBICON
Although the president's measure is contained in Rafel Correa's own 2008 constitution, the opposition leader and former president (2007-2017) called Lasso's decision illegal, while the Confederation of Indigenous Nationalities of Ecuador (Conaie) denounced a “cowardly self-coup d’état.”
Neighboring nations, such as Chile, have appealed “to mutual understanding and dialogue as ways to overcome this complex moment.”
"The Government of Chile trusts that the political crisis affecting the brother country of the Republic of Ecuador will be resolved through the democratic and institutional mechanisms provided for in its constitutional norms, with strict adherence to and respect for the rule of law," he indicated. a statement from the Foreign Ministry, while the Minister of Foreign Affairs, Alberto van Klaveren, assured this Wednesday that "there is a constitutional order that is in force in Ecuador and our aspiration is that all parties respect that constitutional order."
The truth is that in political terms Guillero Lasso has 'crossed the Rubicon'. That is to say, he has made a maneuver from which there is no turning back.
"There is a political conflict already installed inside Ecuador that confronts Lasso with some of his former allies, who did not know how to vote against the accusation presented in the Assembly. Given the conflict between Lasso and Correismo, Lasso prefers to transform his government using this constitutional tool, [creating] an authoritarian government for six months, where it will govern by decree ," political analyst and academic at the University of Valparaíso, Guillermo Holzmann, explains to AméricaEconomía .
The path to the crisis was not immediate. Citizen Revolution, Rafael Correa's movement, had taken advantage of the social unrest and provocation of protest that, for several months, has been devastating the country. Furthermore, in political terms, Lasso did not have enough intelligence to maintain the alliances he had achieved to be elected president.
For Holzmann, the president's strategic failure was thinking that his message was so solid that it could lead his adversaries.
"Lasso sinned from ideological arrogance, because he was doing well economically, but he did not know how to handle the internal political conflict. The macro was going well, but Correismo took advantage of the internal social conflict and is still strong (...) the intelligence services are even with Correista influence (...) Lasso in one minute ignores agreements with his electoral allies, at a social level crime and violence increases, and that creates a distance between Lasso and his voters," he emphasizes.
In this way, Lasso played his last card.
"Lasso has crossed the Rubicon when he called for early elections. He made a surprise decision, knowing that in the face of this he gives Correismo a unique opportunity to return to the presidency. Strategically, Lasso has now been governing by decree for six months, transforming the Ecuadorian democracy in authoritarianism without counterweight," says the analyst.
For now, President Lasso must focus on rebuilding relationships, alliances and ties. Which will include the indigenous world, traditionally allied with Correa.
"If Leonidas Iza, the indigenous leader who mobilizes the protests and who is capable of bringing together the 30 indigenous peoples of the country, goes with Correa in the elections, Ecuador will return to Correismo with all that this means," he clarifies.
Holzmann reflects that, from a certain perspective, the social upheaval is not convenient for Correismo, "because it has a greater advantage in winning the elections, therefore it has no incentive to take to the streets, and if it does, it delegitimizes itself as an option."
However, the question that remains is whether Lasso thought this decision well or it was simply something improvised. "If he improvised it, it's terrible, because it will leave a space where many will accuse him of being authoritarian, depending on the decisions he makes, it can generate a very high internal commotion," he explains.
"Here we have a political crisis that the president is trying to overcome through constitutional means, but with a high risk that this solution will be insufficient for the social and political crisis that Ecuador has. Given that Lasso has isolated himself, a stage of uncertainty comes. and there will be a lot of pressure for the process to go well. The big question is whether it will have the capacity to generate the necessary alliances to triumph in the next elections. In other words, it opens a Pandora's box...", concludes Holzmann.
