Lasso takes over in Ecuador, haunted by the pandemic crisis and the shadow of Rafael Correa

Former banker Guillermo Lasso takes over the presidency of Ecuador on Monday 24 knowing that the liberal economic changes he promised in this last election campaign, and in the two previous ones, will be more difficult to implement than it is had foreseen it. He arrives at the presidential palace of Carondelet with a weak mandate, limited fiscal resources, and strong opposition in Congress. In this year’s first round of elections, Lasso won just 20% of the vote and his party lost seats in the legislature. In fact, he won the second round in April with fewer votes than in the election he lost in 2017, thanks to a historic level of protest votes.

Even so, international investors and local entrepreneurs have high hopes that Lasso can reverse years of economic stagnation, now exacerbated by the pandemic. Ecuador’s ties fell last month after the surprising victory over Andrés Arauz, the candidate imposed by former President Rafael Correa. Either way, he is going to have to walk a fine line between his liberalization program on the one hand and a Congress dominated by indigenistas and a tired and frustrated population for the other.

In the 137-seat Congress, Correa’s allies will have the largest bloc, with 49 seats, and the left-wing indigenous party Pachakutik will have unprecedented influence, with around 45 votes in alliance with the democratic left bloc. Lasso’s center-right Creation of Opportunities (CREO) party has only 12 lawmakers, and an early alliance with the right-wing Social Christian Party was quashed on May 14.

The first movement in Congress showed the possibility for Lasso to rely on Pachakutik to advance certain aspects of his legislative plan. For the moment, CREO liberals voted in favor of Guadalupe Llori, of the indigenous bloc, who was elected President of the National Assembly. “We are facing an excellent opportunity for all parties to work for true national reconciliation,” Llori said in his speech. This environmental lawyer in the Amazon has been jailed several times during the presidency of populist Rafael Correa, accused of terrorism for organizing protests against oil companies that pollute the environment. Indigenous activists vigorously protested the austerity policies of outgoing pro-market President Lenin Moreno, but they also had significant gaps with Correa, which they accuse of prioritizing oil production over the environment and indigenous communities. Lasso promised to renew crude oil production contracts to attract more investment in the sectorBut he also promised to limit drilling in the Amazon region, the most environmentally sensitive.

Above all, Lasso assures that he will maintain budgetary austerity governed by the Ecuadorian Extended Service Fund (SAF) and “creative” financing of the government by the Central Bank. It will also benefit from the recent approval by the National Assembly of the the law for the defense of dollarization, which limits the monetary issue – Ecuador adopted the dollar as the country’s currency in 1999 -. But much will depend on societal pressures and difficult tradeoffs to balance growth and fiscal targets. To rule, you will need to make some of your proposals more flexible more market-friendly on key issues such as tax, labor and social security reform, and make significant political concessions to gain legislative support. For example, while Lasso has ruled out enacting new taxes, his potential allies in Congress will likely demand a kind of progressive tax, even temporary, on income, wealth or big business. The pandemic has already sparked similar debates in other Latin American countries.

The latest report from the risk rating agency Fitch reviews says that “Lasso, promises to continue to move away from the heterodox policies that have undermined Ecuador’s economic fundamentals over the past decade. However, all major improvements will depend on difficult fiscal adjustments and reforms to improve growth, which are far from being assured ”.

The Lasso government will also have to deal with a society extremely frustrated with declining income, job losses and the lack of vaccination against Covid. In this sense, the new administration he will suffer the same fate as that of his peers around the world. They will judge Lasso based on his ability to revive the economy, support the most vulnerable and protect them from the pandemic. As happened to Biden in the United States and all of the leaders who took office last year, their highest priority in the first few months of government will have to be tackling the coronavirus. The pandemic has pushed a third of the population of over 17 million into poverty and left nearly half a million people unemployed. But the crisis and the adjustment came before. President Lenín Moreno imposed painful austerity measures as part of a $ 6.5 billion deal with the IMF.

The precarious social context will face Lasso with fierce resistance, mainly from the Correista electorate, but also many indigenous voters from the altiplano who will probably show little patience with the new government. Recent protests in Colombia against tax reform highlight how delicate the social landscape is in much of the region. In Ecuador the threat of mass unrest remains latent Since the explosive protests of October 2019, this could easily materialize again.

Although there is an important sector of the indigenismo which in principle voted for the liberal candidate and which until now has been very close in Congress. The populist Citizen Revolution movement that imposed economist Rafael Correa in 2007 and ruled the country for ten years, never managed to connect with indigenous movements. Its imposed candidate, Andrés Aráuz, was also unable to do so in the elections, which failed to broaden its electoral base. Franklin Ramírez, professor at the Latin American Faculty of Social Sciences (Flacso) in Ecuador, believes that “There is a historical distrust of much of the indigenous movement with Correa which Arauz failed to overthrow. And he adds that “during all these years, the Citizen Revolution has not finished coming to terms with the antagonisms it had engendered. Correísmo protected himself, he did not have a more sincere speech with his past and that made reaffirm the correista vote but that there is no possibility of expansion ”. The result was that even though indigenous candidate Yaku Pérez called for abstention, the majority of his voters turned in favor of Lasso.

If these two sectors, that of Correísmo which seems to be more concerned about the impunity of their exiled leader in Belgium than anything else (In his Twitter message to greet the new president, Correa asked him to end “the law that harasses me”), and indigenousism continues his disagreements, Lasso has a good opportunity to make the economic and social reforms that have been postponed. But if it fails or the company does not perceive improvement in a short period of time these currents could go out in the street – Beyond the fact that their demands are different – as we see in Chile and Colombia.

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