A thorny path towards the presidency

ECUADOR - Report 17 Jun 2024 by Magdalena Barreiro

President Noboa still holds close to 50% of popular support. He has stated his intention to run for president in 2025, and his party has been officially qualified by the Electoral Council to do so. His chances of passing into the second round of the presidential elections of next May are high, but the road is not free of thorns.

To lead his political campaign, he must step down from the presidential podium, leaving Vice President Veronica Abad as his replacement for approximately two months. Noboa and Abad have been opposing one another from Day One of his office, so Noboa has been trying to find legal arguments to avoid this constitutional requirement.

Vice President Abad has been linked to a case of corruption, and the judge in charge of the case requested the Assembly to retire her immunity so she could be tried in a criminal case. The new majority of the Assembly formed by the Correistas, Social Christians and Construye, denied this request last Friday, enabling Abad to continue as vice president. Most probably, Abad will step in to replace Noboa, with unpredictable consequences unless Noboa manages to negotiate a truce.

Noboa's popularity might also suffer after complying with two of the goals under the newly signed agreement with the IMF. The first one requires focalization of subsidies, on which the government is already working under the threat from Leonidas Iza and the labor and transportation unions to take to the streets once again. Cumulative savings on gasolines eco and extra could sum $7.6b in the next five years or 42% of cumulative estimated external amortizations in the same period. The decision cannot wait, and Noboa must be prepared to dialogue or fight with the above-mentioned groups.

The second goal requires making permanent the taxes that were approved as transitory under the most recent tax reform. These transitory taxes—self-retention from corporations and special taxes on corporate profits and on banks and cooperatives—summed close to $900m between January and May this year. They are deemed as critical by the IMF to maintain a stable level of collections of around 14% of GDP in the next five years. Tax changes are a prerogative of the Executive, and while new taxes must be created with a new law and thus approved by the Assembly, the extension of existing taxes could be implemented through an executive decree or a resolution from IRS.

The first review of the Agreement is scheduled for mid-November. We believe the goal of $2,200m for the deficit of the PGE plus the deficit of derivatives will be achieved. But for that review, the government should also show progress on the above two goals. These are challenging tasks.

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