Can Moreno Govern a Divided Country?
President-elect Lenín Moreno refused all invitations to debate during the two months of campaigning – as he was probably self-conscious about his nonetheless-evident weaknesses. After a complicated and almost violent campaign that ended with a recount of close to 1.2 million votes, he was finally proclaimed president on April 17th. He takes office on May 24th.
Despite an apparently comfortable situation, with the official party still controlling Congress, the judiciary, and both the Comptroller General’s and Attorney General’s offices, Moreno faces a divided Ecuador, in which 50% of the people literally cannot stand the other 50%.
The government will also have to finance close to $16 billion in 2017 – implying that it must raise around $1.3 billion per month, at a time when the Social Security Institute, historically the major local creditor, is dry; loans from the Central Bank’s international reserves amount to $5.8 billion; and there are still four private issues outstanding.
Central Bank liquidity, with reserves at their lowest level in five months by March ($3397 million), might allow for two more months of central government financing, at around $500 million per month. Reserves in March covered just 64.8% of total banking reserves, and 78% of private banking reserves. The extra tax burden passed to finance the needs of recovery from the 2016 earthquake should be eliminated by June, leaving the government with around $1.2 billion less revenue.
Growth decreased by 1.5% y/y in 2016, and though the government is talking of a clear recovery, the IMF and our forecasts once again place growth at a negative 1.5% for 2017. In 2016, the external sector ended with a trade surplus of $1247 million, and a current account surplus of $1418 million, thanks to import controls and increasing remittances. But it still shows the historical structural problem of oil dependency, which, 10 years after the “revolution of the people,” Ecuador has still been unable to change.
The biggest question now is: does Moreno have what it takes to cope with this economic scenario, and the difficult political and social situation, in a divided country? Can he meet the expectations he has raised with his campaign promises -- which imply more, not less, spending?
Now read on...
Register to sample a report