Healthy Vanity
In a sign of healthy and deserved vanity, President Rafael Correa has announced that he won’t run for reelection in 2017. Given the obvious fragmentation and mediocrity of the opposition, he said, his otherwise crucial presence wouldn’t be necessary to guarantee his party’s continuance in power.
The National Assembly is discussing 16 constitutional amendments, the most controversial the proposal that a president be allowed to run for an unlimited number of terms. Correa has suggested a transitory amendment, by which he and legislators already reelected twice would not be allowed to run in the next election. Of course, the amendment would then not be necessary – which is why the opposition has interpreted Correa’s initiative as a move to weaken its chances in 2017.
Weak economic performance, of two consecutive q/q measures of negative growth –0.1% and 0.3%, in Q1 and Q2, respectively-- have forced the government to dramatically cut its 2015 GDP growth forecasts, from 3.8$ to 0.4%, and to project just a slight recovery to 1% in 2016, then to 3.1% in 2017.
Though Minister of Finance Fausto Herrera has characterized the proposed 2016 general government budget as “austere,” it has raised several questions from economic analysts, due to possible overestimation of oil revenues, and underestimation of current spending.The government projects an approximate 2.5% of GDP budget deficit for 2016, but we estimate it at closer to 4%.Since capital expenditures programmed by the government for 2016 and 2017 are around $8.2 billion – similar to 2015 – we don’t foresee the strong GDP recovery for 2017 that the government forecasts.
The external sector remains vulnerable, despite import controls, with a 2015 balance of trade deficit of around $2 billion-$2.2 billion. This might increase in 2016, if controls are reduced or eliminated, and the expected demand contraction does not bring a natural adjustment, or exports don’t improve from this year’s dismal performance.
Price rises, on the other hand, heading towards a 5% by mid-year 2015, have fallen in H2, lowering our yearend estimate to around 3.2%.
The banking sector continues to lose deposits, as people distrust the current economic and political environments.Current deposits have fallen by $3.2 billion, and term deposits by another $300 million, between December 2014 and October 2015. Yet liquidity indicators are similar to those of October 2014. Correa has ceased his hostile speech against bankers, and now is even commending them for their efforts to maintain stability.
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