High-heat politics burn hopes for agreement
Those Ecuadorians who do not want a return by the Correistas viewed with hope the meeting held last Friday, February 12, between Guillermo Lasso and Yaku Perez, who have fought vote by vote for their right to contest the second round. A difference of fewer than 34,000 votes in favor of Lasso has raised resistance by Perez and the indigenous movement against accepting the results. Perez has requested a re-count of 100% of the ballots in Guayas and 50% of ballots in another 16 provinces.
The initial agreement between the two candidates reached last Friday started to break apart over the weekend, when Perez stated which provinces he wanted to be included in the re-count and Lasso objected to the unilateral imposition. In any event, the process needed a written legal decision approved by the National Electoral Council. A majority of votes to approve this decision was not reached as Council Luis Verdesoto objected, and Vice President Enrique Pita abstained. The other three members, including president Diana Atamaint, voted in favor. The indigenous movement has announced public protests in support of the recount of the votes, and such a scenario only benefits Arauz, who is in the middle of an investigation by the Attorney General regarding a contribution to his campaign made by the Colombian terrorist group Ejercito de Liberacion Nacional.
GDP performance in Q3 2020 was much better than in Q2, with a positive change of 4.5% q/q, although y/y it still fell by 8.8%. However, the IMF has improved its estimate from -11% to -9.5% for 2020 and maintains a 3.5% growth rate for 2021. We remain more optimistic, placing GDP growth between -7% and -8% for 2020, subject to a q/q change of 2% to -2% in Q4 2020. On the other hand, due to political instability, which most probably will be high until June 2021 and hinder investment and job creation, we expect lower growth rates of between 2.5% and 3% for 2021.
The balance of trade ended with a high surplus of $3.2 billion, supported by positive balances of $641 million for the non-oil sector and of $2,599 million for the oil sector. Since the balance of trade is the main driver of the current account, we forecast a surplus of approximately 2% of GDP for this indicator. Oil production at 175m barrels was the lowest since 2016, but exports ended 2m barrels above those in 2018. However, oil export revenues fell from $7.7b in 2019 to $4.69b in 2020. The IMF expects production to recover to 185.8m barrels in 2021, and then to increase roughly 2m barrels per year until 2025. However, this increase will be subject to the oil sector policy developed by the new government. We might expect Arauz and Lasso to boost production, but Perez has openly declared his intention to reduce exploitation.
Capital inflows that arrived in Q4 2020 helped international reserves to recover from the historical low of $1990m in March 2020 to $6402m by the first week in February 2021. However, this amount covers just 80% of financial reserves.
The bill to defend dollarization was returned by the National Assembly due to constitutional problems derived mostly from technical problems. The Ministry of Finance plans to re-submit the bill, but we still do not know the date. As an urgent economic bill, the Assembly has 30 days to approve or deny the bill, and in the latter case, it still has the possibility to be approved by “ministry of the law”.
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