Is the Central Bank strong enough for Arauz?
The legal actions conducted by Yaku Perez against the electoral results and the National Electoral Council already have a ruling from the Electoral Court, but are subject to appeal from Perez. Thus, the ruling has not been executed yet. In the unlikely event that Perez were to win the appeal, it would be impossible to have the second round of the election on April 11 as planned, as 24,000 ballots would have to be counted again. Therefore, the inauguration of the new Assembly on May 15 would be jeopardized, as well as the inauguration of the new president on May 24, creating a serious constitutional problem.
President Moreno’s popularity and political capital is extremely low. An economy that is trying to improve, but it is still extremely weak, the poor performance of the Ministry of Health in conducting the COVID vaccination campaign, the adverse political propaganda from the Correistas and a clear vendetta from the official party, Alianza Pais, is making governability overwhelmingly difficult, and the bill in defense of dollarization has been a casualty of this war. This is not a good omen for the bill, despite the intensive lobbying efforts of the Minister of Finance, Mauricio Pozo, and the Central Bank Manager, Veronica Artola. Unfortunately, in addition to vested interests of the Correistas, the law is perceived as an open door for private banks to control monetary policy in the future – not a very popular idea.
The Ministry of Finance was expecting disbursements of close to $5b for this year, including the $400m coming under the IMF agreement. However, no external disbursements were received in January and February. This shortage of foreign capital inflow, together with an increase in capital outflows, particularly from the manufacturing and commercial sectors due to the higher cost of imports, are partly behind the fall in the RILD, from $7.2b in December to $5.5 by the beginning of March.
There has also been a decrease of deposits in the Central Bank that is consistent with the electoral uncertainty and that is not higher when compared with past electoral periods. Therefore, there is no reason for concern yet, as private banks remain resilient under the uncertainty.
However, if expected disbursements do not come as planned in amount or timing, the situation by next September could be stressful. The Central Bank has two emergency liquidity lines to cope with such a situation.
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