“No, The Table Wasn’t Set”
“No, the table wasn’t set.” That was President Lenín Moreno’s reply to former president Rafael Correa, who claimed he left the table “set for the new government” -- referring to a supposedly buoyant economic situation (assessed as such only by Correa and his loyal followers in Congress, and by some in still in key positions at the new government).
With negative quarterly GDP growth of 0.6% for Q1 2017, and a fiscal deficit that might reach 6.8% of GDP this year, Moreno’s assessment is in fact conservative. Household consumption and government spending, the bread and butter of economic growth for the last decade, continue to fall in q/q terms, by 0.7% and 0.2%, respectively, and investment is down 1.2%.
Exports bring some joy, with q/q real growth of 1%. And between January and May 2017, non-oil exports were up 14.6%, lifted primarily by Ecuador’s star products: bananas, canned tuna, shrimp and flowers. This performance evidences two things: the lack of export diversification, and the importance of the trade agreement with the European Union. In fact, between January and April, exports to Europe grew $177 million, up 29% y/y, while non-oil exports to the United States increased only 4%, or $35 million.
Lifting tax and tariff controls on imports is one commitment under the EU deal. So the government must analyze carefully the idea of extending some import controls to protect domestic production. This is not an easy decision because, on the other hand, imports grew 18.6% y/y between January and May 2017, vs. a drop of 35.3% during the same period in 2016.
Political dynamics are no easier arena for the new president. Moreno is facing direct opposition from legislators loyal to Correa, who dislike Moreno’s “national dialogue” initiative, and tolerant style. They have openly backed the harsh criticism leveled by Correa, who has called Moreno “disloyal” and “mediocre.” So Moreno is seeking external support – especially from strong local government leaders, such as the majors of Quito and Guayaquil. But such support will cost the government money it doesn’t have.
In the warrior language Correa frequently uses, this confrontation seems to be “the mother of all battles” that will define the continuation of the so-called revolution of the people, or spell its end: that is, whether Ecuador will see the perpetuation of hard fanaticism, or the start of tolerance, and true democracy. The destiny of this new government, and of Ecuadorian democracy, will turn upon how – and whether -- this conflict is resolved.
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