Transition government: The political and economic landscape takes shape
President Daniel Noboa surprised everyone in New York with two statements aimed at convincing the markets and multilaterals of the need to support Ecuador with financing for its fiscal and social needs during the period of his mandate. However, these two statements could work in opposite directions for the markets. While the announcement of a tax reform by next December—contradicting his campaign promise not to increase taxes—will make markets and multilaterals happy, his announcement of a possible default on external debt on 2026 or 2027 may have been a splash of cold water.
The consensus among analysts—including ourselves—is that the way to secure financing, which is a must to support any fiscal and economic agenda before 2025, is the formulation of a sound, sustainable fiscal plan. And there are not many options: a tax reform, action on subsidies and a plausible reduction of the size of government in the short time in this governing term are the clear and only paths.
However, none of these alternatives will be easily downloaded upon the Ecuadorian society given the difficult times the country is living. The productive sector is spending close to $1m per day to protect itself from organized crime, and individuals are suffering the anxiety and clear danger of uncontrolled violence. Both sectors are, in addition, currently going through electricity blackouts imposed by a severe and unprecedented drought that will probably remain in place until April next year. Also, stagnant GDP, with growth forecast below 1% for the next year, would most certainly suffer even further from a reduction in disposable income coming from additional taxes. However, given falling oil production, together with crude prices that are not forecast to rise above $70 next year, the next President is left with little choice—especially when the current government is being forced to increase expenditure on energy procurement, which will be probably financed with oil facilities.
President Noboa has presented some of his cabinet, announcing Gabby Sommerfeld as Chancellor, Sonzoles Garcia as Minister of Production, Roberto Luque as Minister of Public Works and, recently, Sariha Moya as Minister of Economy. Neither Sommerfeld, Garcia nor Luque have previous experience in the public sector, although they hold excellent professional and academic credentials. Moya is not known among economic analysts but she is the only one with the experience that might prove critical to working fast and fighting the inertia of mid-level public servants in the short time of Daniel Noboa's term.
Noboa also shaped the political landscape when he stated that he will not support the impeachment of Attorney General Diana Salazar, which was one of the main conditions for the Correistas' providing their support to the government. For his part, Rafael Correa called Henry Kronfle, who is the Social Christians' candidate for Assembly President, a "liar". Thus, it seems that Noboa might be able to count on support from Construye, the Social Christians, and Actuemos, summing 68 legislators, just two short of the 70 votes necessary for an absolute majority. Reaching this majority, on the other hand, looks highly improbable for the Correistas.
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