Ecuador's Got A New President: Now What?

Following an unexpected electoral victory on April 11, 2021, conservative candidate Guillermo Lasso assumed office as President of Ecuador yesterday. Markets welcomed Lasso's victory when the election results were announced in April, as sovereign bonds rose to their highest point since September 2020.

Lasso’s electoral campaign focused on creating employment through foreign investment, expanding investments in the agricultural sector, and opening Ecuador to foreign trade.  In his first presidential speech, President Lasso reiterated those commitments.  However, President Lasso will encounter several challenges as he inherits an economy in crisis, a country severely hit by the COVID-19 pandemic, limited fiscal resources and stiff opposition in Congress.  Some believe that the mining sector could be key to Ecuador's economic recovery over the medium and long term, however extractive activities in that sector face strong opposition from indigenous and environmental groups.

We discuss below some of the key policy proposals of President Lasso and his political party CREO (Creating Opportunities - Creando Oportunidades); as well as the challenges he is likely to encounter in the next four years.

Promotion of Local and Foreign Investment

One of the key messages during Lasso's presidential campaign was the reopening of the country to foreign investment, and revitalizing national investment.  In its 2021-2025 Government Plan, CREO proposed simplifying the legal and tax requirements that local and foreign investors of all sizes and origins have to comply with, so that they can focus on the development of businesses.[1]  The Plan also states that the Government (with the participation of the private sector) will improve access and road infrastructure, telecommunications systems and computer connectivity, in order to facilitate trade.[2]

The Government Plan envisages the creation of a Public-Private Partnerships Committee, which will oversee and analyze new projects to bring investment to the country.  This committee would work jointly with different Ministries to promote investments, seeking to maximize efficiency in the approvals process.  The Plan acknowledges that for this proposal to work, it will be necessary to amend the Law on Incentives to Public-Private Associations (PPAs) and its regulations, to expedite the execution of these projects.[3]

Boosting the Energy Sector

Oil is one of the main sources of Ecuador's income, and is essential for the growth of its economy.  The Government Plan acknowledges that very little has been invested in the domestic exploration, exploitation, and production of hydrocarbons, which has remained stagnant in recent decades, while worldwide production increased considerably.[4]  The Plan attributes this to the State's inefficiencies and administrative failures.  President Lasso has therefore proposed restructuring Ecuador's state-owned company Petroecuador and adopting the model of Ecopetrol in Colombia – which is considered a success story in the region.

The Government Plan also envisages switching to new risk-sharing contracts with private companies (known as contratos de participación) in the oil sector to boost crude oil production; though all current contracts with companies operating in Ecuador would still be honored.[5]

In this regard, President Lasso originally announced the appointment of Mr. Roberto Salas as Minister of Energy and Non-Renewable Natural Resources. This is one of the most important offices in the country, however it has faced a series of corruption probes in the last decade.  For example, earlier this year a former employee of Gunvor Group (a commodities trading house) pleaded guilty to involvement in a scheme to bribe Ecuadorean government officials to win business from state-controlled oil company Petroecuador.  When the original announcement was made, Mr. Salas had been mandated by President Lasso to fight corruption within the oil & gas sector.

Mr. Salas is a businessman with no prior experience in public service or the hydrocarbons sector.  Despite the announcement of his appointment, Mr. Salas was not appointed as Minister on May 24, 2021. Accordingly, it remains to be seen who President Lasso will appoint to fulfill this important office.

Mining Policy

Ecuador's key mining projects comprise: Río Blanco (operated by Ecuagoldmining, a consortium formed by Chinese Junefield Mineral Resources Limited and Hunan Gold Group), Fruta del Norte (operated by Lundin Gold), Loma Larga (operated by Canadian INV Metals Inc.); and San Carlos Panantza and Mirador mines (both operated by Chinese consortium CRC-Tongling Nonferrous Metals).  Significant investments are expected to continue from the foreign investors operating these projects. The Government Plan envisages working with local communities to enable the peaceful and responsible development of activities.[6]

In addition, the Plan makes provision to counter illegal mining. Measures include the creation of a legal framework with clear regulations that will ensure the growth of the formal mining sector alongside protection of the environment; as well as the implementation of operations that allow the dismantling of illicit activities, including entering into security agreements with neighboring countries to prevent illegal mining on Ecuador's borders.[7]

President Lasso has appointed Mr. Gustavo Manrique as Minister of Environment and Water.  Mr. Manrique is also a businessman, director of Sambito, an environmental consultancy, which advises companies on sustainable development practices.  Mr. Manrique will be in charge of dealing with the protection of the environment and water resources in the mining sector, a highly controversial topic in Ecuador and the region.

International Affairs and Trade

To date, Ecuador is party to only one free trade agreement – with the European Union.  The Government Plan recognizes that in order to guarantee sustainable economic growth and generate employment, Ecuador must insert itself in the international community.[8]  President Lasso has already made efforts to join the Pacific Alliance and to enter into new and better trade and cooperation agreements with countries that offer business opportunities and can create jobs, such as the United States of America (its main trade partner), China, Costa Rica, South Korea, India and Turkey.[9]

Economic and Political Challenges

Apart from dealing with the devastating effects of the COVID-19 pandemic, President Lasso also needs to kick start a stalled economy – with the country experiencing sovereign debt that exceeds US$ 40,000 million (between 2021-2025), and extremely high levels of unemployment.

In addition, CREO's failure to secure support at the National Assembly will be a significant obstacle to Lasso’s economic development plans. President Lasso only has twelve legislators of his own in the 137-seat assembly.  Two other political parties were able to respectively secure forty-nine seats (UNES – former President Rafael Correa's party) and forty-five seats (Pachakutik Plurinational Unity Movement–New Country, Ecuador’s Indigenous party); but were unsuccessful in securing a majority.

A few weeks ago, CREO supported Pachakutik's nomination of Guadulupe Llori as President of the National Assembly.  Ms. Llori is the first indigenous woman to hold this office and has pledged to work with President Lasso.  Ms. Llori even acknowledged, during the inaugural ceremony, that Ecuador needs to secure "responsible and productive investments in order to reactivate the economy."

Conclusion

While President Lasso and his cabinet share their best intentions to bring Ecuador back on track with respect to foreign investment, sustainable development and full employment level, the path to achieve those goals will certainly not be easy from a social, economic and political perspective.  President Lasso will also face scrutiny from other countries in the region (such as Mexico, Venezuela and Argentina) whose current regimes depart from his conservative policy.

[1]       See, CREO's Proposed Government Plan 2021-2025 (Plan de Trabajo 2021-2025), p. 39.

[2]       Ibid.

[3]       Ibid.

[4]       CREO's Proposed Government Plan 2021-2025 (Plan de Trabajo 2021-2025), p. 45.

[5]       Id., p. 49.

[6]       Id., p. 49.

[7]       Ibid.

[8]       Id., p. 66.

[9]       Ibid.