Candidates confront Ecuador’s debt crisis: Renegotiation and default are two of the options

Four leading presidential candidates in the August 20 cross death election offer starkly different approaches to solving Ecuador’s debt crisis.

Presidential candidate and former vice president Otto Sonnenholzner

Luisa González (Citizens Revolution) and Yaku Pérez (Democracia Sí, Popular Unity) favor a policy of negotiation and auditing debt contracted in recent years while Otto Sonnenholzner and Fernando Villavicencio would focus on growing the economy, reforming public procurement procedures and collecting more taxes to pay the debt.

González and Pérez say if audits reveal that debts are illegal or improperly contracted, they would consider defaulting. González would audit debts of the governments of Lenin Moreno and Guillermo Lasso, while Pérez would also audit the Chinese debts of the Rafeal Correa presidency.

According to the Ministry of Finance, the government needs a least $5 billion in loans in finance the 2023 budget and will owe more than $5.7 billion a year to finance debt service from 2024 to 2027.

González and Pérez propose policies of government intervention regarding debt, starting from the premise that debts incurred in recent years should be considered suspicious.

“This is the policy adopted by former president Correa in which the government discovered that some of the debt was illegitimate and would not be repaid,” González says. “The approach of my administration will be similar.” She adds that she is particularly interested in reviewing loans contracted during the Covid-19 pandemic.

Pérez says he is interested in considering the “transparency” of the debt. “Much of it was done with little public disclosure and I favor complete disclosure,” he said. “I want to determine the legality of the contracting processes, the legitimacy in the setting of interest rates, and the payment schedules and mechanisms, among other factors.”

Both González and Pérez say they would borrow funds from the Central Bank for budget expenses, a move that would require a change in the law since it is currently prohibited.

Sonnenholzner and Villavicencio say their intention is not to question payment of the debt, although they favor investigations into how it was contracted by former governments. “If there were irregularities they should be addressed and, if there was fraud, there should be punishment for those involved,” Villavicencio says.

Sonnenholzner says the key to overcoming the debt crisis to promote economic growth. “We need to encourage openness in international trade and investment and must develop an atmosphere of honest competition,” he says. “We must grow ourselves out of the crisis, which means more jobs and prosperity for all citizens.”

Villavicencio supports Sonnenholzner’s position on growing the economy but says “mayor structural problems” in the government must be addressed. “We have unresolved issues with our taxation system, including the fact that 70% of the population does not pay income tax, and no real progress can be made until we confront the issue of corruption,” he says.

In previous interviews, Villavicencio has said that as much as 15% of the budget is consumed by corruption. “How do we fix our health care system, our law enforcement system, and even our educational system until corruption is serious attacked and rooted out.”