Opinions

Lenin Moreno takes a new approach but he faces old problems in restoring Ecuador’s economy

By Olivia Gass

Ecuador’s new President, Lenín Moreno, is an unusual politician for more reasons than just his idiosyncratic first name.

Moreno is a paraplegic who was shot during a robbery-gone-wrong in 1998. In the course of his convalescence, Moreno turned to laughter therapy, later setting up a foundation to encourage humor and joy. He is likely to need all his reserves of good humor in his new position as he takes responsibility for his country’s governance.

Moreno’s victory celebrations are likely to be short-lived as the challenges of governance land on his desk. His dilemma will be how to satisfy the demands of his left-wing supporters for continued high spending on Ecuador’s public services, while simultaneously managing a shrinking economy, whose reliance on stagnant oil revenues and addiction to debt, limit his room for maneuver. If he fails to solve this puzzle there is a risk that his government will be tempted to deal with public protests through heavy-handed state intervention. This has been seen in Ecuador before when, in 2015, police used tear gas and clubs to disperse protesters.

President Lenin Moreno

There are three important questions hanging over Lenin Moreno’s presidency. First, how Moreno is likely to address the problems facing Ecuador’s economy and the strain that will place on public services which have been generously funded by the previous government. Second, the question of Moreno’s independence from former President Rafael Correa. And finally, why Ecuador will not suffer the same fate as Venezuela.

El Presidente Lenín Moreno

The election in Ecuador was a bitter campaign defined by Ecuador’s increasingly polarized politics: a wealthy center-right banker versus a presidentially-backed socialist. Former president Rafael Correa claimed his party was battling “against the global right wing.” The results were a victory for Correa’s handpicked candidate and former vice president, Lenín Moreno.

However, it was not the smooth transition that Correa and Moreno would have hoped for. Following a mysterious shut down of the electoral website and a consequent spike in votes for Moreno, the leader of the opposition, Guillermo Lasso, and his supporters have accused the government of electoral fraud. Anti-government protests have spread across electoral offices in Quito and Guayaquil, with thousands taking to the streets. Though international observers have deemed the election fair and the regional governments have been quick to give their support to Moreno, this early questioning of his legitimacy has created a less than ideal beginning for his presidency. Despite this, however, President Lenín Moreno is here to stay, barring a cataclysmic turn of events in Ecuador.

What is uncertain is what his presidency will mean for the future of Ecuador.

Economic Uncertainty The core issue for Moreno will be Ecuador’s flagging economy. During his presidency, Correa spent huge amounts on improving social services which were ultimately fueled by the oil revenue which makes up about 40% of Ecuador’s exports.

Ecuador’s oil sector is dominated by two companies Petroecuador and Petroamazonas. Both are state owned companies, though Petroamazonas does operate under relative autonomy. Late last year, Petroecuador found itself at the center of a huge corruption scandal that saw the head of the company, Jorge Pareja Yannuzzelli flee the country. Yannuzzelli and his fellows stand accused of receiving bribes in exchange for Petroecuador state contracts and concealing large amounts of money in offshore accounts. Investigators have alluded that this corruption scandal is merely the tip of the iceberg when it comes to corruption in Petroecuador. Both Petroecuador and Petroamazonas have been hit hard by the low price of oil. Some observers estimate they may be receiving as little at $20 per barrel. This fall in revenue is hitting Ecuador’s economy hard and Moreno will be under pressure to stimulate the contracting economy.

Whilst Lasso ran on an economic platform based on austerity and tax cuts, Moreno promised an increase in public spending once again. Yet his plan comes at a time when oil prices are worryingly low and their resurgence is uncertain. Therefore, he has two funding options for his spending plans, raise taxes or issue debt. Tax increases will be politically dangerous as they are unpopular amongst the people. As Lenín Moreno won by a majority of just 2% and lacks a clear support base it is likely he will choose the debt issuance route. This decision would be consistent with Correa’s previous debt issuances that led to the country’s debt to GDP ratio to double from 19.2% in 2010 to 39.6% in only 6 years.

Rating agencies have warned investors about the risks of investing in Ecuador given its poor economic outlook and increasing levels of debt. S&P downgraded Ecuador’s Sovereign Debt from B to B- in June 2017 while Fitch has a negative outlook on its B rating, reinforcing investor sentiment that Ecuador’s debt is not a safe asset. Ecuador has received funds from many different sources including the IMF but a large amount is being issued by China. So much so that the government has been accused of “mortgaging” Ecuador to China. It is likely that Lenín Moreno will focus on short term gains in order to fulfil his campaign promises, while simultaneously increasing Ecuador’s debt. By doing so, Moreno puts Ecuador in a precarious situation edging the country closer to the default cliff. This would only serve to worsen the country’s fragile economic and political landscape.

A social services program at risk of collapse

It is not just Ecuador’s economy that is built on increasingly unstable foundations. Its social services are facing a future as uncertain as its economy. During Correa’s presidency, spending greatly improved Ecuador’s state education system, its health care, and its social security programs.

Not only were they more closely pulled under government management but they were also given huge sums of money made available by oil revenue. These improvements to public services were Correa’s greatest legacy and were seen to alleviate some of the more negative aspects of his presidency. Lenín Moreno’s voters will expect this legacy to be continued. If Moreno does not keep up with the spending levels of Correa’s administration, healthcare, education and other social benefits will see a rapid reduction in quality and coverage.

The situation is politically complex. On one hand, Ecuador’s citizens have become used to a high level of social assistance and will expect this to continue. On the other hand, low oil prices, economic stagnation, high levels of low-quality debt, as well as limited monetary policy tools (which can be a curse when looking for short term stimulus) will make it very tricky for Moreno to please left-wing voters.

Independence from Correa

Much of the uncertainty surrounding Lenín Moreno’s presidency stems from whether Moreno will be independent of Correa or whether we will simply witness a continuation of Correa’s rule by default. Criticism of Correa should not be understated. His communication laws stifled opposition in the media with large fines issued to those who did not support his presidency. While his retention of power for a decade, was contingent on several revisions to Ecuador’s constitution.

Conversely, Moreno’s platform was one of moderation. It promised a softer left that would continue Correa’s legacy without such a domineering style. However, it is looking increasingly likely that Moreno may not have the option of moderation. Ecuador is all the more marred by political divisions and the contestation of the election results will do nothing but deepen them. Protests from Lasso voters have already erupted in opposition to his victory. Should he then fail to stimulate growth and increase employment levels, it is likely that he would lose the 2% margin that granted him power. In the face of opposition, it is probable that Moreno will turn to Correa’s traditional support base in the radical left wing for support. To do so he would have to abandon his moderate platform and take up a more hardline position reminiscent of Correa.

In an exclusive interview with PGW, Dr Andrés Mejía Acosta, a Senior Lecturer in Political Economy at King’s College London, stated that Moreno’s ability to deliver a more tolerant and pluralistic government would very much depend on his ability to control, undermine or regulate the influence of Correa’s legislative party, the majority of whom remain loyal to Correa himself. Dr Mejía Acosta concludes that it is most likely Lenín Moreno’s presidency will move Ecuador away from ideologically driven governance. Sooner rather than later we will be likely to see a more pragmatic Moreno, one that seeks to preserve political stability and a level of social well-being while having few economic adjustment options available to him.

This realistic potential for a U-turn on his promises of a soft left means that Ecuador’s democratic institutions cannot take their position for granted even now when Correa is gone. It is essential that Moreno unites Ecuador politically or else his presidency will have disastrous consequences for its democratic institutions.

Will Ecuador become the next Venezuela?

With this discussion of economic decline, debt, and political unrest it is a reasonable question for observers to ask if Ecuador is headed the same way as Venezuela. The answer to this question is that it is highly unlikely that Ecuador will be the next state in South America to fall into the turmoil that has enveloped Maduro’s Venezuela. Indeed, it would be a devastating blow for Maduro’s regime if Ecuador did follow suit as it is a vital ally. Though both the Venezuelan and Ecuadorian economies are reliant on the prices of oil and are being hit badly by their fall, there are a number of differences between the two states that caused one to fall into disarray and will keep the other from following in the footsteps of its ally.

Most importantly is Ecuador’s dollarization (Ecuador has not had its own currency since 2000 when it decided to use the US dollar as their currency). One of the biggest escalating factors for Venezuela’s current crisis is hyperinflation. The savings in the accounts of its citizens were suddenly worth nothing and the Bolivar is almost not worth the paper it is printed on. The government engaged in quantitative easing in order to fund its public spending and make up for the decline in the price of oil. Ecuador’s dollarization, however, took away the power of the government to print its own money. Though this has negatives, mainly the inability to create their own monetary policy, it does protect Ecuador from a currency crisis and hyperinflation as is currently occurring in Venezuela.

Furthermore, Ecuador’s military prides itself on being independent of the regime. It is extremely unlikely that they would act to prop up the government in the way that the military has acted in support of Maduro. A conflict on the scale of Venezuela would simply not be viable in Ecuador.

Ultimately, Ecuador is not Venezuela but Moreno is inheriting a government staring down a multitude of troubles. He must act quickly to devise his economic policy in the face of dismal oil prices. If he acts for the short-term, Ecuador’s current status will continue for a time but will inevitably be in an even worse state when reality sets in. If, though this option is much less likely, he chooses to look towards the long term it is likely then that Ecuador’s democratic institutions could be put at risk. Though Ecuador’s problems largely stem from one very important question, the economy, there is much more at stake.

Ecuador’s future lies in the decisions of Lenín Moreno, but looking strong in the short term often foretells a sharp decline.
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Credit: International Policy Digest, https://intpolicydigest.org

  • Jason Faulkner

    The protest cited in this article as being met with brutal repression is nonsense. There were two demonstrations that night, one pro- and one anti-government protest. The anti-government protesters were in San Francisco square, the pro-government demonstrators in the Plaza Grande. After several hours of brutal attacks on police lines with lances, metal poles, fireworks and molotov cocktails (see the videos below), which resulted in one officer having both legs broken and leaving another paralyzed, they got it in their head that they were going to break through the police lines that were keeping the two protests separated and “confront” the pro-government protesters in the Plaza Grande (imagine what a blood bath that would have been). It was only after the first line was breached that tear gas was deployed. The attempts to get to the Plaza Grande were ultimately thwarted.

    Several arrests were made, including the longtime partner of Carlos Perez Guartambel, a dual Brazilian-French citizen who was in the country on a cultural exchange visa. She was arrested for breaking the police line when she could not provide any identification and subsequently held by immigration authorities when it was discovered she had been working in Ecuador for years (including as a professor at Universidad San Francisco) despite her visa not allowing her to be employed in Ecuador or participate in political activities. Photos of her with a black eye quickly started circulating the internet. It took readers less than an hour to discover that she herself had posted that photo 2 years prior to her own Facebook page with a note saying she had slipped and fell.

    Salvador Quishpe, the often publicly drunken (including that night) prefect of Zamora and self-proclaimed voice of the indigenous community covered his face in soot, ripped his clothing, and claimed he had been roughed up by police. Opposition media outlets (the ones so many claim don’t exist here) were quick to put him on television immediately showing his blackened face. Social media, however, was quick to publish closeup photos revealing that it was only the palms of his hands and the front of his face and chest (i.e., the parts he could wipe on himself) that showed any signs of soot. They also published several videos from different angles showing him being peacefully taken away by police after breaking through their lines. There are also many, I mean many, videos showing him running headlong into police shield lines and attacking police with metal barricades for the cameras earlier in the day. Despite multiple attacks on police, many caught on video (see below), he also was not detained.

    The same night, Carlos Perez Guartambel posted a photo to his social media accounts showing him in a hospital bed, claiming he had been beaten up by police and that they had broken his mandible. However, when his girlfriend was released by immigration authorities 48 hours later, he was at her side giving press conferences and public speeches, smiling ear to ear, clearly the most miraculous case of a broken mandible known to medical science.

    The ones who took the brunt of that protest were the police. One was left paralyzed, one had BOTH legs broken, dozens were hospitalized with everything from sprained joints to burns caused by molotov cocktails. Even 4 police horses had to be medically evacuated (one police horse was killed in Cuenca that same night in separate protests). Not a single injured protester has been presented to date (though Human Rights Watch claims there were dozens) and despite all the rampant violence, only 20 people were arrested. The entire thing was a show designed to sell a narrative. The opposition was hoping to provoke the police to have a martyr to hold up. All they got was a lot of graffiti in the UNESCO World Heritage Site known as downtown Quito (my neighborhood), graffiti that Carlos Perez and his girlfriend were quick to “clean up” a few days later to much fanfare by Ecuavisa. Unfortunately, they only brought white paint to cover the graffiti even though most of the buildings weren’t white in the first place and the graffiti could still be seen through the single-coat cover-up. The building’s owners ultimately had to pick up the tab for that one.

    Here are the “peaceful protesters” and their leaders from that day:

    https://www.youtube.com/watch?v=TU7uqqW0GDw

    And some more:

    https://www.youtube.com/watch?v=6eR0KXRFjSM

    And in the Plaza San Francisco:

    https://www.youtube.com/watch?v=UqsdRzjV8uY

    This is Salvador Quishpe and his band of “peaceful protesters” using barricades, lances, and molotov cocktails in an attempt to break through the police lines to “confront” (i.e. attack) the pro-government demonstration in the Plaza Grande:

    https://www.youtube.com/watch?v=MQXLauJFVLA

    Here is Salvador Quishpe being escorted away by police, not even handcuffed, only moments before giving a press conference in which he claimed he had been brutally beaten by the police. The crowd is already calling him a liar. His show was unconvincing. He probably should have smudged up his gold watch to make it more convincing.

    https://www.youtube.com/watch?v=sVgusNx2HPc

    And here’s Carlos Perez Guartambel, clearly drunk, screaming for the police to kill him. “Kill me! Kill me!” he shouts repeatedly. They don’t even lay a hand on him. He wasn’t even arrested, though a few hours later he published photos to his social media laying in a hospital bed claiming to have had his jaw broken. Subsequent interviews with medical staff indicated he had no injuries and was never admitted.

    https://www.youtube.com/watch?v=cSpBn-oFVNQ

    The man in the white jump suit attacking the police with the metal pole
    in this video is the one who broke the legs of the abovementioned police
    officer. He was such a genius, he actually posted photos of himself to
    his Facebook page in the same jump suit and holding the same pole
    minutes before beginning his attack. Social media quickly identified him
    the next day and he went on the run. He was ultimately apprehended in
    Colombia and has been sentenced to prison for the multiple injuries he
    caused that night. He now claims he is a political prisoner. As it turns
    out, he was a mid-level manager in the offices of the City of Quito.
    Andres Paez was present at this particular barricade. He posted “break
    their legs” to his Twitter account earlier that day, though he subsequently deleted it when the officer’s serious injuries came to light.

    https://www.youtube.com/watch?v=pKD5rOZqIbo

    And here’s the indigenous march organized by Salvador Quishpe that led up to that fateful night in Quito, the one that failed so miserably, people were publishing photos from the 2011 Peregrinacion de la Virgen del Cisne and claiming it was the protest, so desperate for any evidence of popular support by the indigenous community. The participants clearly state that they were compelled to attend or they would have their water cut off and they would be fined. Another lady, ostensibly a community leader, says right to the camera, seemingly oblivious to the nefarious nature of what she is saying, that they will fine $10 for in-home water and $50 for farms if they do not attend the march. These are poor indigenous campesinos being threatened with losing access to water if they don’t march in Quishpe’s protest over an inheritance tax they will never ever come close to paying.

    https://www.youtube.com/watch?v=dkYlPjUBqCI

    So I ask anyone who has any intellectual integrity, does responding to such violent acts and attacks on people and property with tear gas constitute “violent repression”? Were the police supposed to let these armed thugs get to the pro-government protest in the Plaza Grande? What would have been the result? I don’t know of any country in the world where police would stand there armed with nothing but shields and just absorb such violence, but apparently in Ecuador that is too much social control for some people.

    • BDev

      JF – Thanks for the insights and explanations.
      I suspect that the old-style political games of power structures and tactics are disintegrating all over the planet. I don’t know what will come of it all, but something new is certainly birthing. Let’s hope it is not a techno-totalitarianism.

      • Jason Faulkner

        This was a failed attempt at the Gene Sharp soft coup gambit. The steps are the same: send out thugs to create violence and wreak havoc, provoke security forces into responding until you have dead bodies, then hold those dead bodies up to the international media and call the government a murderous dictatorship. It worked to get Nazis into power in Ukraine, it may or may not work to get fascists into power in Venezuela. 96 dead in this latest round of violence there. The people being held up as peaceful protesters have burned 23 people alive, assassinated over dozen people in their own homes, decapitated several motorbike riders, lynched people in the streets and killed scores of people at barricades, but it’s the 13 people killed by security forces that the press focuses on. Several dozen police have been arrested and charged in those cases, but anyone in the opposition who is arrested is held up as a political prisoner.

        The then minister of the interior (now president of the national assembly) Jose Serrano was smart to recognize these protests for what they were, a cynical attempt foment violence in order to create a false narrative in the lead-up to the elections season. He sent his police out unarmed with riot shields and ordered them to hold the line. One police officer was actually separated from service for bringing a privately-owned paintball gun. He never fired it, but that was considered sufficient grounds to end his career. Those young men and women were basically told to absorb those violent attacks until the protesters tired out. If you notice in the videos, their shields have signs on them: “I’m a police officer and a father”, “I’m a police officer and a mother”, I’m a police officer and and uncle”, etc. etc. They were hoping to appeal to the better nature of these “protesters”. As you can see, the attacks were powerful enough to break those riot shields in many instances. Imagine what it could do, and in many cases did, to a human body. Not a job I would want to do. My hat is off to those brave people. People like Guillermo Lasso, Andres Paez, Salvador Quishpe, Carlos Perez
        and their ilk literally sent young people out to the streets in the hopes
        that they would be brutally beaten and, if lucky, maybe even a couple
        dead in the process. Andres Paez actually tweeted that they should aim for the legs after having seen how the new riot gear was protecting the officers. In the end, the best they could get for their narrative was some tear gas and 20 arrests.

        Serrano wasn’t going to give the opposition the martyr they so desperately wanted. The cost of that approach was one officer left paralyzed for life (a 28-year-old father of a newborn), one officer with both legs broken, one police horse killed in Cuenca, one officer kidnapped and tortured in Zamora and hundreds of officers injured nationwide. The road closures led to one death in Loja because an ambulance with a critically ill patient wasn’t allowed to get to the hospital (she died in the back of the ambulance after waiting for hours at a roadblock manned by indigenous protesters armed with shotguns) and multiple reporters from news outlets not to the opposition’s liking (including one foreign journalist) were brutally attacked and had their equipment stolen or destroyed, but Fundamedios and the CPJ apparently didn’t see that as an attack on press freedom because neither of them ever mentioned it.

        However, Serrano’s approach worked. The protests quickly fizzled out as many of the people were being compelled or even paid to attend, something that can only be sustained for a few days before the coffers run dry and people have to get back to work. Not having a cadaver to rally around meant most people simply went home. However, that hasn’t stopped certain press outlets and NGOs from continuing to repeat the false narrative they so desperately tried to manufacture.

  • Michael Berger

    Insightful article but one important word is missing; welfare. Moreno was elected on the promise of doubling welfare payments. If he were to do such a thing then Ecuador could turn into Venezuela overnight. In this case it is good news that politicians often don’t fulfill campaign promises. It looks like Moreno will be able to pull Ecuador out of the dive. Many people are upset with him for turning to the private sector in an attempt to rescue the economy and once/if he announces that welfare payments won’t go up 100% the reaction could be very bad. If the people are smart they will simply understand that the economy was way worse then Moreno thought when he made that promise.

    • BDev

      MB – Seems to be a devolution happening. Used to be that getting ‘free stuff’ from the govt was inherently frowned upon; a sign that one was not pulling their weight, except in cases of true destitution and need. Then it became more socially tolerated as ‘acceptable’ after politicians learned that it bought votes. Many laws were passed promising more freebies; many pockets lined along the way. Them again it morphed into a demand, a ‘right’ of all people. Those who quietly took the ‘free stuff’ in the past were now demanding it, and demanding more and more. It has become OK to create violence while demanding my ‘free stuff’.
      What is it all leading to?

    • Jason Faulkner

      It’s been 10 years. When exactly are we going to become Venezuela? Clearly not overnight as you claim, but it must be coming considering how so many people have been saying it for a decade.

  • Nick Vasey

    For anyone who wants some additional overall context for this article, I refer them to the article I wrote after the so-called “election,” which summarises (as best as possible) what happened here in Ecuador during Correa’s reign (during the nearly ten years of my residency here).

    https://pleasespikemydrink.com/2017/04/24/ecuador-death-by-government/

    • Jason Faulkner

      I don’t think anyone could get any context from that article because the statements of fact you use to sell it are factually untrue and the ideological foundation upon which you base your predictions is pure fantasy. We have been hearing that we will become Venezuela nonstop for the past decade. It’s hard to take anyone seriously when they’re still trying to sell that nonsense in light of the scoreboard.

      BTW, debt to GDP is half what it was when Correa assumed office. Kind of undermines your whole death spiral thesis., doesn’t it?

      Maybe it’s a vocabulary thing. What epic failure are you referring to in the title? The epic failure of doubling the GDP in 10 years or the epic failure of cutting poverty in half? I realize we live in a time where words can mean anything anyone wants these days so I wanted to make sure I had a
      glossary before reading your article again. It made absolute zero sense in regular old English.

  • Jason Faulkner

    For so much real world experience, he sure seems to make up as many imaginary events as you.

    I don’t recall ever saying that Venezuela could never go down the path of neighboring Cuba (neighboring?), nor have I seen anything analogous between their situations. Maybe you can copy/paste the quote where I said that . . . right after you find that massive protest that was met with brutal oppression.

  • Jason Faulkner

    Yet when you take an honest look of the arc of the human race for the past 1000 years, we’ve been moving in the exact opposite direction. I mean, if you know history and all.

    • Michael Berger

      Yes I agree!

  • Globetrotter

    As this article and the standard rant above shows, this forum has become super toxic. Many of the comments are worthy, but they are quickly drowned in venomous responses. Additionally, everyone seems to agree that the articles are regularly salted with bias.

    This forum does not reflect Cuenca. It is merely distills the ugly stuff happening up North and spews it.

    We need something better.

    • Dan

      The article is labelled “opinion” so it is clearly salted with bias. The comment confirms the position of many media experts that the internet is affecting people’s ability to read and think beyond a knee-jerk level. They call it a “dumbing down.” I agree about the nastiness of comments although it’s important to keep in mind that only about 5% or 6% of readers on this site, or any other, actually read the comments. Most of them have better ways to spend their time and a majority of them don’t even know the comments are here.

    • StillWatching

      If by “super toxic” you mean exaggerations, distortions and outright lies, I agree with you and would only point out that between you, faulkner and berger, there is plenty of the spewing that you allude to.

      If you are sincere and really want something better, begin with yourself and start checking your own posts for accuracy and honesty before you attack others with your condescending [giggle? sigh? rolling eyes? Who cares what your facial expressions are?] and snarky comments.

      See if you can concentrate on the message and not the messenger.

  • BDev

    It is interesting how all govts of the world are slowly morphing into a similar system: an autocracy disguised as a representative democracy; a controlled crony neocapitalistic economic system; with all the above literally owned by a handful of bankers, as debt.

  • Kevin Lichtman

    Lenin will be a one term president, regardless of the condition of the Ecuadorian economy. That’s because the AP is doomed. Correa’s legacy’s is a cult of personality that follows his ideals and ignore’s all other logic. Correa and his followers have already foresaken Moreno and will likely leave the AP to form their own party. This will give the opposition the majority it seeks in the next election or even a super-majority if the Moreno faction joins them in a coalition.