Why is Daniel Noboa so popular even after he raises taxes and makes plans to end subsidies?

Mar 11, 2024 | 0 comments

By Matthew Bristow and Stephan Kueffner

It’s the kind of opportunity most leaders can hardly fathom: voters rallying behind a government that is raising taxes, clearing the way for more oil drilling and planning to slash fuel subsidies.

Ecuador’s 36-year-old President Daniel Noboa is overhauling the nation’s economic model in a way that would likely trigger rioting in normal times. But times aren’t normal. The country has been transformed from a stable corner of Latin America into a borderline failed state with a six-fold surge in homicides over five years and the inability to pay government workers on time.

Since Noboa took office in November, he has declared war on cocaine cartels while also battling to prevent a financial meltdown. The security crackdown’s early success has made the US-educated son of wealthy banana exporters one of the world’s most popular leaders, with approval ratings approaching 80%.

Ecuador’s armed forces enjoy the highest level of public approval of all government institutions, boosting President Daniel Noboa’s own popularity.

In recent weeks, Noboa pushed through an emergency tax bill that raised the value-added-tax by three percentage points to 15%, and greenlit thousands of environmental permits for oil and mining companies — moves he said will help shore up the economy as well as government coffers. He’s also planning to reduce gasoline subsidies and liberalize the labor market to make it more employer friendly.

The crisis generated by the surge in violence and the state’s inability to pay salaries “created an environment of legitimacy” for Noboa to push his economic reforms, said Augusto de la Torre, a former head of Ecuador’s central bank and World Bank economist for Latin America.

“Before the VAT increase, it was impossible to see how Ecuador could escape a serious fiscal, cash-flow, and liquidity problem,” he said.

With his focus on gangs and use of emergency powers, Noboa appears to be following the playbook of El Salvador’s Nayib Bukele, one of the few leaders in the world more beloved than he is. Bukele, confronted with a similar surge in crime, became a regional hero by using mass arrests, a suspension of civil rights and the construction of one of the world’s biggest prisons to suppress gangs — all policies that Noboa is adopting.

But while the US holds Bukele at arm’s length, condemning his flouting of term limits and human rights, Noboa is getting significant help from Washington. The US was so alarmed by the nation’s plunge into chaos that it dramatically increased assistance, making Ecuador the second-biggest recipient in Latin America, after Colombia, of  funds from the State Department and the Department of Defense to bolster security.

US authorities have another reason to want a stable Ecuador: The bloodshed has set off a wave of migration, with Ecuadorians now the second-biggest nationality among travelers walking through the Darien Gap on their way to the US.

Security Crackdown
Ecuadorians are leaving after the country was wracked by assassinations, widespread extortion and prison massacres over the past half-decade. Cartel hitmen have made the city of Guayaquil a contender for the murder capital of the world as they fight for access to its Pacific Ocean ports, where cargoes of bananas, shrimp and cocoa are ideal for hiding Colombian and Peruvian cocaine destined for the US and Europe.

In January, Noboa used emergency powers to put troops on the streets, imposed a curfew and sent the army to take control of the gangs’ command-and-control center: the prison system. In the first weeks, the murder rate dropped more than 60%, according to official figures, and his security forces pulled off one of the world’s biggest ever drug busts, seizing 21.5 tons of cocaine during a raid on a banana plantation.

One man who may owe his life to the security crackdown is Henry Zambrano. He was tied up on the dirt floor of a wooden shack in Guayaquil’s gang territory last month when he heard the bleeping of police radios getting nearer, part of a patrol that was joined by Bloomberg News reporters.

His kidnappers, probably members of a local crime syndicate, fled when they heard the noise, and the 40-year-old hostage decided to make a break for it. He emerged plastered in mud up to his knees after slogging through the estuary near Ecuador’s biggest port, shouting for help.

It was a lucky escape; the authorities had no idea he was there, and he had overheard his captors discussing whether to shoot him and dump his body.

“I plucked up my courage, and tried to untie myself,” he said in an interview. “I went deep into the mangroves, and when I saw the police I was able to give the alert.”

One of the biggest changes since Noboa’s crackdown can be seen in Ecuador’s prisons, where the army has taken control. The soldiers seized guns, knives and mobile phones, and made bonfires out of unauthorized clothing and furniture from prisoners’ cells.

Prisoners’ families initially welcomed the arrival of the army, hoping it would reduce the endemic violence within the facilities. More than 500 inmates have been killed in riots over the last three years, according to Ana Morales, a spokesperson for the Committee of Family Members for Justice in Prisons, a nonprofit group. Instead, what’s changed is that soldiers are doing the torturing rather than gang members, Morales said.

For now, though, Noboa’s strategy remains popular. He won snap elections last year after President Guillermo Lasso dissolved congress to avoid impeachment, and is serving out what would have been the remainder of his predecessor’s term until May 2025.

Since Noboa is likely to be campaigning for reelection within a few months, some investors feared he’d hesitate to take unpopular measures. But things were so dire that he didn’t have the luxury of postponing tough decisions.

“The president has been learning that the situation of the country is much tougher than he ever imagined,” de la Torre said.

Ecuador’s dollar bonds, which while still trading at distressed levels, are the best performers in emerging markets this year as investors bet the reforms will open the door to an economic aid program from the International Monetary Fund. Noboa told investors in New York last week that he expected to reach an IMF deal in about two months, according to a person who attended the meeting.

Tough Decisions
Crucial tests for Noboa’s ambitious agenda are on the horizon. He plans to ask the Constitutional Court to delay implementation of a referendum last year that compels the government to shut down a major oil field in the Amazon, arguing Ecuador needs the money it generates to fund its internal war.

He’s also taking the risky step of holding a new referendum on April 21 that will ask voters to back tough measures against criminals as well as economic reforms, such as allowing temporary work contracts and international arbitration of disputes. These sorts of pro-business policies would usually meet stiff opposition from indigenous groups and a powerful socialist party, but Noboa is betting that his popularity will carry the day.

Noboa is in a good position to get reelected next year, and could win in a landslide if he’s able to consolidate security gains, according to Sebastian Hurtado, the head of political risk consultancy Profitas in Quito.

Of course, there’s the risk that crime starts to rise again as the gangs adapt to the new reality. Already, the army has returned day-to-day management at some prisons to the same government agency that previously lost control of them to the inmates. And the cartels have been biding their time, knowing that the state of emergency has a legal limit of 90 days, which will expire in April.

“I’ve been robbed many, many times, but now I’ve seen security improve a lot,” said Elvis Benavides, who works as an informal taxi driver in Duran and Guayaquil. “I hope it continues. I’d vote for him if he runs for reelection.”
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Credit: Bloomberg

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