April 12, 2021

Latam

ECUADOR: Lasso thwarts revival of left-leaning populism but going will be tough

BY Nicholas Watson

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( 3 mins)

Former president Rafael Correa (2007-2017) suffered a resounding defeat yesterday, 11 April, as his proxy presidential candidate Andres Arauz lost to the conservative former banker Guillermo Lasso in a run-off vote. With 98% of votes counted, Lasso of the center-right Creating Opportunities (CREO) party was on 52.48% and Arauz was on 47.52%; the difference amounts to around 420,000 votes. Although prior to the results Correa appeared to be gearing up to allege fraud, in fact both he and Arauz last night conceded defeat. Lasso will be sworn in on 24 May.

Lasso’s first priority will be on the health crisis amid a rising caseload, a faltering vaccine rollout, and the outgoing government’s chaotic handling of the situation. President Lenin Moreno is on his fifth health minister since the Covid-19 outbreak began. The most recent incumbent, Mauro Falconi, reportedly struggled to find out basic information about how many vaccines had actually been administered and where stocks are located. Lasso has promised that 9mn Ecuadoreans will have had a vaccine jab within 100 days of his inauguration. As a corollary, the vaccine rollout will have important implications on economic recovery.

Beyond the immediate pandemic question, there will be deeper challenges arising out of the structural basis of the incoming administration. Lasso’s core support as expressed in the February first-round vote was only 19.7% of the electorate. In February, Lasso won just one out of 24 provinces (which incidentally makes his victory in 17 provinces yesterday so remarkable). In other words, many of Lasso’s run-off votes are an expression of anti-Correismo more than they are an enthusiastic endorsement of the CREO candidate. Moreover, Lasso will have to convert his rainbow electoral coalition – e.g. LGBT voters with social conservatives and free market enthusiasts with the moderate Left – into an effective governing coalition.

The fragmented incoming National Assembly (AN) manifests this challenge most clearly. CREO and its Social Christian Party (PSC) ally will only have 31 out of 137 seats. The indigenous Pachakutik party and the Democratic Left (ID) party, which have been working on their own legislative alliance, will have 43 seats between them, making their support crucial to construct majorities. However, both are likely to demand a high price for their support, and PK especially could prove to be an unstable ally. The Correista Democratic Center (CD) will be the largest bloc with 51. An early test of legislative cohesion will come on 14 May when the AN’s leadership will be elected; Correa’s sister Pierina is expected to make a strong play for AN president.

Lasso’s polychromatic electoral support will also have an impact on economic policy, making it more pragmatic than purely orthodox. As previously signaled, the International Monetary Fund (IMF) agreement will be subject to revisions given Lasso’s refusal to consider raising VAT. The IMF’s sense of relief that Lasso and not Arauz won yesterday means that there is a good chance Lasso can achieve more flexible terms. The immediate challenge – even before Lasso takes office – will center on what happens to the Defense of Dollarization bill, which would improve the Central Bank (BCE)’s autonomy and governance. If the bill passes, it would represent an early boost for Lasso; otherwise, BCE reform will be back on the agenda for talks with the Fund.

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