Implications of Ecuador's Presidential Election First Round

(CRISTINA VEGA RHOR/AFP via Getty Images)

Ecuadorean presidential candidate Yaku Perez (L) and his partner French-Brazilian Manuela Picq (R) speak with an OAS member during a meeting with his competitor Guillermo Lasso, CNE and OAS members, at the National Electoral Council (CNE) in Quito, on February 12, 2021.

Results from Ecuador’s first round of presidential elections indicate a likely return of populism, a rejection of the economic reform process being supported by the IMF, and the growing popularity of an environmentally-focused political movement. On Feb. 7, Ecuador held its first round of presidential elections, narrowing the field of sixteen candidates to two, in preparation for the second round of presidential elections scheduled for April 11. Widespread popular frustration with the political establishment led 1.2 million of the 9.5 million voters to cast null ballots. Left-wing populist Andrés Arauz of the Union for Hope coalition, won a spot in the runoff election with an estimated 31.5% of the vote, emerging as the favored candidate to win the second round. Environmentalist indigenous leader Yaku Pérez and centrist business-friendly Guillermo Lasso are virtually tied at around 20% of the vote for the second spot.

Arauz, is the protege of former populist leader Rafael Correa, and the candidate ran on the promise to return to populist energy policies, while advocating financing pandemic relief with central bank reserves.
Yaku Pérez’s success may be indicative of a growing indigenous involvement in Ecuador’s politics. Pérez’s Pachakutik Party, a political wing of the National Confederation of Indigenous Nationalities of Ecuador (CONAIE), focuses on anti-extractivist policies and land recognition for indigenous groups.

Ecuador’s geographic landscape gives indigenous groups claims over resource-rich lands and their rising political influence is beginning to pose challenges to extractive industries and other business sectors. The majority of the country’s indigenous population resides in the Andean Mountain range and the Ecuadorian Amazonian rainforest. Pérez’s campaign promised to ban all mining and limit petroleum extraction, gaining him support from indigenous groups and environmentally-minded Ecuadorians that have long lobbied for reform.

The Pachakutik party is likely to push for consultation of local communities on mineral mining, petroleum extraction projects, and a shift towards renewable energy.

An Arauz presidency will likely have negative implications for the country’s recent IMF deal, portends closer relations with China, and could result in the reestablishment of a nationalized oil sector. While the presidential candidates have debated a multitude of topics ranging from pandemic preparedness to budget administration, there are three takeaways that are relevant to international actors:

The unpopular IMF deal that Ecuadorian President Lenin Moreno struck in September 2020 is likely to be changed or scrapped, potentially leading to another default which would decrease much-needed FDI due to weakened investor confidence. While all three candidates agree that budget consolidation measures recommended by the IMF would be difficult to comply with against COVID-19 pressures, they disagree on how to approach the IMF deal. Arauz and Pérez both reject the IMF deal as currently structured, which could trigger another default on Ecuador’s $6.5 billion dollar loan. Such a decision would contribute to significantly decreasing lender confidence and the availability of future loans. While Lasso has stated that he intends to renegotiate the loan, his past support for tax cuts and pledge to raise the minimum wage counter stipulations outlined in the Extended Fund Facility. Lasso is likely relying on what some believe is the IMF’s hypothetical so-called “new” pandemic-sensitive approach to fiscal stabilization, which may be wishful thinking.
Ecuador’s next president has the potential to shift soft power influence via lending from the U.S. to China, both of which have brought a proxy version of their trade war to the South American country. China and the United States have criticized one another for giving ‘predatory’ loans to Ecuador. In January 2021, the U.S. International Development Finance Corporation (DFC) extended a $3.5 billion dollar credit line to Ecuador to help the country pay off its debt to China. In return, Ecuador agreed to reduce Chinese commercial engagement in its telecoms sector. Arauz is perceived to be supportive of China and has stated that Ecuador should align itself with the Asian nation. Conversely, Lasso advocates strong ties with the United States, and proposed a free trade agreement between the two countries. Pérez has not aligned himself with either superpower, criticizing them both over their company’s environmental practices in Ecuador.
While all major candidates proposed oil reforms, Arauz’s advocates a return to energy nationalism and favors state-owned PetroEcuador. After the price of oil dropped dramatically in 2020, Ecuador’s petroleum-dependent economy felt the pressure and all major candidates proposed reforms to the country’s oil industry. Arauz campaigned on giving preference to state-owned PetroEcuador over private sector imports, a trend that could emerge in late 2021 or 2022, if he is elected. Lasso promised the continuation of an import-parity fuel pricing mechanism, implemented by current president Lenin Moreno, which ensures competition between domestic and international oil producers. Pérez proposed to only produce petroleum for domestic consumption and instead begin exporting the country’s water supply.