How Correa Weathers Quito's Economic Storm

Ecuador, facing declining remittances and low oil prices, finds itself confronted with financially tough 2009. But the upcoming presidential elections present an opportunity to redirect voters’ attention to other quarrels picked by the administration of President Rafael Correa. His style of governing has mustered ample support for his political party Movimiento Pais while sparking multiple controversies abroad. Along with his Vice President Lenin Moreno, Correa will get another chance to put his formula for government up for a reelection test, thanks to a revamped constitution approved last August. The presidential campaign begins March 10 with the election following on April 26.

Quito’s short-term financial forecast appears bleak. The Economist Intelligence Unit predicts Ecuador faces negative growth of 3.2 percent and, from 2010 up to 2013, experience half the growth rate of the past four years. In addition, the bond default announced by the Finance Minister María Elsa Viteri on February 16 unnerved investors, on guard since December over whether Correa’s government would make payments on what the president called “illegitimate” external debt.

Like most of the countries in the Western Hemisphere, Correa may have to drastically cut spending in 2009 as a result of the global crisis decreasing his popularity levels. Statistics prepared by Ecuador’s Central Bank confirm the downward slope in oil and non-oil related exports, gross domestic product, and remittances. El Comercio reports that international reserves have dropped significantly in the last six months thanks to lower oil demand and prices. Lower inflation rates starting in October stand as one bright spot.

Yet, despite these financial trials, Ecuadorians continue to favor Correa’s administration. A poll by Cedatus/Gallup show that Correa’s approval ratings remain at a solid 70 percent in January. Some of the initiatives undertaken by his government include his calls against renewing the lease for the U.S. air force base in the port of Manta, breaking diplomatic relations with Colombia after Bogota’s unauthorized military raid against guerrillas last year, and threatening Repsol to freeze its assets for non-tax compliance. The Latin American Thought blog offers an explanation of how the initiative to turn the town of Manta into a megaport developed by Hong Kong-based Hutchinson Port Holdings may turn sour as a result of sinking manufacturing numbers in China. On bilateral relations with Colombia, World Politics Review says that after a year “[B]oth sides' failure to make progress on reconciliation may be politically motivated.” The article explains that while Correa gains support by defending Ecuador’s sovereignty at all costs, Uribe has other matters deal with so that restoring diplomatic ties with its neighbor may not stand as a top priority. To defuse the Repsol affair, a prompt visit by Spain’s Foreign Minister Miguel Angel Moratinos on February 25 forged a compromise to repay 20 percent of the $444 millions demanded by the government by a March 12 deadline, Hoy newspaper reports.

In spite of a new occupant in the Oval Office, Quito’s relations with Washington remained strained after Ecuador’s decision to expel the U.S. Embassy’s First Secretary Mark Sullivan, accusing him of meddling with internal affairs. The move was preceded by the expulsion of U.S. official Armando Astorga on February 7 after Washington ended support for a police support program. In a daily press briefing on February 19, U.S. Department of State Acting Deputy Spokesman Gordon Duguid expressed concern and suggested that the United States is weighing whether or not to engage in diplomatic retaliation.

The Instituto Latinoamericano de Investigaciones Sociales in Quito unveiled an analysis of Ecuador’s state of the economy in 2008.