Ecuador: Growing Political and Economic Repercussions of COVID-19

By John Polga-Hecimovich*

Lenín Moreno speaking at an event

Lenín Moreno, presidente de Ecuador/Flickr/Creative Commons

Despite early aggressive measures against COVID‑19, Ecuador has suffered one of the world’s most devastating outbreaks that, combined with the drop in international oil prices, may be catastrophic for the country’s economy and for President Lenín Moreno. Since March 16, the President declared a national state of emergency and curfew throughout the country; imposed strict social isolation (until May 4) that suspended all face-to-face activities; and established a special security zone in the province of Guayas, epicenter of the pandemic. Even so, Ecuador currently has the second-highest number of documented cases in South America, after Brazil, and the death toll from COVID‑19 may have reached between 7,600 and 11,000 during April.

  • Ecuador’s first case of COVID-19 was detected on February 27 in the port city of Guayaquil. As the virus spread in March and early April, the city experienced an unprecedented humanitarian crisis due to the much-publicized accumulation of hundreds of corpses in homes and on the streets. The local government’s response was erratic, with mayor Cynthia Viteri at one point ordering officials to block the runway at the airport to prevent a flight from Spain from landing, and later comparing the devastation to “the Hiroshima bomb.” Viteri has since estimated that perhaps as many as one-third of guayaquileños have COVID‑19.

Despite the lockdown measures, the national government has also shown a lack of capacity in addressing the public health crisis. Moreno created a task force to deal with the situation in Guayaquil, but even then, the government possessed a limited ability to determine who had the virus, to say nothing of addressing shortages of suits, masks, gloves, and ventilators for hospital personnel. In a national address in early April, the President acknowledged that official coronavirus figures had significantly understated the extent of the country’s health emergency. There have also been worrying accusations of corruption against officials in the Ecuadorian Institute of Social Security (IESS) in outfitting hospitals, and the Attorney General’s office charged the now ex-National Secretary of Risk Management Alexandra Ocles with influence-peddling.

  • The combined impact of the pandemic and oil crisis on the country’s economy may be catastrophic. Petroleum is Ecuador’s largest export commodity and accounts for about a third of its public-sector revenue. The 2020 national budget was planned with an oil price of $51.30 per barrel (currently hovering around $30.00), which will increase the country’s deficit. Ecuador also has little savings to implement a countercyclical fiscal policy and is on the brink of defaulting on its $50 billion debt. Adding to the troubles, due to dollarization, it cannot devalue its currency to reduce its deficit. The collapse of export revenues and massive foreign debt payments have greatly compounded the economic cost of the pandemic, and the country’s GDP may shrink by as much as 7-8 percentage points.
  • The government is just barely muddling through. Private bondholders have accepted the government’s request to defer interest payments on the country’s debt until August 15, freeing up $811 million and buying Moreno some breathing room. However, this could merely postpone a default: a fragmented and intransigent legislature and social sectors have balked at emergency austerity measures. Responding to the country’s social needs and economic well-being is a difficult line to walk. The government has issued a $60 stimulus (bono) that will benefit some 400,000 people, while at the same time it submitted a bill to the National Assembly that proposes an extraordinary tax on both companies and individuals to bring unbudgeted resources into the national treasury.

While the government confronts its public health and economic problems, general elections are nine months away and the National Electoral Council is already debating ways to carry them out. There is too much uncertainty at the moment to determine any potential frontrunner. Moreno is not running for re-election; ex-Guayaquil Mayor Jaime Nebot has suffered due to his city’s lack of preparedness at confronting the pandemic; and the fate of Interior Minister María Paula Romo may rest on the Moreno government’s (so far unconvincing) response. Like leaders around the globe, Moreno is faced with the unpleasant challenge of keeping the country’s economy shuttered longer or risking a resurgence of the virus. The success or failure of his strategy will undoubtedly shape the country’s political and economic future.

May 15, 2020

* John Polga-Hecimovich is an Assistant Professor of Political Science at the U.S. Naval Academy. The views expressed in this article are solely those of the author and do not represent the views of or endorsement by the Naval Academy, the Department of the Navy, the Department of Defense, or the U.S. government.