By Fernando Arroyo Leon
Quito, May 27 (EFE).- Newly inaugurated Ecuadorian President Guillermo Lasso has inherited a pandemic-triggered economic crisis and now must urgently shepherd a recovery to prevent latent social tensions from erupting into conflict.
The economic indicators left behind by his predecessor, Lenin Moreno, are not encouraging and attest to the seriousness of the situation.
Lasso, who has taken the helm of an economy that contracted by 7.1 percent last year and is projected to grow just 1.5 percent in 2021, has vowed to promote greater economic openness and investment and slash the deficit.
Nevertheless, he acknowledges that the path back to economic health is riddled with obstacles and that unwavering “national unity” will be needed to bolster his recovery strategy.
A 65-year-old former banker and business leader, Lasso has announced plans to boost government revenue via a tax overhaul and reduce public spending, in keeping with an economic philosophy that sees private enterprise and foreign investment as key to a recovery and sustained prosperity.
The conservative president therefore is promoting the participation of private companies in state-run businesses in the oil, mining, road and highway, tourism and housing sectors, among others.
Lasso’s goal is to nearly double current oil output from an average of 536,000 barrels per day to 1 million bpd and for the nation’s three state-owned refineries to increase their output of hydrocarbon derivatives for domestic use from a current level of 110,000 bpd, an amount he says is out of proportion with the 300,000 bpd of crude they process.
These objectives can be achieved through concessions awarded to private companies, Lasso says.
Ecuador’s rich biodiversity and topography make it attractive to foreign investors, and Lasso wants to tap into that potential by creating “tourism free zones” that offer tax exemptions to developers.
Lasso has inherited a nearly $3 billion budget deficit and a public debt estimated at $63 billion.
He can rely on support from multilateral organizations in shoring up the country’s finances, but any spending cuts – particularly ones affecting sensitive areas of the economy – or tax reform measures aimed at boosting revenue could face staunch resistance.
Pablo Davalos, an economics professor at the Pontifical Catholic University of Ecuador, says Lasso is opting for supply-side solutions when the country is clamoring for a demand-side approach.
He therefore anticipates a tough road ahead filled with political and social obstacles.
And even though Lasso’s center-right CREO party has managed to cobble together a working coalition in Ecuador’s unicameral legislature, his own political grouping has just 12 of 137 seats in a deeply divided National Assembly.
Davalos also recalled that various social sectors have started calling for the elimination of a market-based price band for gasoline, a system Moreno’s administration managed to push through at a time when oil prices had plunged during the pandemic.
The expert said Ecuador could go down the path of Colombia and face “situations of social unrest” if it does not first address the demands of a population that has endured a severe health and economic crisis for more than a year. EFE