On Sunday 4 February, Ecuadorians voted overwhelmingly in favour of all seven questions put to voters in a referendum. One of the most tangible questions was against the concept of 'indefinite re-election', introduced by former President Correa in 2015, and in favour of limiting the president to two terms. The yes vote signifies that Correa, who ruled for more than a decade, is blocked from seeking a new term in 2021. Another referendum question will bar those convicted of corruption from public office, which includes Jorge Glas, formerly vice-president and staunch ally of Correa. He was sentenced to six years in prison in late 2017 in connection with bribes paid by the Brazilian construction company Odebrecht. Two questions had an environmental bent and imply restrictions on future mining opportunities. Other referendum questions related to eliminating a land speculation tax, preventing convictions for sex offences against minors from expiring and restructuring the council for citizen participation and social control.

Impact on country risk

Over the past year, a feud between Correa and Moreno (one time protégé but now arch rival) has been mounting. Moreno narrowly won the presidential elections as the candidate of Correa’s Alianza Pais (AP). Since taking office in May 2017, Moreno has been distancing himself from his predecessor. Tensions between them culminated and mid-January Correa formally broke ranks with the AP to form his own party: Citizens' Revolution. Thirty Correa loyalists followed him, depriving Moreno of his National Assembly majority. However, the referendum outcome is likely to strengthen Moreno's position. It can give him the political cloud needed to convince Correa loyalists and opposition members to vote with him on forthcoming legislative battles. Building on this momentum, the Moreno administration is expected to pursue further fiscal consolidation to tackle the elevated fiscal deficit (estimated at roughly -6% of GDP in 2017) and keep the moderate public debt (of around 40% of GDP at the end of 2017) from rising. Moreno is also likely to introduce legislation aimed at making Ecuador's economy more competitive. The oil-dependent economy has difficulties to revive since the oil price drop in 2014. Economic growth is expected to remain sluggish in 2018 at 0.6%, coming from 0.2% in 2017. The Andean country is counting on FDI to add impetus to the fully dollarised economy but it is struggling with its anti-private sector legacy. While Moreno started building bridges with the private sector shunned by Correa, he abruptly stopped instituting the needed economic reforms. External weaknesses remain with the current account deficit expected to widen to almost - 2% of GDP in 2018, while foreign reserves are still scarce – covering only 1.6 months of imports last November – and external debt is on the rise. The greatest commercial effect of the referendum is likely to be felt by potential hydrocarbon and mining investors, who will see their exploitation opportunities limited by territorial restrictions. Indeed, the referendum results allow the government to ban mining in protected areas (equal to about 19% of the country’s territory) and limit hydrocarbon activities in Yassuni National Park (home to approximately 30% of the country’s oil reserves).

Analyst: Jolyn Debuysscher – J.Debuysscher@credendo.com