What Are The Biggest Problems Affecting Ecuador In 2023?

Ecuador faces a tense political dynamic in 2023. Embattled President Guillermo Lasso has struggled to govern. His government has failed to contain a surge in organized crime-related violence. In 2022, Ecuador recorded 4,539 murders, its highest homicide rate in modern history. In 2022, Ecuador was disrupted by a series of sometimes violent protests. In 2023, Ecuador’s economy is slowing and expected to grow by just 2.6 percent. The World Justice Project ranks Ecuador as 93rd out of 140 countries in terms of rule of law. Transparency International ranks Ecuador as 105th out of 180 countries in the 2021 Corruption Perceptions Index.

On May 17, President Lasso disbanded Ecuador’s National Assembly after lawmakers tried to impeach him. Indigenous opposition leaders called Lasso’s actions a “coup.” Lasso is currently governing by decree but has called for new elections in August, 2023 in order to let a new president take over. Right now the outlook in Ecuador is complicated. Foreign executives doing due diligence on potential investment projects in Ecuador need to understand the country’s evolving political risk dynamics.

To get a sense of what’s ahead for Ecuador, I reached out to Will Freeman, the Fellow for Latin American Studies at the Council on Foreign Relations.

Nathaniel Parish Flannery: What three words would you pick to describe the current political dynamic in Ecuador?

Will Freeman: I’d describe the current political dynamic in Ecuador as deadlocked, deceptive, and uncertain. Three factions dominate Ecuador’s politics: anti-populists like incumbent President Guillermo Lasso, the populist left led by ex-President Rafael Correa, and the Indigenous left. The first two blocs are almost always at odds. The third acts as something of a swing vote. Recently, the populist left and much of the Indigenous left aligned behind the attempt to impeach Lasso, who responded by dissolving the legislature and calling snap elections. None of these three groups agree on much of substance, but none is strong enough to overpower the others, paralyzing the state even as Ecuador’s challenges metastasize. Ecuadorian politics is deceptive in that observers have tended to overstate the country’s democratic gains since ex-President Rafael Correa left office in 2017. Undoubtedly, civil society and the press have more freedom now than under Correa, and the executive branch is no longer all-powerful. But Ecuador is still a flawed democracy thanks to persistent corruption, state weakness, and weaponization of democratic processes and institutions by all sides. Last, Ecuadorian politics is uncertain: with many Ecuadorians fed up with politics as usual, the country’s political landscape is poised for a reshuffling. Correismo hangs onto a solid quarter of the electorate, and has been on a winning streak lately. But disaffection with polarization and politics leaves room for outsider candidates to break onto the scene ahead of the elections and amass considerable support.

Parish Flannery: What are the biggest obstacles Ecuador faces now?

Freeman: The biggest obstacle in Ecuador’s path is organized crime. The crime surge, which started in earnest in 2020 but accelerated dramatically last year, is comparable to that of Medellín, Colombia during the times of Pablo Escobar, or Mexico in the 2000s. Ecuador finds itself in the eye of the storm for several reasons. The 2016 demobilization of much of Colombia’s FARC, which historically ran the drug trade in northern Ecuador, opened a power vacuum. Skyrocketing demand for cocaine in Europe makes Ecuador’s bustling ports a lucrative transshipment point. But the security crisis also owes to domestic political blunders. Ex-President Correa’s hands off approach to narco-trafficking allowed criminal groups to grow. His successors’ mismanagement of Ecuador’s jails and reduced social spending set the stage for crime to explode. Now, Ecuador faces a truly daunting problem: how to prevent the emergence of a narco-state. State intelligence reports reveal groups within the navy have been coopted by organized crime. The U.S. Ambassador in Quito denounced “narco-generals.” There have been high-level purges, but the problem of criminal cooptation won’t easily go away. Until the state gets criminal violence under control, attracting foreign direct investment will be hard, even if the country’s macroeconomic fundamentals look good. Domestic opposition to trade deals in the United States is another hurdle.

Parish Flannery: How Does the Political and Security Situation Affect Foreign Companies?

Freeman: Ecuador will face lots of uncertainty over a short period of time. A new president and national assembly chosen in August 20 elections will finish out the current set’s terms, and then Ecuador will head to general elections once again in 2025. Given Lasso’s unpopularity, a pro-business conservative candidate would likely have little chance of winning—unless he or she develops a compelling message on crime. The populist or Indigenous left, or an outsider in the style of Nayib Bukele, is better positioned to win. That helps explain why Ecuador’s bonds sank last week after news broke about new elections. It is not guaranteed that Correismo, returned to national office, would pursue radical economic policies. The recently elected Correista mayors of the capital, Quito, and Guayaquil are pragmatists. Correa, himself, began to pursue pro-business policies in his final years in office and signed a trade deal with the European Union. Sources in Quito told me mining companies miss the Correa years, when state authorities issued permits quickly and environmental protections were lax. Then again, there is the possibility a Correista president de-dollarizes the economy: both Correa and his party’s 2021 presidential candidate, Andres Arauz, have floated the idea. A president from the Indigenous left would likely take a more confrontational stance to trade deals and foreign companies. A political outsider would be something of a wild card. But for business, the more urgent issue is crime. Foreign direct investment has hit a bottleneck as investors wait to see if the security situation improves. Without political unity, international support, and a focus on intelligence-gathering and restoring the social safety net, that is unlikely.

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