Sunday, February 19, 2017

Latin America's Tilt to the Right Facing Fresh Test in Ecuador
Stephan Kueffner and Ben Bartenstein
February 17, 2017, 10:32 AM EST

Continuity candidate has most support in pre-election poll
But a second-round vote could usher in an opposition victory

Latin America’s trend toward more business-friendly governments will get a fresh test in Ecuador, where a president closely aligned with socialism has been in power for more than a decade.

With support from about a third of voters, Lenin Moreno is leading the pack going into the first-round presidential elections Sunday. He was vice president under President Rafael Correa and represents a continuation of policies that critics say have widened deficits to unsustainable levels. Of his seven opponents, Guillermo Lasso and Cynthia Viteri appear best positioned to unseat Correa’s Alianza Pais party, with both polling well into double digits.

Investors and analysts see this year’s elections as the best chance Ecuador has had in years to usher in a government more likely to lure foreign investment, following upset wins for pro-business candidates in Peru and Argentina over the past year-and-a-half and Brazil’s impeachment of the left-leaning Dilma Rousseff. The victor will lead a nation of 16 million mired in recession, with soaring debt and rising unemployment at a time when oil prices, the country’s biggest export, have yet to fully rebound from the commodity boom years.

"The choice is between an approach to the economy that could boost the enthusiasm of households and businesses, attracting more foreign investment, or a continuity of an economic model that maintains high state involvement," said Santiago Mosquera, the head of research at Analytica Investments in Quito.

To win outright, a candidate must receive a majority of all valid votes or win at least 40 percent and finish 10 percentage points ahead of the runner-up. Moreno’s support was at 32.3 percent, according to the final poll by Cedatos published Feb. 8. Moreno has pledged a tripling of a monthly cash transfer to poor households, higher pensions, an expansion of government housing programs and the creation of 40 new technical universities.

Best Opportunity

If Moreno, 63, doesn’t cross the threshold for a first-round win in the Sunday election taking place from 7 a.m. to 5 p.m., a runoff vote between the two candidates with the most votes would be held April 2. Electoral results are expected from 8 p.m.

A second round would present the best opportunity for an opposition contender, as voters might rally around the anti-Correa candidate. Most polls put Lasso, 61, who embarked on a political career after becoming a self-made multimillionaire in business ventures including banking, in second place. He’s followed closely by a rival conservative, Viteri, a 51-year-old legislator from the Social Christian Party.

Lasso finished a distant second in the 2013 election with 23 percent support to Correa’s 57 percent. His greatest challenge, both then and now, has been Ecuadoreans’ distaste for financiers due to the lingering memory of a wrenching banking crisis in the late 1990s that sent the poverty rate shooting up to 60 percent.


Lasso has pledged to maintain some of the social-welfare programs that made Correa so popular with the poor. He also promises to fight corruption and to slash unpopular taxes by $3 billion to help create a million jobs and attract the foreign direct investment that has been hard to come by after Correa’s nationalizations of some foreign-owned oil assets, and the country’s $3.2 billion debt default in 2008.

“It’s time to make sure there’s a change, so I’m voting for Lasso,” said Yolanda Zambrano, the owner of a small restaurant catering to working-class customers in Quito’s La Floresta neighborhood. “It’s 9-to-1 in favor of Lasso in here now."

That would be the preferred result for most investors, who made the nation’s bonds one of the world’s best performers last year as oil prices surged 45 percent and speculation grew that the next government might be more friendly to business.

Outcome, Bond Prices

Christian DiClementi, who oversees $22 billion in emerging-market debt at AllianceBernstein LP, has pared back his holdings in Ecuador on the view that prices reflect an excessive amount of confidence that an opposition candidate will win the presidency.

He said that on a trip to Quito earlier this month, a mix of local politicians, pollsters and economists he spoke with put Moreno’s chance of winning at 50 percent to 80 percent. He personally gives Moreno at least a 50-50 chance of pulling out a first-round victory.

“This is going to be very close,” he said. “My estimate is bond prices go down.”

Ecuador’s bonds due in 2022 fell 0.1 percent as of 10:26 a.m. in Quito.

The nation’s economy shrunk 2.3 percent last year and is forecast to expand just 0.3 percent this year, according to economists surveyed by Bloomberg. In 2016, the government used debt to pay for a third of its spending, bogged down by a bureaucracy that employs one of every five people in the country with a steady job. Ecuador is rated B by S&P Global Ratings and Fitch Ratings, with a negative outlook according to the latter, and B3 according to Moody’s Investors Service, but has had to offer interest rates around 10 percent to attract buyers.

“Whoever wins will be inheriting a mess,” said Paul Posner, a professor of political science at Clark University in Worcester, Massachusetts, who lectures on Latin American politics with a focus on Chile, Ecuador and Venezuela. “There will be no honeymoon.”

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