“It is paradoxical, Ecuador currently has beneficial macroeconomic conditions, to take advantage it needs minimal stability”

Alejandro Arreaza, economist for the Andean region of Barclays -investment banking-, considers that the country risk of Ecuador that this February 6 reached 1,415 points is due to the fact that the victory of the ‘No’ weakens the Government. He explains that what happened has also brought down the prices of debt bonds. For him, it is paradoxical that Ecuador is in this situation considering that it has a good macroeconomic position, and other economic advantages, which it should take advantage of. The analyst says that more political instability is not convenient for the country, that a minimum agreement is reached and that President Guillermo Lasso ends his term.

How does Barclays see what happened in Ecuador after the electoral elections, unfavorable to the Government, do you think that it will be difficult for the Government to finish its mandate?

Certainly, in the end, the referendum on the consultation proposed by President Guillermo Lasso ended up becoming a plebiscite on his management. The triumph of the No weakens the Government and the president who were in a very compromised situation, both due to their low popularity, risk of protests and the null support of the Assembly. In this way, great concern arises in the market about the ability to complete his presidential term and, if this happens, what could happen with the issue of economic management.

What has happened to the country risk and to the Ecuadorian debt bonds that you know of?

It is important to bear in mind that the strong rise in country risk (1,415 points) reflects this nervousness in the market, which in the case of Ecuador, when these types of events occur, tends to overreact. And then for it to come down, it takes time. As for the bonds, they have had a very strong fall: 15 points on average. The issue of the fall of the bond means that it becomes cheaper for those who want to buy it. For example, a 2030 bond was at 70% of its value, but has now fallen to 56% of its value. The problem occurs when the Government wants to access debt through markets, right now the percentage to be paid for that debt would be more than 17%. This further distances Ecuador from the possibility of financing.

Does the possibility of the removal of President Lasso and the calls for cross death worsen the panorama or could they be a way out of the crisis?

I would think that the situation worsens because the crisis is accelerating. The best scenario for Ecuador is that there is calm, a minimum political agreement and that it can at least complete the presidential term. In addition, it is not clear that the Government has incentives to call for a cross death, it would not have much to gain in a scenario like that. For correísmo it would be beneficial to go to an election because they perhaps have the first option, the rest of the parties not so much. So, I think that not so much because of the strength itself, but because a scenario of more instability would not suit many, there is a possibility that the Government will remain for a while longer.

In the macroeconomic sphere, how do you see the country?

The risks are contained from the point of view of fiscal accounts. The country’s macroeconomic position is much stronger than it has been in many years. In the economic sphere, cushions have been created that minimize the impact of political instability. Regardless of what happens, under current conditions: with a low deficit, reserves of more than $9 billion, a current account surplus…, the risks that must be managed, even without access to the market, are relatively low.

Do you think that Ecuador will fall into debt default again?

That is one of the market concerns. Not in the short term, because the payments you have to make for debt service in the next two or three years are $500 million per year, which is manageable. But by 2025 the situation will be more demanding, there it is necessary to access markets to issue new debt and thus meet the obligations with multilaterals and private investors.

What could you advise the country at this time?

The country needs a political truce, for the good of all, of the different sectors, it would be the best. Getting into a cycle of permanent instability at the end is something that nobody is going to win from. It is paradoxical that the country currently has beneficial macroeconomic conditions: fiscal and external balances have improved, there is a context of high oil prices… Now, for the country to take advantage, it needs minimum stability and consensus. Otherwise, it is difficult for resources and investments to flow, so that the rest of the population can benefit from the macroeconomic achievements.

Considering that political sectors have already spoken out against agreements and dialogues, could it be that the next government that arrives will be the one that benefits from the good macroeconomic achievements of this government?

It would be necessary to see if this new Government is willing to maintain the policies that have allowed the improvements. But if you’re going to go back on those policies, there’s going to be no improvement. (YO)