Periods of political instability and economic crisis which the country has experienced for decades have almost noticeable similarities and which originate from “perverse cycles of economic populism” and “common social masochism”. That’s how economic analysts see it.

These days, Ecuador is once again experiencing complex moments of political instability, the threat of the removal of the president (Guillermo Lasso), protests by social sectors such as the indigenous population, and economic problems that are difficult to solve.

For Alberto Acosta Burneo, editor weekly analysis, The relationship between politics and economics goes both ways. On the one hand, economics directs political action through what it calls “perverse cycles of economic populism” which have three moments: that of aggressive expansion which is accompanied by the abundance of raw materials. There is a kind of stability and economic prosperity. A government that lives through this phase, considered to be living through a fat cow, reaps applause even though in this period it did not lay the foundations for lean times. at another moment running out of money and governments begin to blame creditors and repudiate the debt. In the third moment comes the fiscal adjustment, unpopular. This adjustment serves to allow the next populist government, with healthy accounts, to repeat the cycle.

According to Acosta Burne, during the years of democracy the clearest treasure was that Rafael Correa had to live with high oil prices. However, that bonanza faltered in 2014. The government then decided on more aggressive borrowing than the one it had already acquired, in order to maintain the economic rhythm. Eventually, when that government ended, there was the inevitable period of lean times (Lenín Moreno and Guillermo Lasso).

“I left Rafael Correa a mountain of silver to turn the country into Singapore, but he spent it on other things,” Alfredo Palacio says of his successor, whom he sees as catapulted into politics.

The expert believes that the challenge for those who lead a government that is going through a lean period is to know how to manage that moment, to know how to attract investments, to know how to manage scarcity. He assures that during the decades of democracy, some governments decided to issue banknotes (when dollarization did not yet exist), which ultimately meant the generation of very high inflationary phenomena. Another option is adaptation, which creates resistance in social sectors as employment falls and poverty rises.

On the other hand, there is ia the relationship between politics and economics. Political instability creates an impact on the economy, as uncertainty worsens investment, country risk. This blocks financing possibilities.

Acosta admits that in the current situation, the issue is one of great concern crime and drug trafficking, which create uncertainty, discourage investment and the environment for legal business. He believes that this issue must be resolved by measures other than changing the president. It has to be treated with international advice, best intelligence practices. He explains that it is a transnational conflict of which Ecuador is also a victim.

He popular dissatisfaction, protests, a kind of “political cannibalism”, the fall of the president, on the one hand; problems of excessive spending, over-indebtedness, drop in the price of crude oil, natural disasters (El Niño, La Niña phenomenon, floods, earthquakes, white spot), on the other hand, we have been experiencing for at least the last 40 years. you think so Jaime Carrera, executive secretary of the Fiscal Policy Observatory.

According to Carrera, what Ecuador is experiencing is one of a kind “common social masochism”, because despite already seen consequences, society repeats behaviors.

“That society is used to indiscipline, to disorder, to asking the state for everything and not giving anything. Everyone is asking for money from the state, they want healthcare, education, but no one says how they will finance it”. Society has lived through strikes and protests for decades: politicians, workers, teachers are demanding higher wages and more funds, but without indicating where these funds will come from. Then appropriations laws were passed and the budget became a straitjacket that is not enough to fund everything. “It is a country that was constantly self-destructing,” he says.

Remember that as a result of the political and economic instability of the 1980s and 1990s, which included the governments of Jaime Roldós, Oswald Hurtado, León Febres-Corder, Rodrigo Borja, Sixto Durán-Ballén, Abdala Bucaram and Jamil Mahuad, the country’s growth in by an average of barely 2%, and during those two decades fiscal deficits, constant growth in indebtedness, and later non-payment of debts. In addition, measures were taken during these decades that ended with the collapse of the sucre. Thus, already in 2000, after the banking crisis, the establishment of dollarization and the fall of the Mahuad, a new monetary model was installed. This required a series of fiscal responsibility reforms. However, this indicates that upon the arrival of the correat these rules are being ignored and returns are being squandered, debt defaults despite having resources and aggressive borrowing despite high crude prices.

January 21, from which its actors believe that nothing has been learned

Moreno’s government was caught short of funds and extremely burdened by the pandemic. Debt renegotiation was achieved and an agreement was signed with the International Monetary Fund (IMF), which helped the country to survive this difficult period. Economic corrections were made in Las’s government, but it was not enough. No government has been able to solve the issue of fuel subsidies, he says.

According to Carrera, in 43 years of instability, the country’s average growth was 2.7 percent, and foreign direct investments, which represent a fresh resource for every economy, especially for a dollarized economy, did not exceed 1 percent of GDP.

Both analysts agree with this Changing the president before the end of the mandate does not solve economic problems, because political instability directly affects economic growth.

However, apparently certain sectors of Ecuadorian society are looking for this kind of change for another president to come in to “magically” solve the problems. In Ecuador, between 1996 and 2007, that is, in eleven years, there were eight presidents: Abdalá Bucaram, Rosalía Arteaga, Fabián Alarcón, Jamil Mahuad, Gustavo Noboa, Lucio Gutiérrez, Alfredo Palacio and Rafael Correa.

An indicator that has always fluctuated with political instability and the price of crude oil is country risk. This measures the risk that the state will not pay its obligations abroad. Thus, since 2004 (data published in the central bank), the country’s risk had its highest peaks in December 2008, when the government of Rafael Correa decided on a debt moratorium and reached 5,020 points.

In March 2020, in the government of Lenín Moreno, when the situation reached the extreme level of almost no monetary reserves in the central bank, with the pandemic and in view of the inability to pay the debt, a moratorium on interest was declared, there was also a high peak (6,603 points). These days, in the government of Guillermo Lasso, there is a high country risk related to political instability linked to a political trial seeking his removal, promoted by the opposition in the Assembly and approved by the Constitutional Court. On March 30, that indicator closed at 1,971 points. Except, The growth target, which was at 3.1% to 2.6%, has already been revised. The decline is linked to a decline in oil production, largely the result of indigenous protests that forced the closure of wells, as well as infrastructure problems in SOTE and OCP due to regressive erosion.