As soon as the official victory of Guillermo Lass in the presidential elections in 2021, the reactions were positive: Ecuador country risk -which was still dealing with the devastation of the coronavirus pandemic- had a pronounced drop on April 12 from 1,169 to 824 points, and suddenly business optimism was noticeable with announcements of new investments and the arrival of international brands in the country. . This is called the ‘Lasso effect’.

Two and a half years later, the panorama is different. Then his mandate was reduced after the application of death on the cross, in the middle of a political trial in the National Assembly, which sought to remove him from power. What happened so that the first stimulus that the economy had was diluted?

From the ‘Ecuador meeting’ to the crucified death: all the fronts of the political struggle opened by Guillermo Lasso in 900 days of government

The Lasso effect implied a change in the development of public policies, a strategy of reducing spending, reducing bureaucracy and paperwork. “These messages gave great peace to the international community, there was great confidence among Ecuadorians in the management that the president will implement. However, over time these types of situations changed, on the one hand the conflicts with the National Assembly that made the country ungovernable, the fact that President Lasso implemented a tax reform that was so difficult, especially for the middle class, were weakened messages that trust”, analyzes the executive director of the Ecuadorian Business Committee, Gabriela Uquillas.

How does the ‘Lasso effect’ affect investments?

This government has had to deal with the pandemic – vaccination has been cited as one of its undeniable achievements -, the effects of the war between Russia and Ukraine, the 18-day national strike led by indigenous peoples, oil production problems, the ups and downs of crude oil prices, some of them external aspects that complicated the situation in Ecuador, but Uquillas believes that what was most burdensome were internal circumstances, and many of them came directly from Lasso, in his dealings with other powers of the state, with other political and social actors.

“Although at the beginning – and vaccination is an example of this – there was great cooperation with the private sector, for other transcendental issues the same dynamic did not happen, and all this harmed an administration and the possibilities of the Government in which expectations were very high, and the need for national reconciliation was the fundamental tone. The government had this slogan “Government of the meeting” and in the end it was not possible to make it visible that it was really a meeting place of different sectors of society”, he says.

The private company worked together with the government of Guillermo Lasso in 2021 to multiply the number of people vaccinated against COVID.

For the businesswoman and president of the Quito Chamber of Commerce, Mónica Heller, Lasso’s government “did not permeate the public money to the society and there was no improvement or well-being” and this is one of her mistakes, but she also speaks of an obstacle: “Governing without the Assembly is always a challenge, which should lead us to the conclusion that governance is the foundation and in this sense we must ask the National Assembly to stop being the opposition just because it is not. It cannot become a matter of obstruction due to political realignment, the country is looking for something better from its representatives and its new authorities at the cost of nothing. Political pacts are legitimate, it is important that they are transparent, the state has the right to know.”

And he warns that we are at a very dangerous turning point, so it is the duty of the new authorities and members of parliament to make the country sustainable. “We have just started to emerge from the COVID crisis and we have a crisis of insecurity, an energy crisis, a fiscal crisis, we don’t need a government crisis, we already had one, we didn’t do well, it didn’t serve the country. Today we need better rulers with better positions who fly political flags and who make decisions to give the country prosperity and peace.”

Heller believes that there is a lack of numerical clarity in the management’s results, and that for a final and comprehensive assessment, transparency is needed in matters of taxes, deficits and social security. While for Uquillas, the election of certain officials who are not open to dialogue did not contribute either, although he recognizes the complex economic situation in the country and that “working without resources creates negative effects”.

In any case, the coincidences define the best thing that Guillermo Lasso has done in the Presidency of the Republic: his management of vaccinations, which they describe as successful, and all the work that has been done to open trade with the signing of trade agreements – especially with China – that will open the door to more markets. In addition to reducing chronic childhood malnutrition and exchanging debt for the conservation of the Galapagos.

Risky country

The coming to power of Guillermo Lasso gave confidence to the international markets, which was reflected in the rise in bond prices and the decline in their profitability. The country’s risk, which exceeded 6,000 points due to the pandemic in 2020 and which then remained in the range of 1,000 to 1,200, was reduced to the lowest value of 714 points on the day of the inauguration, but after the domestic strike, this indicator is no longer below 1,000 points. Country risk measures the perception of international markets that a country is paying its debts or not, and during the Lasso administration it reached its highest point of 2,035 points in early August 2023, when the first round of the election campaign was underway.

It has risen more in recent days, but this is attributed more to the perception surrounding the newly elected president, Daniel Nobo Azín, who will take office on November 23. When he won the elections in October last year, the country’s lowest risk reached was 1733 points, on November 15, 2023, the escalation reached 2054 points, and the last data that the central bank announced was on November 16 last year, it was 2023 points.

Taxes

The arrival of new international brands that has taken place in Ecuador since November 2021 is attributed, among other things, to the reduction of the foreign currency outflow tax (ISD). This factor was highlighted by the Costa Rican company AR Holdings, which opened Old Navy in Ecuador in 2022, and GAP in 2023, because in this way the business of companies arriving in the country does not become too expensive. This tax, which was 5 percent, has been decreasing for the last two years. In September 2021, the government abolished this tax for the aviation sector and set a progressive reduction for other activities in 2022. It was thus reduced by 0.25% every three months, and in 2023 the reductions continued to apply until it currently stands at 3 ,50%. In December, it has to suddenly fall by 1.50% to keep the rate at 2%, by which time the new President Daniel Noboa will already be in office.

The tax on the outflow of foreign currency is already 3.50%, with the change of Government, will it continue to fall to 2% as determined by Guillermo Lasso?

For airlines, this fee has been abolished since the beginning of the Government, and due to this and other measures, the Ministry of Tourism points out that next December, Ecuador will have the largest number of offers on international flights.

Indicators

One of the most expected topics in every government is employment. In May 2021, when Guillermo Lasso took power, the unemployment rate in the country was 6.3 percent, and in September of that year it was 4.9 percent. In May 2023, unemployment was 3.2%, and in September 3.7%, according to data from the National Institute for Statistics and Censuses (INEC).

The price of oil

The WTI price that serves as a reference for Ecuadorian crude oil in May 2021 averaged $65.2, and in September 2023 it was $89.4. And last Friday it was $75.05.