The victory of Daniel Noboa with a narrow margin and Correismo as the main block in the Assembly remind us of May 2021, but the difference is that in a few months the MPs will find themselves in an electoral environment and therefore they will want to show results now. Two fundamental reforms that would boost long-term growth and are politically sustainable under a short-term government are trade openness and the internationalization of the financial system.

These two reforms can be led by the executive because they deal with other problems, such as security and the fiscal crisis. These problems are undoubtedly urgent and should be the priority of the Government, but it will probably take years to solve them because they are much more complex. In the case of security, international cooperation is needed, and in the case of fiscal bombs of social security and fuel subsidies, an unattainable national consensus.

The exporters’ union lists the security and competitiveness measures they expect from the newly elected president, Daniel Nobo Azín

Noboa must continue the trade opening policy initiated by Correismo in 2017 with the signing of a trade agreement with the European Union, which was later continued by Lenín Moreno (EFTA and United Kingdom) and Guillermo Lasso. The latter left three agreements on the table that are ready for ratification by the votes of an absolute majority in the Assembly, that is, 70 out of 137 parliamentary seats. The ruling bloc could have enough votes to ratify trade deals with South Korea, Costa Rica and China. In addition, the Department of Production could accelerate negotiations already underway with Canada, Panama and the Dominican Republic and ensure that they are also ratified before May 2025. Finally, it must achieve an extension of the tariff preferences granted by the United States. Ecuador could open trade with almost all of its major trading partners by 2026.

Ecuador could open trade with almost all of its major partners by 2026.

Another key reform that the new administration could lead is the internationalization of the financial system. This reform, which is a natural complement to dollarization, must be presented for what it is: injecting competition into the national financial sector, making local banks compete with those in the rest of the world. Ecuador has the potential to be an international financial center like Panama or Singapore. The Ecuadorian Institute of Political Economy presented a bill in the assembly during the Moreno administration that could be updated and approved by an absolute majority in the assembly. The executive branch could get a sufficient number of votes for this law, given that the existing banks and the officials of the Central Bank would probably be the only ones against greater competition in the banking sector.

The internationalization of the financial system will enable a significant increase in the supply of loans and put pressure on the reduction of interest rates.

Most likely, the security and fiscal imbalances, labor market dysfunction and the looming social security crisis will not be resolved until 2025. But it is possible to implement these two structural reforms to increase the freedom and prosperity of Ecuadorians. (OR)