In a surprising development, center-right businessman Daniel Noboa defeated left-wing lawyer Luisa González last Sunday to become Ecuador’s youngest ever president. The election was triggered by incumbent President Guillermo Lasso’s decision to dissolve Ecuador’s National Assembly to avoid impeachment characterized by unprecedented levels of violence. In a tragic first incident in Ecuador, a presidential candidate, anti-corruption activist Fernando Villavicencio, was assassinated just days before the first round of elections in August 2023. Noboa, who will serve the remainder of Lasso’s 17-month term, until May 2025, faces a catastrophic security crisis and a faltering economy that weighs heavily on Ecuador.
When Lasso took over as president In May 2021, Ecuador was in the throes of a deep socio-political crisis, fueled by civil dissent due to rising costs of living, a weakening economy, and deteriorating internal security. These events along with the consequences of Lasso’s neoliberal economic reforms, which led to an increase in the cost of living, and growing environmental damage in the Amazon Ecuador’s oil industry sparked violent anti-government protests in 2022. The severity of the protests forced state-controlled Petroecuador to declare force majeureThis has a significant impact on Ecuador’s economically important oil production and exports. The ongoing impact of the economic and political crisis gripping the Andean country led to a decline in oil production and stagnation in the hydrocarbon sector, further impacting an already fragile economy.
As of mid-October 2023, Ecuador was producing just under 485,000 barrels of oil per day, which is significantly less than its pre-pandemic production of 540,000 barrels and significantly less than Lasso’s goal of increasing production to 600,000 barrels per day. In fact, upon taking office, Lasso promised to increase Ecuador’s oil production to one million barrels per day, but had to lower this target several times as infrastructure failures and protests against the oil industry severely affected production. There are signs that a A recovery of the Ecuadorian oil industry is still a long way offThis does not bode well for the country’s oil-dependent economy. Increased uncertainty and a protracted political crisis are deterring foreign energy investments.
Petroleum products are Ecuador’s main exports, generating $13 billion in sales in 2022, accounting for nearly 35% of all export revenue that year. Oil rents are responsible for 6% of the Andean country’s gross domestic product and generate around a third of government revenue. This dependence on oil makes Ecuador’s financially fragile economy vulnerable to oil price fluctuations and declining hydrocarbon production. Falling oil revenues are hitting the Andean country’s economy hard at a time when the small country of fewer than twenty million people is facing a profound crisis that is reversing a decade of progress. Economic growth has been dampened since the pandemic, with the IMF reporting For 2022, GDP is expected to have grown by 2.9% and is forecast to grow by just 1.4% in 2023. A weak economy and increasing poverty are also responsible for the increase in crime and violence.
The consequences of these events are exacerbated by the serious security crisis In troubled Ecuador, where the significant profits from the cocaine trade are leading to a rise in violence. In just five years Ecuador The murder rate has risen sharply From 5.7 murders per 100,000 residents in 2018, the number of murders has increased almost fivefold to 25.9 murders per 100,000 residents in 2022. This is unfortunately a record high for Ecuador, a country once known for its relatively low levels of violence in an unstable region with many neighbors rocked by conflict. It is the fourth highest murder rate in Latin America and even higher than in Mexico, which is marked by conflicts between various drug cartels. Public demonstrations of violence are becoming more and more common in Ecuador. In the largest city of Guayaquil, Guayaquil’s largest city, corpses hanging from bridges are cruelly displayed and gangs of gangsters are murdered in the streets by hired gunmen.
Ecuador, which lies between Colombia and Peru, the world’s largest cocaine producers, has become a major South American transshipment point for the drug because of its large Pacific ports and porous borders. The amount of cocaine flowing into Ecuador is skyrocketing. The volume of seizures in 2022 has reportedly tripled compared to 2020, reaching over 77 tonnes. While the massive influx of cocaine into Ecuador is the main reason for this, a combination of weak government institutions, a struggling economy, a series of never-ending political crises and corruption ensure that the drug trade is thriving.
President-elect Noboa, the son of Ecuador’s richest man, banana baron Alvaro Noboa, has proposed a contradictory mix of measures to address Ecuador’s economic and security crises. This includes the expansion of social programs to combat poverty and improve education as well as the introduction of a Tough on crime and reforming Ecuador’s notoriously corrupt prison system. Noboa plans to create a new national intelligence agency reporting solely to the president and expand the Ecuadorian military’s role in fighting crime. The president-elect will also build high-security prison ships to hold the country’s most dangerous prisoners offshore and install militarized surveillance systems in poor neighborhoods. Implementing these ambitious plans requires significant investments, which is difficult for Ecuador’s already financially strained government.
The key to boosting Quito’s finances is to rebuild Ecuador’s economy and get the country back on track for growth. To achieve this, Noboa must reassess the economically important oil industry to implement the necessary measures to attract greater foreign energy investment in upstream and downstream operations, which will increase production. This includes addressing many environmental issues related to industrial operations in Ecuador’s Amazon basin, where oil spills, flaring and other environmentally damaging activities are commonplace. The growing backlash against the oil industry saw Ecuadorians vote to ban oil exploration in a recent referendum in the 2.5 million hectare Yasuni National Park.
By Matthew Smith for Oilprice.com
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