Uncertainty awaits as Ecuador heads to the polls

The ruling party’s candidate in Ecuador’s presidential election, Lenin Moreno, is ahead in the polls. But analysts believe whoever wins on Sunday will have to deal with a stumbling economy and accusations of fraud

  • By Oliver West
  • 02 Apr 2017
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Ecuador faces high levels of uncertainty no matter who wins Sunday’s presidential election, with the eventual winner needing to be ready for a stumbling economy, leading analysts have warned

“Whoever wins, the level of uncertainty is very high — mainly because I don’t think either of the two sides is going to concede defeat, and I fear there will be social unrest,” said Santiago Mosquera, head of research at Analytica Securities in Quito.

Both opposition candidate Guillermo Lasso of the right wing CREO alliance, and President Rafael Correa’s chosen successor, Lenin Moreno of the ruling Alianza Pais party, suggested fraud after the first round vote on February 19. On that day, Moreno won 39.4% of the vote, just shy of the 40% needed to avoid a run-off. Lasso came second with 28.1%.

Recent polls have generally given Moreno a lead of around four points, and Mosquera said that the government candidate was “definitely favourite”. However he added that the victory was not a “foregone conclusion”, while Capital Economics’ Latin American economist Edward Glossop said on Friday that the race was “too close to call” given the large margin of error.

Election fever has hurt Ecuador’s bonds, which returned 41% in 2016 — versus the EMBIGD (EM government debt) index of 10.2% — but this year have so far returned 2%, less than half the index average. This despite a rise in oil prices.

One Boston-based bond buyer told Global Markets that investors had to face a “binary call”, with former banker Lasso expected to provide a lift to foreign investment, and Moreno likely to carry on with Correa’s policy of using oil revenues to pay for domestic spending.

Yet nothing is certain, with one problem for analysts the fact that it is unclear exactly who would comprise Moreno’s economic team should he win.

“There is a chance that he could bring in a competent, well-qualified finance minister and give him a blank slate to improve things, which would improve prospects,” said Mosquera. “But if he carries along the same path as Correa, Ecuador´s economy will fall in a low-growth economic trap.”


Fiscal consolidation

Capital Economics forecasts that under Moreno, Ecuador’s economy will grow at 1.5%-2% from 2017-2020, but that Lasso could drive growth to 3% for the next two years by increasing capital inflows.

“Whoever wins, the next president will face severe economic challenges,” said Stuart Culverhouse of brokerage Exotix. “They will have to deal with a country in recession, a large fiscal deficit and financing needs, and demands for social spending.”

The path to success for Ecuador’s economy would begin with a “viable and credible fiscal consolidation programme”, according to Mosquera, though he doubts that the incumbent party has the ability to implement one.

“This is necessary because Ecuador’s deficit has grown rapidly in recent years, and I think it is going to be difficult to continue to attract the necessary amounts of financing,” he said.

Ecuador has issued $7.25bn of bonds in just three years, according to data provider Dealogic, or roughly 7.25% of GDP. The sovereign’s $1.75bn 2026s are yielding around 9%, having been re-offered at 9.65% in December and tapped at

9.125% in January.

Among its $25.5bn of debt, Ecuador also has $8bn outstanding with bilateral creditors, of which loans from China comprise 90%.

Moreno is expected to continue to rely on China for financing, while Lasso has called for more transparency in the dealings between the two countries.

Inauguration of the new president will be on May 24.

  • By Oliver West
  • 02 Apr 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 13 Mar 2017
1 JPMorgan 94,925.33 384 8.39%
2 Citi 87,531.58 331 7.74%
3 Bank of America Merrill Lynch 84,341.49 288 7.46%
4 Barclays 75,288.19 241 6.66%
5 Goldman Sachs 68,504.71 208 6.06%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 14 Mar 2017
1 Bank of America Merrill Lynch 10,650.87 23 11.13%
2 Deutsche Bank 8,169.49 17 8.53%
3 HSBC 6,243.46 23 6.52%
4 Citi 4,355.35 13 4.55%
5 SG Corporate & Investment Banking 4,273.37 17 4.46%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 25 Apr 2017
1 JPMorgan 7,281.63 28 8.86%
2 Deutsche Bank 5,994.13 30 7.29%
3 UBS 5,678.69 26 6.91%
4 Citi 4,934.67 35 6.00%
5 Goldman Sachs 4,802.16 24 5.84%