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Rafael Correa and his vice president-elect Jorge Glass celebrate their victory. (Photo: Miguel Angel Romero/Presidencia de la Republica)
Tuesday, February 19, 2013
Perspectives

Ecuador: Increased Business Risks


President Correa’s re-election victory increases risks to banking, media and banana industries.

BY CARLOS CAICEDO
Exclusive Analysis

On February 17, 2013, President Rafael Correa won by a landslide. With more than 95 percent of the vote counted, Correa secured about 56 percent of the votes, versus 24 percent by his closest rival, businessman Guillermo Lasso. Correa's ruling party Alianza Pais appears to be on course to secure a majority in Congress. He has vowed to deepen his "revolution" to diversify the economy, further reduce poverty and maintain Ecuador as the most 'successful economy in Latin America'. At odds with Ecuador's traditional political instability, Correa appears certain to rule the country for another four years from a position of strength given his popularity and control of Congress, contrasted with a highly divided opposition.

DOMESTIC TARGETS 

Correa's command of Ecuadorean politics puts him in a strong position to continue the aggressive state intervention policies likely targeted at domestic economic groups. In Correa’s first term, his policies raised serious concerns among foreign investors. However, his electoral-victory statements suggest he would single out domestic economic groups, as part of his policy to support the poor. He announced that his government would undertake redistribution of land, increase taxation and force banks to provide credit for productive activities. He also said that his government would prioritize education and research to diversify Ecuador away from dependence on oil income. The latter would require significant funding. The sectors most likely to be affected by Correa's renewed radicalism would be the banking, media and banana industries. On mining, however, we expect Correa to ease conditions as he is very keen in attracting FDI to this sector.

 Before Rafael Correa became president in 2007, the country had seen six presidents in 10 years; three were forced out by prolonged mass mobilizations that brought the capital to a virtual standstill. Despite on-going political polarization and a police rebellion over salaries in September 2010, Correa's tenure has improved stability. Correa's high popularity, increased public spending and a crackdown on public demonstrations have reduced the level of politically motivated protests. Protests ahead of the February 17 election were largely peaceful and non-disruptive. Politically-motivated protests are unlikely to increase in 2013 as the Correa government plans to expand its popular social spending and infrastructure programs.

MINING PROTESTS 

Anti-mining demonstrations are likely to take the form of roadblocks and violent protests in the provinces of Zamora-Chinchipe, Azuay and Cuenca in 2013. The confrontational approach taken by President Correa against locals opposing natural resources projects is likely to motivate protesters to stage mobilizations, increasing the likelihood that project start-ups will be delayed, particularly after the government finishes re-drafting mining legislation. Once this happens in 2013, and projects receive approval, there will also be a risk of minor damage to exploration equipment and other property. Incidents resulting in damage of mining assets are rare. However, there is some precedent. Dynamite was detonated against an energy substation from the Hidroabanico project in Morona-Santiago in 2007, amid protests over energy transmission favoring mines and not local communities.

Carlos Caicedo is head of the Latin America division at Exclusive Analysis, a UK-based global risk consultancy recently acquired by IHS.

 

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