Hello. My name is Luis Fierro. I was Vice Minister of Economy of Ecuador in the previous administration, and write a column for the main daily newspaper, El Universo, and for my SubStack Oikos - Economy and Ecology.2
Daniel Noboa took office as President in November 2023. He is the second youngest President in Ecuador’s history (after the first President, Juan José Flores), and he is the youngest President elected after the return to democracy in 1979. He is 36 years old.
He is the son of Alvaro Noboa, a wealth exporter of bananas and other agricultural products, who leads an important economic group; his aunt, Isabel Noboa, leads another economic group, NOBIS. His grandfather, Luis Noboa Naranjo, was the wealthiest person of Ecuador until his death in 1994.
He came to power for a short period Presidency for 18 months, which resulted from the application of the “crossed death” decreed by former President Guillermo Lasso, whereby the National Assembly was dissolved, and President Lasso ruled by decree until a new election was held.
Noboa came to power in the midst of a severe security crisis. The national homicide rate had increased from 5.8per 100,000 in 2018 to 46.5 per 100,000 in 2023, an eightfold increase, and now the highest in South America.
The fundamental reason for the increase was the proliferation and fragmentation of organized crime groups (OCG), dedicated to drug trafficking and other illicit activities (extortion, illegal mining, kidnappings, etc.). In January of this year Noboa declared an “internal armed conflict” and declared the 22 existing organized crime groups as terrorists. Since January, nearly 19,000 persons have been arrested (of which 300 accused of “terrorism”), and 20 gang members have been killed.
Given that Noboa did not have a large block of legislators in the National Assembly, he initially established an alliance with two large blocks, the followers of former President Rafael Correa (“Correístas”), and the followers of former Guayaquil Mayor Jaime Nebot (“Socialcristianos”).
This allowed him to pass several laws, including a law to raise taxes; the value added tax (VAT) was increased from 12 % to 15 % for most products; other new taxes include a tax on the profits of the banking sector, a tax on supposed “windfall profits” of large enterprises, and an increase of the “foreign currency outflow tax” (“impuesto a la salida de divisas”) from 3.5 to 5 %. These tax increases should raise approximately 1.7 billion dollars, which will help to reduce the fiscal deficit (currently projected at around 5 billion dollars).
Even with these increases the government will have difficulties in facing the financing needs in 2024; according to Fitch Ratings, even after the tax increases the central government faces a funding gap of about 2.5 billion dollars. The Noboa administration is in talks with the International Monetary Fund (IMF) for a new programme. Fitch adds: “A new IMF programme may require additional consolidation, such as fuel subsidy cuts, which could prove harder to implement due to potential social unrest. Noboa’s coalition is fragile, and the reform window may close as the 2025 elections approach”.
(Continues in Part 2)
Political and Economic Situation of Ecuador, Part 1