Fiscal Gap And Insecurity: The Challenges That The Next President Of Ecuador Will Have To Face

The foreseeable reduction in tax revenue as a consequence of the prohibition to exploit an important oil well in the Amazon and very high rates of violence await whoever is elected president of Ecuador next Sunday: Daniel Noboa or Luisa González.

On August 20, Ecuadorians voted in a plebiscite in favor of ceasing the exploitation of Block 43-ITT, one of the deposits located within the Yasuní National Park, an enclave of enormous biodiversity located in the Ecuadorian Amazon.

That block has an average production of 58,000 barrels of oil per day, which represents around 11% of Ecuador's total oil production, which is around 480,000 barrels.

According to official data, this gave the State benefits of 1.2 billion dollars, but environmentalists believe that the income is much lower and that it can be compensated with a wealth tax.

Based on data from the Central Bank, economic analyst Alberto Acosta-Burneo told EFE that the first year of closing the block would mean a loss of net income of 770 million dollars, due to the drop in the price of crude oil.

But, in addition, the Executive estimates at nearly 500 million dollars the cost of dismantling facilities, in the construction of which nearly 2,000 million dollars were invested.

Fiscal gap

On the other hand, the new president will receive an economy with a fiscal gap that has widened since the beginning of the year due to the fall in the international price of crude oil, he indicated.

"Between January and August there was a fiscal deficit of 2.7 billion dollars, when in the same period of the previous year there was a surplus of almost 200 million dollars," he recalled and pointed out that now the fiscal situation "is tremendously delicate."

Added to this are the possible effects of the El Niño phenomenon, whose arrival is expected at the end of the year, which can "significantly interrupt production and agro-exports," he warned.

A short mandate

Whoever reaches the Carondelet palace will only govern until May 2025, when Guillermo Lasso's mandate would have ended if he had not invoked the "crossed death" by dissolving the National Assembly (Parliament) and forcing these extraordinary general elections.

A short period in which you must obtain resources to cover mandatory obligations, any delays that you inherit from the current administration and fulfill campaign offers.

The analyst surmises that among the alternatives could be increasing taxes or raising the cost of fuel, two unpopular measures that would most affect a population hit by the economic crisis and unemployment.

Time bomb?

Precisely, the issue of fuel prices was one of the triggers for two large social protests, led by indigenous people, in 2019 and 2022, an issue that is pending in still unfinished dialogue tables.

"This is a very serious, very complex time bomb" due to the economic and political issues, "but the main thing is the lack of employment," political analyst César Ulloa told EFE, speculating that Ecuador is "close to a great "social protest due to people's discontent at not having income due to unemployment."

As an example, "seven out of 10 people are unemployed in Quito," the city "with the highest poverty rates" at the moment, he said.

Ulloa said that the next Government could enter a period of austerity and that it may choose to use the budget not executed in the Lasso administration.

Unsafety

Ecuador is experiencing an escalation of violence, which authorities attribute to the confrontation between organized crime gangs linked to drug trafficking.

In five years, Ecuador has gone from 5.8 to 25.32 murders per 100,000 inhabitants, the highest figures since records have been recorded, and according to experts it could even reach 40 by the end of 2023.

"At the threshold of the election, instead of the Government demonstrating more efficient results, the number of homicides per 100,000 inhabitants is increasing," said Ulloa.

Read also: With Bulletproof Vests And Military Escorts, Ecuador Faces Its Most Violent Elections

An example of this spiral is the murder last August of the then presidential candidate Fernando Villavicencio, after having reported that he had received death threats.

Fernando Carrión, a security expert, told EFE that, "according to international information, the growth rate of violence in Ecuador is the highest in America, and that would mean that, at the end of this year, Ecuador will probably be located in the third place of the most violent countries in the region".

And, according to the Global Report Against Transnational Organized Crime (Gitoc), revealed last September, Ecuador is already among the ten countries with the highest crime rates in the world.