(Bloomberg) — A rising star of Ecuador’s leftist opposition wants to ramp up public spending to foster economic development — a contrast to the current regime’s budget-conscious policies.
(Bloomberg) — A rising star of Ecuador’s leftist opposition wants to ramp up public spending to foster economic development — a contrast to the current regime’s budget-conscious policies.
Pabel Muñoz, an ally of Rafael Correa who will be sworn in as Quito’s mayor in mid-May, is calling for Ecuador to boost public-sector investment to 14% of gross domestic product, a level last seen under the exiled former leader. That’s a clear departure from policy under market-friendly President Guillermo Lasso, which has kept that investment well below Correa’s level.
“Right now, Ecuador accommodates particular interests without building a vision for the country,” Muñoz said in an interview on Wednesday. “We’re ready to get the country back on that development track.”
The South American economy has bounced back after the pandemic. But drug-related violence and a series of political setbacks, including a lost referendum on constitutional changes, have hit the former banker’s popularity at home.
Now, as Lasso faces a second impeachment attempt and investors dump the dollarized nation’s bonds, some people are already looking to Muñoz as a potential presidential hopeful. That opportunity could come in 2025 — or even sooner, depending on whether Lasso opts to dissolve congress and trigger early elections.
Muñoz, however, said he plans to finish his four-year term as mayor.
“You can never say never when it comes to politics,” he said during a trip to New York to meet with Wall Street banks. “But my commitment with the city is big enough.”
Rising Opposition
Muñoz, a 47-year-old sociologist, won the Quito mayoral race with 25.2% of the vote in a crowded February election, which was held the same day as Lasso’s failed constitutional referendum. Another Correa ally won the local race in Guayaquil.
The wins mark a comeback in support for Correa. The former president is barred from running for office himself as he faces an eight-year jail sentence for graft. He’s been granted asylum in Belgium.
The potential for less-market friendly leadership is a risk that some on Wall Street are already warning about.
“Can a Corriesta be moderate when they prefer a public consumption model and oil prices are now a lot lower?” said Siobhan Morden, managing director for Latin America fixed income at Santander. “Sure, under an oil windfall they pay. But when oil prices collapsed in 2009, they defaulted. This is not a reassuring track record.”
In 2008, Correa stung markets by defaulting on most of Ecuador’s overseas debt and labeling bondholders as “true monsters.” But after relying predominantly on China for foreign funding in the years following the default, Correa turned back to bond markets as the collapse in oil prices pushed up financing needs.
To Muñoz, the debt ordeal under Correa was simply smart policy.
“Some people will say we had a declaration of default on our debt, and that’s not true,” he said. “We had a debt buyback strategy that was very successful and we went back to international markets during our own government.”
Since its independence in 1830, Ecuador has defaulted on its external debt 11 times, most recently at the onset of the coronavirus pandemic. That’s left money managers quick to abandon the country at times of political upheaval.
With Lasso at risk of impeachment and Correa-backed politicians gaining ground, Ecuador’s bonds are among the worst performers in emerging markets in 2023 so far. The notes have handed investors losses of 19% this year, according to data compiled from a Bloomberg index. The debt is trading at yields that indicate deep distress, flashing the risk of yet another default despite minimal debt service payments in the coming years.
–With assistance from Stephan Kueffner.
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