ECUADOR: An Introduction

Changes in Government 

In 2023, Ecuador saw a change in government with the new President Daniel Noboa taking office on November 23rd. The Presidential change was preceded by the first-ever constitutional dissolution of the National Assembly, which also prompted an early exit of Guillermo Lasso as President.

Although Daniel Noboa is currently a transitional President (he must finish Lasso’s previous term), he has announced firm intentions to run for re-election in 2025 to execute a long-term political agenda.

The President is pursuing a referendum in the first quarter of the year to strengthen legislation against organised and transnational crime, and to measure his political strength. He is doing so without significant opposition, in contrast to the former two Presidents, Lasso and Moreno.

Public policy has shifted towards harder measures to reinstate public safety, and this strategy has been met with great support from the public. In general, while Noboa is perceived as young and relatively inexperienced, he has been able to secure significant political support in the new National Assembly from several parties who opposed Lasso and prompted his exit.

The newly formed government, self-defined as centrist and pragmatic, is tasked with preserving sufficient support to have a chance of re-election in 2025, while dealing with the public safety and fiscal challenges facing the country.

The government has welcomed US co-operation in matters of public safety, and has already seen an agreement approved by the Constitutional Court. 

The Main Legislative Developments Under the Current Government

After the de facto political blockade that Lasso faced from the National Assembly, Daniel Noboa has been much more successful in moving his legislative agenda forward. After two months in office, he already achieved approval of four major pieces of legislation with impacts on energy, health, labour and tax:

(i) the Organic Law for Economic Efficiency and Job Creation;

(ii) the Organic Law of Mental Health;

(iii) the Organic Law of Energy Competitiveness; and

(iv) the Organic Law for Wage Equality Between Men and Women.

Other major objectives include increments in taxes, which are significant but have not received typical opposition in light of the worsening fiscal conditions of the government. These tax reforms include:

i) VAT tax incremented from 12% to 15% – special contribution on extraordinary corporate profits for companies;

ii) tax applied to extraordinary profits from private financial institutions; and 

iii) reinstating the cash remittance tax to 5%.

With a limited term, it is foreseeable that the government will focus its efforts on incrementing income to balance out the public deficit (calculated by some to be 7% of the GDP for 2024), allowing the government to better combat organised crime, using not only the police force but also the army in those efforts.

Ecuador’s Economic Outlook 

According to Moody’s credit rating, Ecuador’s outlook had taken a negative turn owing to the fiscal crisis. While the country continues to face significant credit risks, the tax reforms and associated new sources of income aim to reverse such tendency. In fact, general risk assessment has decreased by 15% since the beginning of 2024.

The IMF has reported that Ecuador’s growth perspective is around 1.8%. Elements considered include:

i) business security;

ii) global financial conditions;

iii) the El Niño phenomenon; and

iv) potential decreases in commodities and main Ecuadorian exports.

Exports in 2023 faced a near 9% decrease, mainly driven by oil price reduction in the first half of the year. However, some major exports in the agricultural sector are expected to grow, such as coffee and bananas. Mining exports are also growing steadily and continue to receive support from the government as a strategic sector.

Trade and Foreign Investment 

Trade with the USA is key for Ecuador, as it is the principal destination for non-oil-related exports; and favourable conditions are key to local industries. In addition, Ecuador and South Korea executed their economic co-operation treaty in October 2023. It is expected that 95% of non-oil exports will have preferential access to South Korea, and sales to South Korea are expected to grow by 27% from the time the agreement comes into force.

Another major issue in relation to imports/exports relates to the signing of the commerce treaty with China; this requires local ratification, but is the most important of such treaties in recent times. In terms of goods, trade between the two countries reached around USD12 billion in 2022. Exports amounted to USD5,823 million, including products such as shrimp, lead and copper concentrate, other mining products, bananas, balsa, wood and wood products, and cocoa (among others).

Credit Suisse International Bank acquired USD800 million of Ecuadorian debt bonds with discount. The nominal value (without discount) is equivalent to USD1.6 billion. The objective was for the government to repurchase the debt, which it did in May 2023, through so-called blue bonds in exchange for promoting the conservation of the Galapagos Islands. The banking industry has seen positive results in response to important changes, as legal reforms have relaxed specific limitations for investment. The Monetary Board issued important regulations concerning interest rates, specifically as regards maximum ceilings for corporate and business segment rates.

The acquisition of medium and large local companies by foreign investors continues to be a prevalent and important trend. Local parties have gained important knowledge from such procedures and international interest remains high, even within the slowdown of M&A activity internationally. In dispute resolution matters, Ecuador is a signatory of the New York Convention, has a long-standing arbitration law, and constitutionally approves of ADR methods in general. International companies have legal assurances that choice of law and jurisdiction clauses are respected in the local courts, including the possibility of signing investment protection agreements.

Upcoming Political Events 

Ecuador is concentrating efforts on solving the internal security crisis and regaining trust from outside markets with fiscal responsibility. The government will face an early test with the results of the planned referendum, and President Noboa will need to maintain popularity through 2024 to have a chance of a full four-year term in 2025.