Alternate Title: Moreno in Ecaudor, For Better or Worse?

Ecuador voted yesterday to establish presidential term limits limiting heads of state to only one reelection.

According to the AP:

Ecuadoreans voted by a landslide in a nationwide referendum Sunday to limit presidents to just one re-election, barring three-time former President Rafael Correa from returning to power.

The measure was approved by an almost 2-to-1 margin, sending the strongest signal yet that the Andean nation is ready to shift gears away from Correa, the leftist strongman who has dominated the nation’s politics over the last decade.

Casual observers like myself would conclude that this is another blow against the pink tide in Latin America given Correa was a Chavez-allied left-wing populist. It seems most of the English-language media has been gushing over how Moreno outfoxed the oblivious Correa in order to implement needed reforms in creating institutional independence and making Ecuador a more attractive market for the private sector.

And that is what this article was going to be at this time yesterday, before consulting an Ecuador expert about the subject. While infinite reelection is NEVER a good idea, least of all in Latin America, it seems there may be little more to celebrate than that.

Ecuador-based analyst Justin Perry offers his analysis below.

Austerity or Parallel Currency?

Ecuador has a long history of weak institutions and non-existent checks and balances, but lethargic bureaucracy in itself acted as a check on the concentration of power. That changed under Rafael Correa. His executive branch ruled directly over the judicial branch, with Secretario Juridico Alexis Mera calling judges personally to dictate sentences and even writing rulings. Correa stacked the legislature’s key oversight bodies with loyalists who blocked audits and investigations. This is how Vice President Jorge Glas avoided impeachment. No matter how much proof came out, the CAL simply voted down any motions to debate impeachment proceedings. It’s a national embarrassment that he was convicted in criminal courts and sentenced to prison but never impeached.

Moreno’s efforts to reform are popular, but are they genuine? Or a tactic to fool the opposition? Pessimists call Moreno’s moves a “tongo” — a smokescreen or a setup. Moreno could be using the seething hatred for Correa and his policies to co-opt the moderate opposition and redirect its energy towards burying Correa.

If you abandon all wishful thinking and just look at the available clues, I see this as political maneuvering. Glas is really the only major figure from Correa’s government to go down for corruption, and he received a slap on the wrist compared to what he would’ve gotten in the United States or Europe for all of the evidence against him (recordings, money transfers, documents).

Moreno’s economic program also suggests that he hasn’t really renounced Correismo—just Correa. He has raised taxes, increased deficit spending (the national debt has ballooned $7.5 billion) and done little to nothing to eliminate the rampant corruption, bureaucracy and red tape that have strangled commerce and entrepreneurship. In other words, the country hasn’t changed, but rather “se cambió de dueño.”

If it is just a series of political maneuvers, Moreno has managed to pick off the opposition that hated Correa but didn’t like the conservative movement led by Guillermo Lasso either, all while retaining the leftist base that used to swear allegiance to Correa but now serves a new master.

Moreno even got the conservative opposition lining up to support the SÍ. It was an all-hands-on-deck effort to bury Correa politically, which can be explained by one of three scenarios, or a combination:

1. Correa was blindsided by Moreno’s betrayal and couldn’t muster an effective counterattack.
2. Correa’s strategic prowess was overrated. He has been exposed as weak and his followers are jumping ship.
3. Correa consolidated so much power in a hyper-presidential system that any moves he made from outside were futile.

Meanwhile, Moreno has gone from between 40% to 50% approval to almost 70% today. That number will shrink as he starts to flesh out a true path forward. Until now he has simply bought time by rallying people around anti-Correismo and courting the relentless optimism that he might steer towards a centrist, ideologically-neutral platform.

Moreno has presented himself as more of a moderate than was ever allowed under the government of Correa, where moderation was tantamount to weakness. But in the decisions that truly matter, he has continued Correa’s hard-left line. For instance, he chose a new vice president in Maria Vicuña. who hails from the ABA, a militant leftist party where everyone fancies themselves a modern-day Che Guevara and lavishes praise on Maduro and Castro. Maybe Moreno needed to appease his leftist base before the referendum, but I think the decision was based on ideological lines.

The cryptic, enigmatic Gustavo Larrea is a longtime ally of Moreno and his consigliere ala Karl Rove. They both hail from the leftist MIR party. Larrea split with Correa over the former’s alleged FARC connections. Larrea used to rub elbows with Hugo Chavez, Cristina Kirchner and Evo Morales. I have heard his brother advocated Che Guevara-style executions of political opponents of the “revolution.”

Moreno and Larrea are hardcore leftists, but they’re not fools. They know they need to find a release valve for those strong emotions to disrupt the opposition, all while appearing to make overtures in private. If you read the tea leaves, Moreno and Larrea are playing a patient game of chess while Correa has been on the defensive since Moreno’s inauguration.

Now that the consulta popular is over, Moreno now has a solid base and the power to appoint members of the CPCCS, the institution that appoints attorneys general, comptrollers, prosecutors, etc. I hate to admit it, but Correa was right in saying that the referendum would give Moreno unprecedented powers.

If I had to bet, I would say Ecuador is about to veer sharply to the left. Moreno’s Alianza Pais party will solidify its position as a PRI-style monopoly. With Correa out there is a clearer path for succession for new members.

The most pressing issue now is how the government will continue to pay its bills. Ecuador’s current spending is unsustainable. The bureaucracy is bloated with a labyrinth of ministries, superintendencies and secretarias tecnicas financed by oil rents to buy political loyalty. The woefully inefficient state-owned enterprises have been used to conceal much of the Correa-era debt by keeping it off the government’s balance sheet. The Ecuadorian pension system is underfunded after being used as a petty-cash box to cover shortcomings in liquidity. Analysts predict it will be insolvent in 10 years.

Moreno floated $7.5 billion in bonds since assuming office. He wouldn’t have done that if it weren’t absolutely crucial just to keep the lights on, but eventually the music will stop. How Moreno deals with the issue of government spending is the foremost indicator of whether he is charting a new course or simply continuing Correismo without Correa. Here are his options to pay the bills:

1. austerity
2. parallel currency (search “dinero electronico ecuador”)

Neither choice will be popular.

If Moreno tightens government spending, he will have played into Correa’s characterization of him embracing a right-wing platform and introducing a “paquetazo.” But with this victory in the referendum, it might not matter since he’s consolidated his political power and has the strength to take the hit.

The second option is to create a dual-currency situation (remember Ecuador uses the US dollar) under which the government uses the Ecuadorian creation to pay the bills. In practice this will resemble Venezuela’s controlled currency and come with the same value imbalances, arbitrage opportunities for insiders, etc. De-dollarization would allow Ecuador to start conducting monetary policy and amount to a currency devaluation. Theoretically that’s not terrible since the dollar is hurting Ecuador’s export base. The problem is that the central bank has no independence and basically operates as an extension of the executive branch. As a result, if Ecuador ever asserts control over a currency with its current deficits, we will be looking at hyperinflation pretty soon.

There may also be a partial default on government debt. If done under Option 2, that would be a dual default-devaluation, which is devastating. It’s hard to imagine that Moreno would be foolish enough to embark on that course. But if you look at his economic team, who are way out of their depth, it’s not inconceivable.

Whatever choice Moreno makes, the referendum provided effective insulation from political pressure. In Ecuador the executive branch has the power of the purse, so any left-leaning legislators will be hesitant to joint whatever party Correa creates, especially since he was soundly defeated in the referendum (not to mention pelted with trash while campaigning). The conservative opposition will be gunning for Moreno, but it will be difficult to block his agenda.

It’s really a defining moment for Ecuador right now, and Moreno is firmly running the show.

If you ask me, Ecuador is about to suffer serious economic turmoil in the coming year. I would love to be pleasantly surprised, but I’m not optimistic.

As for indefinite reelection, I don’t actually think the new term limits have teeth. There are ways Correa or even Moreno could circumvent the new restriction, as seen in recent decades in Latin America. There could be legal challenges to whether the term limits are retroactive.

The sleeper question from the referendum, the one no one has paid much attention to, is “muerte civil” — or barring any person convicted of corruption from holding office again. In a country with a strong, independent judiciary this sounds great. In Ecuador, on the other hand, it creates the opportunity for selective prosecutions to eliminate threats — like in Venezuela, where Rafael Ramirez was singled out in an “anti-corruption” campaign. It’s really just a thinly veiled purge of disloyal members of the government.

In the end, I think it was a “tongo” and a clever way of perpetuating the left wing.

Follow Justin Perry on Twitter. This is an edited version of his full report, which you can read in PDF here: Lenin Moreno sidelines Rafael Correa and perpetuates political left in Ecuador.

If you enjoyed this article, you will also enjoy Meanwhile in Bolivia… about Evo Morales’s attempt to abolish term limits and run for a fourth five-year term, which would pave the way for his being president for life ala Vladimir Putin.

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