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Richard Martinez, Ecuador's first economically “orthodox” minister since at least 2005. (Photo: Ecuador Finance Ministry)
Wednesday, May 23, 2018

Ecuador: New Finance Minister, New Hope

Ecuador’s new market-friendly finance minister faces leftist congress.



QUITO --  With debt woes mounting and his poll ratings diving, President Lenin Moreno has made a bid for a 37-year old economist to guide Ecuador out of its government-created fiscal and economic quagmire. In his first few hours in office, Richard Martínez, who has spent more than a decade working in high-level position for business associations, immediately said the right words to calm bond markets. He nonetheless faces high hurdles towards getting Ecuador’s economy, derailed for more than a decade, to rekindle the pre-2007 growth that would be essential to getting poverty reduction on a sustainable footing.

Moreno’s surprise decision also marks an unexpected shift towards the political center, sadly still without including foreign policy, which remains tilted towards supporting dictatorships in Nicaragua and Venezuela.

Martínez firstly pledged that Ecuador would keep current on its debt, both in terms of its amounts and of its maturities. While this welcome statement repeated what Carlos de la Torre, Moreno’s initial finance minister, said before being replaced in March, Martínez also pledged a gradual pruning of the state that de la Torre refused to consider and an aggressive effort to reduce country risk. He added that the finance ministry will provide transparent data and immediately began to publish debt reports suspended in January. Eighteen recommendations regarding debt made by the comptroller general in a special examination of debt will be fulfilled within the near term. Martínez replaces María Elsa Viteri, whose stay in the office was only two months, but long enough to make Ecuador’s bonds the worst among emerging markets. Hopefully, her abysmal performance has served to wean Moreno from continuing the failed socialist-populist economic ideas he couldn’t let go of during his first 11 months in office

The finance ministry will hand the president a draft to rescind a decree by Moreno’s predecessor (and Viteri’s mentor), Rafael Correa, that in 2016 artificially raised the debt ceiling by refusing to acknowledge debt owed other public-sector institutions like social security. The arbitrary existing limit on debt – 40% of GDP – should be replaced in due course by a technical one guided by Ecuador’s capacity to repay its debts. Ecuador will have to continue to raise debt given the ingrained structural deficit, Martínez has also indicated. That will mean obtaining a total $8.2-$8.3 billion this year and possibly more. If he manages to keep debt to new issuance to that level, this will be legally covered by the current budget. If more, then he will seek parliamentary approval, which will demand a debt sustainability plan he should already be working on anyway, as well as more friendly lenders, who have yet to be won over given the large amount of bonds Ecuador has sold since returning to the markets in 2014.

Before Moreno gives his state-of-the-nation speech on May 24, the government will also submit its long overdue economic reform plan. Critics have mentioned Martínez’s youth and lack of public-sector experience as potential issues undermining his ability to tackle his mammoth job. Under Correa, Martínez was among the more restrained, low-key leaders of public enterprise, and he understands regulatory requirements well, as well as the over-regulation that hamstrings entrepreneurship of all scales. His negotiating skills will likely be tested by Ecuador’s congress, which lacks a clear structure as Moreno’s Alianza PAIS (AP) has no outright majority and continues to vote with its self-declared strongest opponents, the AP faction that supports Correa. The Morenista group has voted with the opposition in cases where the president has vocally stated certain policy objectives, such as unwavering support for the temporary Citizens’ Participation and Social Control Council that is rooting Correísmo out of the judiciary.

In the few days remaining before the speech, Martínez will also have to advance on building the technical team he has promised to bring to the ministry. To pledge to comply with the comptroller’s debt audit seems like a no-brainer as it will bring transparency long overdue to public data. Politically, it will put the Correístas on the defensive and might well provide embarrassing information the administration could leverage to help push the nominally left-wing Morenistas to support economic reform.

Moreno’s move reaches out radically towards the business sector to help get Ecuador out of the mess statism got the economy into. Martínez speaks a language that will finally allow the dialogue that Moreno insists is the hallmark of his government to go forward. For all the meetings held during the president’s first year in office, the refusal to call debt debt and other fruitless grandstanding particularly by Viteri made it impossible to bridge conceptual gaps. It may also allow him to enlist the private sector, whose most influential voices, contrary to Correísta claims, have refrained from calling for extreme austerity measures that will hurt the economically weakest and reinforce economic problems if applied too swiftly.

Martínez knows their positions by heart. He is also readying conversations with multilateral lenders, credit ratings agencies and bondholders to improve communications practically frozen for a decade. He is in fact the first economically “orthodox” minister since at least 2005

Of course, Ecuador hasn’t had a non-populist administration in 15 years. Martínez’s arrival won’t necessarily change that. He continues to build his economic team, and, along with oil minister Carlos Pérez and foreign trade minister Pablo Campana and, perhaps, tourism minister Enrique Ponce, still forms something of a centrist-conservative minority in the 26-member cabinet.

Moreno and Martínez have both spoken of national unity to fix the economy. Notably, when he swore in his new cabinet – little-changed except for Martínez’s entry – Moreno didn’t promise to avoid austerity measures for which he has used the bugbear term “Paquetazo.” Yet for all the approval he has won by the simple fact of accepting one of Ecuador’s most difficult public-sector jobs, Martínez faces ingrained left-wing challenges to substantive change and a potential backlash if the economy falters or adjustment fails to provide results quick enough for the impatience and short memories of Ecuadorians.

This commentary originally appeared in Ecuador Weekly Report published by Analytica. Republished with permission. 

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