Ecuador

Security and fiscal challenges weigh on growth

Ecuador's economic growth is expected to slow in 2024, largely due to deteriorating security conditions, which will affect private consumption (around 62% of GDP) and gross fixed investment (21%). The projected slowdown in consumption is linked to rising drug-related gang violence, exacerbating existing public concerns about homicide rates. The events of January 2024 in Guayaquil, which saw the leader of the country's main criminal group escape from prison, triggering a series of terrorist attacks and culminating in the government’s state of emergency decree, have further undermined consumer confidence and added to economic challenges. Moreover, rising fiscal pressures led the Noboa government to approve a temporary VAT increase from 12% to 15% to fund the fight against organised crime, and these pressures will probably prompt government spending cuts (15% of GDP), except for security measures, such as cuts in fuel subsidies from Q2 (estimated at 2.6% of GDP in 2022). All of these are likely to further damp private demand. Last, Ecuador's oil production is likely to be significantly affected by the ban on oil drilling in the Yasuní National Park, approved by a referendum in 2023, as the closure of the Ishpingo-Tambococha-Tiputini (ITT) oilfield, Ecuador's fourth-largest, accounts for 15% of Ecuador's oil production. This cut in oil production is likely to have a negative impact on the labour market in the short term, which will translate into lower employment and lost wages.

Fiscal deficit should remain high to support security spending

The current account is expected to switch to a deficit in 2024, mainly on back of a contraction in net exports, with the pace of decline in exports due to lower oil production following the closure of the ITT oilfield and falling global commodity prices outpacing that of imports. Meanwhile, the secondary income surplus (4.1% of GDP in 2022) is expected to decline as expatriated workers' remittances from the US, Spain and Italy weaken somewhat in light of the expected deterioration in job markets. Conversely, the services deficit (-2.3% of GDP) is expected to widen as inbound tourism should be affected by the crime wave. Last, the primary income deficit (-1.6% of GDP) should remain relatively stable. On the financing side, FDI will remain low due to economic, legal, and political uncertainty. Moreover, foreign exchange reserves ensured only 2.5 months of import cover in March 2024, but should increase during the year in view of the fresh agreement signed with the IMF in April 2024.

Regarding the fiscal accounts, the budget balance deficit should widen in 2024 as more sluggish activity leads to revenue losses and the general elections planned for 2025 discourage austerity measures. In addition, the ban on drilling in the ITT oil field will aggravate this outlook as the government expects losses of USD 13.8 billion in revenue over the next 20 years. Finally, the spending side will not bring relief in the short-term with pressures arising from increasing salary expenses, higher debt servicing costs and increasing spending to tackle the ongoing crime wave. That said, the agreement signed in April 2024 to underpin a USD 4 billion four-year Extended Fund Facility with the IMF should provide some fiscal sustainability in the coming years. Multilateral lending (including the World Bank, CAF, Inter-American Development Bank, in addition to the IMF) will remain the main source of financing. Gross public debt, 74% of which is external (48% owed to multilaterals and 38% to markets), is expected to stay on an upward trend as the county struggles with weak growth and the primary budget deficit remains wide.

L'instabilité politique et diplomatique s'accroît

L'administration du président Daniel Noboa sera confrontée à un environnement politique troublé en 2024. M. Noboa, du parti de l'Alliance nationale d'action démocratique (ADN), a prêté serment après avoir remporté des élections tumultueuses en octobre 2023. Le processus a eu lieu après que l'ancien président Guillermo Lasso a invoqué la "mort mutuelle" - un mécanisme constitutionnel qui dissout l'Assemblée nationale et déclenche de nouvelles élections pour les pouvoirs exécutif et législatif - alors qu'il faisait l'objet d'une procédure de destitution. La campagne a été marquée par un sentiment anti-corréaliste, renforcé par l'assassinat de Fernando Villavivencio, un candidat à la présidence qui n'a cessé de critiquer l'administration de Correa et qui a été assassiné à Quito à la suite d'un meeting de campagne. Bien que Daniel Noboa se soit engagé à appliquer des politiques macroéconomiques conventionnelles, il se heurte à des obstacles pour mettre en œuvre des réformes structurelles profondes dans le cadre d'un mandat aussi court (les élections générales sont prévues pour mai 2025), car l'Assemblée nationale reste très divisée. Son Parti national démocratique ne détient que 14 des 137 sièges de l'Assemblée nationale, tandis que l'opposition, le Mouvement de la révolution citoyenne, dispose toujours du plus grand nombre de sièges (51). Compte tenu de ce paysage politique, il éprouve des difficultés à créer des coalitions avec d'autres partis pour faire passer son programme à l'Assemblée nationale.

La situation sécuritaire difficile, exacerbée par la montée des affrontements entre gangs de la drogue depuis que l'Équateur est devenu une plaque tournante pour l'exportation de la cocaïne produite au Pérou et en Colombie via Guayaquil, a poussé Noboa à déclarer un "état de conflit interne". En avril 2024, le référendum visant à donner aux forces de sécurité (armée et police confondues) plus d'autorité pour appréhender et poursuivre les criminels a donné un résultat mitigé. L'approbation massive par le public des questions relatives à la sécurité et à la criminalité (9 sur 11) confirme le fort soutien dont bénéficient les politiques de sécurité du président Noboa. Cependant, la forte désapprobation sur les questions relatives au travail et à l'arbitrage international peut indiquer des défis à venir dans l'adoption de réformes économiques et des difficultés à les articuler et à les communiquer. En outre, l'administration a du mal à obtenir un soutien législatif pour les mesures fiscales visant à lutter contre le crime organisé. L'approbation récente d'une augmentation temporaire de la TVA de 12 à 15 % pour financer la lutte contre le crime organisé ne semble pas suffisante pour financer les efforts de lutte contre la drogue et réduire le déficit. Néanmoins, avec le manque de soutien public et les élections qui approchent, l'Assemblée nationale n'est guère incitée à soutenir de nouvelles mesures d'austérité.

En matière de politique étrangère, en avril 2024, un groupe de policiers équatoriens a pris d'assaut l'ambassade du Mexique à Quito pour arrêter Jorge Glas, qui a été vice-président de l'Équateur entre 2013 et 2018. Allié de l'ancien président Rafael Correa, il a été condamné pour corruption et était réfugié à l'ambassade du Mexique depuis décembre. En conséquence, plusieurs pays d'Amérique latine, ainsi que les États-Unis et le Canada, ont condamné cette action, marquant l'isolement diplomatique du pays dans la région. Suite à cette opération, le président mexicain Andrés Manuel López Obrador a ordonné la rupture des relations diplomatiques et a demandé à la Cour internationale de justice de suspendre l'Équateur en tant que membre des Nations unies. D'autre part, le pays poursuit ses efforts de libéralisation commerciale en négociant des accords de libre-échange avec d'autres partenaires commerciaux.

Payment

Cheques are still a frequently used means of payment for commercial transactions in Ecuador. Nevertheless, the use of cheques is declining, due to a growing preference for electronic payments for transactions of all values.

Credit transfers are used for both high-value and low-value payment transactions. High-value and urgent inter-bank transfers are usually cleared via the Banco Central Ecuatoriano (BCE). Inter-bank transfers can include capital, money and foreign exchange market transactions, as well as public sector and commercial payments. Transfer instructions can be submitted via paper-based instructions or through online systems such as?SWIFT.

Cash is frequently used, particularly for low-value transactions.

Debt Collection

Amicable phase

Amicable negotiations are a crucial step in successful debt collection management. These negotiations are highly detailed and cover aspects including the number of instalments, write-offs, guarantees, collateral, grace periods and interest.

Legal proceedings

Ecuador’s judicial system comprises courts, administrative bodies, autonomous bodies and subsidiary bodies. The jurisdictional bodies responsible for administering justice are the National Court, regional courts, law courts, law tribunals and Justice of the Peace courts.

The Judicial Council is the governing body responsible for the administration, supervision and discipline of the judicial function. The judicial system also encompasses subsidiary bodies, such as notaries, auction services, foreclosure services, legal custodians and other bodies, as determined by law.

The Código Orgánico General de Procesos (COGEP), a new legal code in force since May 2017, should help to speed up procedures.

Under the new legal code, trials can be in the form of Executive Judgments or Ordinary Judgments.

Executive Proceedings

Executive proceedings are initiated by filing a written complaint with the Court. Supporting documents (such as the pagaré or letra de cambio) should be attached to the claim. Cases are assigned to a judge who then has 45 working days to decide whether the claim is complete. The judge then hands down precautionary measures within the following 90 days. The judge orders a single audience 120 days later, during which he delivers a sentence.

Ordinary Proceedings

Ordinary proceedings are initiated by filing a written complaint with the Court. The case is then assigned to a judge who has 60 working days to decide whether the claim is complete. The judge then issues a writ ordering the serving of the written complaint to the debtor. The debtor has 90 days to respond with a written defence. The judge then orders a single audience during which he will deliver a sentence.

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Enforcement of a Legal Decision

A domestic judgment becomes final and enforceable after any appeals have been exhausted. The judge of the court of first instance is responsible for enforcing judgments and issues a writ of execution ordering the relevant party to comply with the judgment within five working days. If the order is not complied with within the five-day period, the judge orders the seizure of the debtor’s assets in order for them to be auctioned off.

The Ecuadorian Civil Procedure Code sets out the requirements for the enforcement of foreign judgments, in accordance with the appropriate treaties, international conventions and Ecuadorian law. The approval procedure begins with a phase of knowledge gathering (for ordinary trials) that is performed in the defendant’s domicile court before admitting the execution. Ecuador has signed and ratified a number of international treaties for the recognition and enforcement of foreign judgments, including the Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards.

Insolvency Proceedings

There are two phases in Ecuador’s insolvency proceedings:

CONCILIATORY PHASE

The objective of this phase is to ensure that the debtor company can continue to operate, by putting into place signed agreements with all of its recognised creditors.

BANKRUPTCY

Bankruptcy proceedings entail the sale of the debtor company and its assets, with profits from the said sales being used to pay its debts to creditors.

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Last updated: April 2024