Ecuador: Another Turn on the (Anti)-austerity Wheel? J.D. Bowen

During the first two weeks of October 2019, Ecuador experienced the most intense period of social protest since the chaotic decade from 1996 to 2005 during which three democratically-elected presidents were removed from office amidst wave after wave of protests. Now, as then, a core component of these protests was a rejection of economic reforms designed to shore up the country’s chronically-weak public finances. During the intervening years (roughly 2005 to 2019), Ecuador experienced a period of political and economic stability while riding the wave of high oil prices that allowed president Rafael Correa (2007-2017) to spend freely on infrastructure, social welfare, and other economic development initiatives.

The causes of social unrest

Following the collapse in oil prices beginning in 2014, Ecuador’s public finances deteriorated rapidly. On October 1st, 2019, President Lenin Moreno announced an agreement with the IMF for a $4.2 billion credit line to shore up the government’s balance sheet. As part of the agreement, Moreno announced plans to end most fuel subsidies, reduce tariffs on a variety of imported goods, and cut the public sector’s wage bill by reducing wages and benefits. The government also announced that it was increasing its largest anti-poverty cash transfer program by $15 per month in order to compensate its most vulnerable citizens for the rising prices which would result from the subsidy cuts. In response, Ecuadoreans around the country took to the streets to voice their opposition to these new economic reforms. Protests were led by a wide range of civil society groups, including indigenous people’s movements, students, transportation workers, and labor unions. After ten days of intense protest that forced the government to relocate from Quito to Guayaquil (the country’s largest city), on October 14th, Moreno backtracked on his reform package and announced that the government would continue to work on a new set of economic policies to address the country’s precarious financial situation.

A deceptive return to tranquility?

While Ecuador has returned to relatively tranquility, the underlying problems that led to this wave of protest have not been resolved and continue to fester. As a dollarized economy, Ecuador lacks the ability to devalue or use other monetary policy tools to adjust to changing external economic circumstances such as lower oil prices and slowing growth in China. Given its history of debt defaults (ten since 1822), Ecuador’s ability to borrow in international markets is limited. As such, fiscal policy is one of the few tools Ecuador’s leaders have for managing the domestic economy. Given this reality, it is likely that this is just the first of several attempts by Ecuador’s leaders to bring the country’s finances in line with its ability to generate revenues. This is a particularly daunting task since a strong US dollar makes Ecuador’s non-oil exports largely uncompetitive.

Beyond the economic circumstances that led to the recent wave of protest, the strength and identity of protest leaders was somewhat surprising. Former president Correa used a variety of tools to co-opt and/or repress organized movements that had created political problems for previous governments. These measures seemed quite successful in taming a vibrant civil society. In particular, the National Confederation of Ecuadorean Indigenous Peoples (CONAIE, by its Spanish acronym), had been a crucial player in the removal of three presidents between 1997 and 2005, but appeared to be dramatically weakened by Correa’s efforts to divide the movement and promote new (and more politically malleable) indigenous leaders. The events of early October suggest, however, that the weakening of CONAIE, as well as other organized social movements, was either overstated or a passing phenomenon. During the nearly two weeks of protest, CONAIE and others proved that they retain the capacity to mobilize large numbers of people and paralyze huge parts of the country, including the capital. This renewed activist vitality will present ongoing challenges to any government seeking to make the types of economic changes that Moreno had proposed.

Lasting problems and an uncertain future?

Underneath the current crisis of economic reform and social backlash lie other unresolved questions left over from the Correa administration. Having dominated Ecuador’s political scene for a decade, Correa continues to cast a long shadow over political developments. Although Moreno was a staunch Correa ally (he was Correa’s Vice President from 2007 to 2013), they fell out quickly once Moreno assumed the presidency and began to reverse some of Correa’s populist economic policies. However, the ability of either leader to control the political party that Correa built (Alianza País) is contested, leaving the president’s legislative agenda in flux. Beyond the relationship between these two leaders, opposition groups now face important strategic questions of their own. For example, business leaders (particularly in Guayaquil) were vilified by the Correa government but are largely receptive to the types of economic reforms Moreno has proposed since taking office. Will they support Moreno, take these policy “wins,” and seek to contest future elections or will they seek revenge for the political beatings they took from Correa by working to undermine and destabilize Moreno?

Lastly, Ecuador is in many ways a very different country than it was at the turn of the century. Whatever one thinks of Correa’s economic policies and political tactics, his government built (or rebuilt) government institutions that had atrophied badly under previous governments. Regulatory agencies and social welfare programs are far better institutionalized than they were two decades ago. This should help Moreno navigate the economic and political trade-offs he will have to make in the coming months and years. How well these institutions perform will go a long way toward shaping the nature of economic reform (and political blowback) that likely lie ahead.

By J.D. Bowen, Associate Professor of Political Science, Saint Louis University

To quote this article, please use the following reference:

 J.D. Bowen Adviser (2019). “Ecuador: Another Turn on the (Anti)-austerity Wheel?”, Observatory on contemporary crises, November 15, 2019, URL: