Ecuador’s Lasso Seeks to Reform Capital Markets Before Leaving Office

Shery Ahn, Carolina Gonzalez and Stephan Kueffner
·4 min read
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(Bloomberg) -- Ecuador President Guillermo Lasso plans to issue at least six new legal decrees and seek major changes to the country’s capital market before he leaves office in early December, he said Thursday.

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Lasso is governing by decree ahead of Aug. 20 snap elections that were triggered by his legal dissolution of congress in May. He must submit the measures to Ecuador’s Constitutional Court, which reviews the bills in the lawmakers’ absence.

Capital market reform is “a major project we’re working on,” Lasso said in an interview with Bloomberg TV’s Shery Ahn in New York, adding that the goal is to modernize the system and make it more attractive to foreign investors.

He said he also plans to issue a decree authorizing the government to sell land to shrimp farms in order to raise revenue.

The constitutional court has so far allowed only one decree modifying tax deductions to take effect. It rejected another about duty-free zones on grounds that it wasn’t urgent.

Lasso is in New York to discuss duty-free access to US markets for Ecuadorian exports, and to seek emergency funds to confront the impending El Niño climate event. Major El Niño systems in the 1980s and 1990s caused severe economic disruption after heavy rains destroyed key roads.

Read More: El Niño Has Arrived With Promise of Worldwide Weather Turmoil

Ecuador is better prepared than in past decades to face the phenomenon and won’t seek loans from the bond market or China for emergency funding, relying instead on lenders like the World Bank, Lasso said.

During his trip, he will meet with US lawmakers as Ecuador looks to join Caribbean countries in obtaining duty-free access to the US market for more than 90% of its goods. “Regarding relations with China and the US, we’re an example of pragmatism,” said Lasso, whose government signed a free trade agreement with China earlier this year.

Upcoming Elections

The Andean nation will elect a president and congress on Aug. 20 after Lasso made a historic decision to dissolve congress. The new officials will serve until mid-2025, when Lasso’s term would have ended.

Lasso won’t seek the presidency in the snap elections and his party won’t participate either.

Left-wing candidate Luisa Gonzalez, one of the lawmakers Lasso fired, is leading polls, followed by centrist former Vice President Otto Sonnenholzner in a field of eight.

Read More: Socialist Frontrunner Faces Former Sniper in Ecuador’s Election

Polls show she hasn’t garnered enough support to win in the first round, meaning there will likely be a second vote in October. Gonzalez is close to socialist former President Rafael Correa, who has maintained influence over Ecuador’s politics since leaving office even though he was found guilty of corruption in absentia.

Correa faces arrest if he returns to Ecuador from his current home in Belgium, his wife’s native country.

“Ecuador’s stability is at stake in this next election,” Lasso said. “What I hope happens is that reform processes continue that allow the economy to strengthen, and above all to push away the ghost of a default that hurts the country so much.”

Amid Lasso’s declining political fortunes, Ecuador’s bonds have underperformed and currently trade deep in distressed levels. Investors fret that the next administration may not continue the market-friendly reforms that they believe will allow the economy to grow enough for the serial-defaulter to handle a bond repayment schedule that becomes much more onerous in 2026.

Read More: Why Ecuador Leader’s Downfall Makes Investors Nervous: QuickTake

Correa refused to repay bonds in 2008, although Ecuador had the means to pay its debt at the time.

Ecuador in May completed a bespoke debt transaction led by Credit Suisse Group AG in which it issued “blue bonds” for protection efforts for the Galapagos Islands and its surrounding waters. Ecuador swapped $1.6 billion of nominal value denominated bonds for a new $656 million loan. As a result, the country slashed more than $1.13 billion from its total debt.

The administration is working on further debt-for-nature deals, but it has little time to complete any of these complicated transactions before Lasso’s abbreviated presidency will end. The government doesn’t expect to issue more deals before Lasso leaves office, but it is working on a manual to shorten the timeline from the two years it took for the Galapagos to six months, he said.

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