What’s at Stake as Ecuador’s President Faces Impeachment

Ecuador, one of the few countries in South America with a market-friendly leader, faces weeks of political turmoil as opposition politicians in the National Assembly seek to remove President Guillermo Lasso for the second time since he took office in May 2021. The impeachment case accuses the former banker of failing to stop an alleged graft scheme at the state-run oil shipping business. Lasso rejects the charges and says organized crime gangs are trying to unseat him. Major nationwide protests and an earlier attempt to remove Lasso in mid-2022 sent Ecuador’s bonds into a tailspin, leaving them deep in distressed territory.

1. What is the impeachment procedure in Ecuador?

Lasso, 67, faces possible removal under Article 129 of the constitution, which lays out grounds for impeaching the president. The country’s Constitutional Court, which must approve all Article 129 proceedings, voted to do so in this case. The court rejected a number of corruption charges against him, whittling them down to one concerning a single contract involving state oil tanker company FLOPEC. The impeachment is being reviewed by the congressional oversight committee, which must issue its own recommendation on whether to remove Lasso before the plenary can hold a vote. To remove Lasso, who’s pledged to defend himself before congress, requires a vote of two-thirds of the assembly’s 137 members, or 92 of them. It will likely take at least until May 16 for lawmakers to vote on impeachment. If Lasso is ousted, Vice President Alfredo Borrero, a medical doctor, would become president for the remainder of the presidential term ending in 2025. Impeachment would have no effect on the National Assembly, for which elections are also due in 2025. 

2. What is Lasso accused of?

The impeachment charge against Lasso alleges that he was criminally negligent for failing to cancel a FLOPEC contract that impeachment backers say generated losses. In this way, Lasso’s accusers say, he committed embezzlement, the misappropriation of assets placed in one’s trust. The contract in question is a so-called “time charter” oil shipping contract, designed to lower costs so that tankers don’t travel home empty after they make crude oil deliveries.

3. What does Lasso say?

Lasso denies any wrongdoing and points out that the contract in question was signed in 2018, three years before he took office. His lawyer, Edgar Neira, has told the oversight committee that not only does Lasso not bear legal or political responsibility for individual business decisions at the company, but that FLOPEC actually made a record profit thanks to changes made to the contract under his watch. 

4. Who is behind the impeachment drive?

Among Lasso’s accusers are members of the the biggest party in congress, the leftwing Citizen Revolution party of former President Rafael Correa. Correa has lived in in Belgium since leaving office in 2017 and was sentenced in absentia by an Ecuadorian court in 2020 to eight years in prison for bribery. Impeachment backers also include the conservative Social Christian Party as well as dissidents from the Indigenous party Pachakutik and the Democratic Left party. Lasso charges that “mafias” are behind the removal effort, presumably in response to his efforts to root out corruption linked to the Correa administration and crack down on drug trafficking. The first attempt to remove Lasso failed in June 2022 as the Correistas, who have 47 seats, only secured 33 additional votes. 

5. What are Lasso’s options? 

This time around, Lasso says that if he faces ouster, he’ll dissolve congress, a power presidents can invoke once in their first three years in office. That would trigger early elections, which Lasso says he would contest. In the meantime, he would govern by decree, with the Constitutional Court taking on the quasi-legislative role of reviewing such orders for their constitutionality. If Lasso manages to fend off impeachment, his administration and congress are likely to remain at loggerheads. Both already have very low approval ratings. The Indigenous organization CONAIE, which led the violent unrest in 2022, is demanding that Lasso step down and has threatened renewed protests if he dissolves congress.

6. Why are investors so sensitive to political instability in Ecuador?

Since its independence in 1830, the country has defaulted on its external debt 11 times, most recently at the onset of the coronavirus pandemic. Even though Ecuador’s international reserves stand near record highs, debt service payments in the coming years are minimal, and the fiscal deficit has narrowed under Lasso’s government, money managers are quick to abandon the country at times of political upheaval. Moreover, regardless of the outcome of this second impeachment bid, the Ecuador’s polarized politics will weigh heavily on any government effort to boost economic growth. If the business-friendly Lasso were to lose his tenuous grip on power, leaving the government in the hands of the opposition, Ecuador becomes a hard sell for investors who still have fresh memories of Correa’s debt default in 2008. 

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