ECUADOR-Sell-side Offers Reaction To Election & Oil Referendum

Following the 20 August first round presidential election, in which left-wing Correaist candidate Luisa Gonzalez and dark-horse centrist Daniel Noboa made it through to the run-off on 15 October, sell-side analysts have offered their views on the contest.

• Goldman Sachs:
  • Last week, Ms. González stated she would tap on US$2.5bn of the central bank reserves for government spending. We highlight that the stock of reserves at the central bank is not high and are an important support for dollarization.
  • [...] the option of banning oil activity in Yasuní leads the referendum [...] . Currently, oil activities in Yasuní contribute around 55 thousand barrels of oil daily, equivalent to 11% of the national production."
• JP Morgan:
  • Worth noting is the fact that the right/center-right votes aggregated 62%, the highest level in recent record, making Noboa competitive in a second round against Gonzalez if he is able to consolidate the anti-correista vote.
  • That said, a fragmented Congress coupled with Noboa’s short track record and lack of party structure [could] limit governability in case Noboa reaches office [...]
• Morgan Stanley:
  • The first round results take away some of the more negative scenarios around a move to a more unconventional economic policy.
  • Given the strong performance of candidates pushing for change away from traditional parties, the market is likely to view it as at least a 50/50 chance if not slightly higher. In the medium term, the same challenges will persist, namely governability amid a large share of congress set to be RC again and fiscals now set to be under even more pressure given the passing of the Yasuni oil referendum.