Ecuador: Noboa's leads in runoff but uncertainty remains amidst lack of varied polls

• Noboa holds a one-digit lead over Gonzalez in the limited number of reliable runoff polls
• We see Noboa as the favorite, benefited by a sentiment of distress that propels "an outsider"
• Both candidates support using FX reserves to stimulate the economy, while focusing on public security
• Noboa is perceived as more pro-market than Gonzalez, but his economic plan lacks key details
• Gonzalez has tried to distance herself from ex-Pres Correa in the 2nd round, but we doubt she'll succeed convincing voters of her independence

Left-wing candidate Luisa González and centrist businessman Daniel Noboa will face each other in a presidential runoff on Oct 15, a result of President Guillermo Lasso's dissolution of Congress. This election stands out not only for its tight timeframe but also for the general lack of awareness among Ecuadorians about the candidates and their policy proposals, exacerbated by a dearth of polling data. The last debate was held on Sunday; in it, the candidates showed an inability to present concrete execution plans for their proposals. Moreover, the absence of diverse polling data increases the uncertainty surrounding the upcoming round. Whoever is elected will hold the presidency for a mere 18-month term, succeeding Lasso.

The few polls available indicate Noboa is likely to win the election, with a single-digit lead over Gonzalez. Yet, it's worth noting that the same pollsters failed to predict Noboa's surprising second-place finish in the first round, which led to the displacement of the previously favored Correaist candidate, Luisa Gonzalez. This increases uncertainty and suggests the runoff will likely be tight.

Noboa has significantly altered the electoral landscape, which had been previously dominated by the Correaist candidate Gonzalez. Following the National Assembly's dissolution, the candidate from the Citizen Revolution party, led by former President Rafael Correa, had enjoyed a major lead over their rivals and appeared poised for an inevitable victory. Gonzalez's triumph seemed assured, especially after the strong showing of the party led by former president Rafael Correa in the regional elections. However, the murder of candidate Fernando Villavicencio, the main opposition to Correaism, turned things around.

The violence and public security crisis has been the main topic of this atypical campaign. Ecuador is suffering an unprecedented wave of violence and the main task of the next president will be precisely to face this public security crisis. As for the other proposals, both candidates promise to use FX reserves to mitigate the impacts of the "El Ni?o" climate phenomenon, which is likely to impact significantly the country's key industries.

The market is expected to react negatively if left-wing Luisa Gonzalez wins, as she proposes an ambitious spending program amid fiscal weakness while using FX reserves to boost the economy. Still, although Noboa seems far more market-friendly than Gonzalez, he also presents questionable proposals, such as tapping into FX reserves to address the impending "El Ni?o".

All in all, as demonstrated in the first round of voting, the outcome remains uncertain. The winning candidate will encounter a complex situation marked by fiscal challenges, the responsibility of executing an oil referendum result, soaring debt levels, and the looming threat of a significant weather phenomenon affecting various sectors of the country's economy.

RUNOFF POLLS

This election has been characterized by the lack of reliable and official polls. Only three local pollsters authorized by the National Electoral Council (CNE) have released runoff polls. As a result, the forecast for the election outcome remains cloudy. According to the average of the three pollsters, the voting intention is led by the candidate of the ADN alliance, Noboa, with 46.1% against the candidate of the Citizen Revolution, Luisa Gonzalez with 39.2%. Even if the lead is relatively modest, it is worth noting that in Comunicaliza polls, Noboa's support has grown while Gonzalez's has declined. Moreover, the percentage of undecided voters stands in the double digits, leaving the possibility of last-day changes.

Cedatos pollster was the only one that released a poll after the debate held on Oct 1. In this poll, we can see that Noboa leads with 56.1% of the voters' preferences against Gonzalez with 43.9%. However, this was the only poll released by Cedatos, thus we can't make a comparative of the voting intention's evolution before and after the debate.

A NOBOA VICTORY: A MARKET FRIENDLY ADMINISTRATION?

It is clear that businessman Noboa is far more market-friendly than Gonzalez, suggesting the market would not react negatively to his victory. As a legislator, he was president of the Economic, Productive, and Microenterprise Development Committee. Additionally, he was part of his father's multimillion-dollar companies within the Noboa Corporation.

Noboa envisions transforming Ecuador into a "competitive country" by fostering job creation, attracting foreign investment, and reducing electricity costs. Furthermore, the ADN alliance candidate pledges to boost the health budget by 10%, with a specific focus on addressing children's mental health and addiction issues. He advocates for lowering electricity and fuel expenses while emphasizing plans for investments in electricity distribution and fuel refining within existing refineries.

Regarding the FX reserves to face the impacts of the weather phenomenon "El Ni?o", Noboa said he would use them as a last resort. However, despite his more market-oriented approach, Noboa's plans entail increased expenditure and tapping into FX reserves, without specifying how he intends to augment revenues, which raises doubts.

We expect Noboa to win because he should benefit from a sentiment of distress in the country. He is portraying himself as an outsider, while voters are easy to link Luisa González to the political burden of Correism, with ex-Pres Rafael Correa unable to visit the country, wanted in the investigation of the kidnapping of a political opponent and because of taking bribes.

A GONZALEZ VICTORY: RENEWED CORREAISM?

Gonzalez, the first-round's winner, has attempted to shift her strategy. With the former president at the helm of the party, a controversial figure responsible for significant polarization in the country, Gonzalez has tried to distance herself from the previous actions of Correaism and its prominent figures. She has tried to convince undecided voters that she will govern independently, despite repeatedly emphasizing during the campaign that Rafael Correa will be her primary advisor.

On the economy, Gonzalez intends to use USD 2.5bn of FX reserves to boost the economy, control tax evasion, increase oil production, and promote employment. She pledged to tackle fiscal deficits and facilitate access to productive loans with interest rates between 5% and 7%. She also mentioned securing credits from institutions like CAF and the World Bank to address the crisis regarding "El Ni?o" phenomenon.

If she wins, we expect the market to react negatively as it will mean the return of Correaism. Yet, even if Correaism emerged as one of the main forces in the National Assembly, this fell short of a majority. Indeed, without securing the majority, the Citizen Revolution party would require to build alliances.

THE PATH FOR 2025?

The upcoming president will encounter difficulties in managing the complex economic, fiscal, and security situations amidst political ambiguity, given that the government will remain in power until May 2025, with general elections slated for early 2025. For instance, Fitch stressed this circumstance will limit the external bond acquisition and the capacity to negotiate a succeeding IMF program.

Moreover, the incoming president won't have the autonomy to draft an entirely new General State Budget (PGE) but will be required to operate within the framework set for 2023, with spending at USD 31.5bn.

Finally, an impending weather phenomenon known as "El Ni?o" is predicted to impact vital sectors like fishing and flower cultivation, resulting in estimated losses of USD 4bn. Additionally, the new president will have to close the oil fields of the ITT park, located in the Amazon, as a result of the Yasuni referendum held in August.

All in all, the incoming president will have a relatively short 18-month term and will need to prepare for the transition to the 2025 elections while grappling with these complex and pressing challenges.

ELECTION SPECIFICITIES

This time, Ecuadorians living overseas will cast their votes in person because the electronic voting system encountered issues during the first round. Moreover, the CNE has mandated a rerun of the legislative elections for expatriates due to technical challenges faced with the online voting system. Ecuador will designate specific National Assembly seats for representatives elected from three distinct international regions: Europe, Oceania, and Asia; Canada and the United States; and Latin America, the Caribbean, and Africa.