Quito, March 15, 2015 --  

Ecuador's infrastructure boom is ending. President Correa leaves much to remember.

The surveyors at work on the plaza of San Francisco toil in the footsteps of Incan laborers who laid out the square 450 years ago by order of the conquistadors. Today's efforts are not aimed at building a colonial monastery, but a new subway system for Ecuador's capital city.

450 years of infrastructure Photo © 2016 David G. Young

The construction of the $1.5 billion Quito Metro¹ is part of a major infrastructure boom in Ecuador. Recent years have seen a new international airport built for the capital and smooth multi-lane highways stretch from the capital to provincial cities.

All this building is the legacy of President Rafael Correa, who has managed to serve a third term in a country so unstable that recent presidents typically failed to serve even one. Correa has had the good fortune to serve largely during a period if high oil prices. Ecuador's production of 550 billion barrels of oil per day² funds the lion's share of its government budget, and pays for all those shiny new roads and runways (along with loans from China). State spending was 44 percent of GDP in 2013.³

But the recent plunge in oil prices has hit Ecuador's government revenues hard. Last year, the budget faced a shortfall of $7.2 billion⁴, which the government tried to plug with spending cuts and tax hikes to compensate for lost oil revenue.

Not surprisingly, these changes have been unpopular. Proposed hikes in inheritance taxes and land sale profits to over 70 percent sparked widespread protests and forced the government to withdraw the legislation.⁵ The government reneged a $41 million portion of a land purchase from the armed forces' retirement fund, sparking a dispute with the military that led to the sacking of the top brass in February.⁶

This has led to fears that Correa is becoming increasingly authoritarian, adding to concerns built up by years of crackdowns on independent journalists and installing a compliant legislature and judiciary. In December, the legislature passed a constitutional amendment eliminating presidential term limits after 2021, sparking more protests.⁷

While Correa has pledged he will not run for re-election in 2017, opponents fear he will renege. Even if he does not run, the amendment will allow him to install a puppet (like Russian President Vladimir Putin's Dmitry Medvedev), and let him return to office for life starting in 2021. The anti-Correa Ecuadorian elite, never short on conspiracy theories, thinks he wants to rule from behind the scenes during the hard times of low oil prices, then return in 2021 as a national savior -- that time for good.

Even if these conspiracy theories are true, Correa still has to keep things going for another year until his term ends. Given low oil prices, can he protect both his regime and his legacy? Cancelling a high profile project like the Quito Metro would certainly not help.

Correa describes himself as a 21st Century Socialist like Bolivian President Evo Morales and the late Venezuelan President Hugo Chavez. Unlike those men, he has at least spent a good portion of the petroleum windfall on projects that will last. Perhaps his PhD in economics from an American university has helped him avoid sending his country into the abyss like Venezuela. Despite increases in social spending, Ecuador has spent far more on infrastructure than Venezuela and Bolivia and (oil companies aside) Correa has largely left private businesses in Ecuador alone.

But all good things must eventually come to an end. With analysts predicting relatively low oil prices for years to come, the infrastructure boom won't continue, regardless of who runs the country. Residents of Quito will be lucky to get their new Metro line running before it's all over.

Notes

1. Railway-Technology.com, Acciona and Odebrecht Consortium Wins $1.5bn Metro Contract in Ecuador, October 29, 2015

2. US Energy Information Administration, Ecuador International Energy Data and Analysis, March 17, 2015

3. Economist, Scraping the Barrel, August 1, 2015

4. Ibid.

5. International Business Times, Ecuador’s Correa Withdraws Controversial Tax Bills After Days Of Protests, June 16, 2015

6. Reuters, Ecuador Sacks Military Top Brass Over Questioned Land Deal, February 5, 2016

7. The Guardian, Protests in Ecuador as Lawmakers Approve Unlimited Presidential Terms, December 3, 2015