Ecuador News Round-Up No. 2: How Tax Havens, Referenda, and Worsening Security May Affect the Elections

July 06, 2023

The Center for Economic and Policy Research is launching a new, regular round-up of news and analysis on Ecuador, intended to provide crucial context and updates for readers in the run-up to the country’s August 20 presidential elections. The second edition is below. You can access the first issue here.

Click here to subscribe to CEPR’s weekly Ecuador News Round-up.

The registration of candidates

In the two weeks since the registration deadline for the presidential elections, Ecuador’s electoral authorities have initiated the candidate vetting process. First, the National Electoral Council (CNE) verifies that all necessary paperwork has been accurately completed and that the candidates have met the basic requirements to run for office. Second, the candidates themselves are given the opportunity to raise objections on the eligibility of other candidates in the race. The CNE then investigates these objections and decides whether to support, or to dismiss, them. Subsequently, the Electoral Dispute Tribunal (TCE), another electoral body, checks that candidates fulfill their requirements, and officially announces the presidential tickets. The TCE also functions as a court of appeals for decisions made by the CNE, enabling candidates whose objections were rejected to present them to the TCE. 

As things stand, the CNE and TCE have fully verified the registrations of seven presidential candidates: Bolívar Armijos, Luisa González, Daniel Noboa, Yaku Pérez, Otto Sonnenholzner, Jan Topić, and Fernando Villavicencio.

Xavier Hervas, who ran in the 2021 elections, has yet to be confirmed by the TCE. González’s party, Revolución Ciudadana (RC), has objected to Hervas’s candidacy, claiming he possesses offshore assets in a jurisdiction classified as a tax haven by the Ecuadorian tax office, which would render him ineligible for the presidency under Ecuadorian law. Outgoing president Guillermo Lasso faced similar allegations when he presented his candidacy in the previous election. Members of the US Congress have repeatedly called on the Biden administration to investigate tens of millions of dollars’ worth of assets in US-based tax havens (Florida, Delaware, and South Dakota) connected to Lasso and his family.

The accusation stems from Hervas’s ownership of the Panama-based Agrigroup Corporation. Documents show that when the company was established, Xavier Hervas was granted power of attorney over its finances and affairs. Hervas denies these allegations, claiming that the documents refer to a namesake, Xavier Hervas Mora Bowen, and not to himself (Marcelo Xavier Hervas Mora). But the RC has provided notarized documents dating back to the late 1990s, including some relating to the founding of the company upon which Hervas built his wealth. These show that Xavier Hervas, whose grandfather’s last name is Mora Bowen, signed as “Xavier Hervas Mora Bowen.” The RC also presented a document in which Marcelo Xavier Hervas Mora explicitly claims power of attorney for the Agrigroup Corporation.

The CNE nevertheless validated Hervas’s candidacy. The case is now with the TCE, which is reviewing the CNE’s decision. 

On June 20, the CNE also released its mandated spending limits for electoral campaigns. Presidential tickets will only be allowed to raise and spend up to $5,380,018. In addition to these funds, the state pays for all electoral campaign advertising in the media. Electoral law mandates that the state allocate equal time to each presidential ticket. Equal time is also evenly distributed among legislative candidates.

The referendums on oil and mining

In addition to presidential and legislative elections, two referendums will also be held on August 20. The first asks whether oil production should be prohibited in the Yasuní National Park, in the Amazon. The area is one of the most biodiverse in the world, yet it also hosts Ecuador’s most promising oil block, the 43-ITT block. Environmental activists have been advocating for this referendum since 2013 with the aim of protecting local Indigenous communities and the region’s biodiversity.

In 2007, President Rafael Correa launched the Yasuní-ITT Initiative at the UN General Assembly. The idea was to keep Ecuador’s largest oil reserves in the ground and avoid net emissions of CO2 into the atmosphere. In return, the international community would share the burden of Ecuador’s financial sacrifice and contribute half the value of the projected revenue of the oil reserves. In 2010, the initiative was further institutionalized and a UN trust fund was created for the administration of these potential contributions. By 2013, however, the fund had failed to secure any significant contributions, which led the Ecuadorian government to announce the end of the initiative. Drilling began in 2016 and was significantly expanded by the Lenín Moreno government in 2019. 

Faced with the prospect of a referendum, the Lasso government has argued that halting oil production in the Yasuní area would be “catastrophic” for Ecuador, with Energy Minister Fernando Santos claiming that abandoning production there would mean a loss of $1.2 billion per year. Meanwhile, some analysts argue that the drilling operations only affect 0.01 percent of the national park area, and have a much smaller environmental footprint than prior oil operations in Ecuador.

Whereas the Yasuní-ITT Initiative was about Net Avoided Emissions (NAE) of CO2, the debate now seems to have shifted to biodiversity and the causes of deforestation. Many experts concur that the expansion of the agricultural frontier, more than oil extraction, has been responsible for the greatest loss of biodiversity in Ecuador; although they also point out that oil extraction requires the disruptive construction of roads to access the oil fields, which enable greater human encroachment and population growth. As far as accessing the oil wells in Yasuní National Park, however, roads have already been constructed.

The debate on the overall wealth to be derived from the oil wells in the Yasuní National Park, and the environmental impact of the oil extraction, is likely to intensify as the August 20 referendum draws nearer. 

The second referendum is a local election concerning Quito. Its residents will be asked whether they wish to prohibit metal mining in the Chocó Andino, a UNESCO Biosphere Reserve west of the city where there are currently 12 mining projects. As with the Yasuní National Park referendum, environmental activists have been pushing for an end to these extractive activities and have succeeded in collecting over 200,000 signatures calling for a referendum. 

The security crisis

Meanwhile, Ecuador continues to face a spiraling security situation. The latest embarrassment for the Lasso government was the June 19 resignation — amid increasing violence and chaos — of the country’s national security advisor, former mayor of Quito and retired general Paco Moncayo, over what he denounced as “bureaucratic obstacles.” His much-publicized role as special advisor to the president lasted less than two months.

The country’s overall security situation has continued to deteriorate. With homicides rising by 85 percent between 2021 and 2022, Ecuador is currently the fourth most dangerous country in Latin America, just above Mexico. Ecuador is now also facing the new phenomenon of mass shootings. In April and May, six people were shot dead in a restaurant in the coastal town of Montañita, seven were murdered during a Mother’s Day celebration in the city of Quevedo, and nine fishermen were killed by gunmen in a fishing port in the northern city of Esmeraldas, among other mass killings. The country is also plagued by kidnappings and extortion.

The surge in violence has been blamed on increased levels of drug trafficking, as Ecuador has become a more important route and processing hub for the drug trade in recent years. Ecuador’s generally poor economic performance in the last few years, exacerbated by the pandemic and combined with a striking absence of robust social programs and effective social safety nets, has had a detrimental impact on the well-being of the most vulnerable and has fostered the conditions for growing crime and insecurity. Former president Moreno’s dismantling of key institutions, such as the Ministry of Justice, the Secretariat for Drug Policy, and the Coordinating Ministry of Security have also been blamed for the precarious institutional response to rising security challenges. 

The worsening security situation continues to be a major concern, and has become a principal election issue. Candidates such as Jan Topić have in turn proposed radical policies similar to those advanced by Salvadoran president Nayib Bukele, whose “war on gangs” has resulted in massive human rights abuses, according to rights organizations.

US-Ecuador security cooperation

On June 22, President Lasso received Daniel Erikson, the United States’ deputy assistant secretary of defense for Western Hemisphere affairs (DASD), in the context of the first meeting of the “Defense Bilateral Working Group.” The working group has held high-level defense talks, which were launched by the US secretary of defense and the Ecuadorian minister of defense during the 15th Conference of Defense Ministers of the Americas in Brasilia in July 2022. The countries appear to have agreed to a seven-year security strategy, the terms of which are yet to be disclosed, for the purpose of strengthening regional security.

The meeting is the latest result from deepening security cooperation between the US and Ecuador in recent years. In 2018, under former president Moreno, the United States reopened the Office of Security Cooperation in its Quito embassy, and the countries agreed to resume bilateral military cooperation, assistance, and training. 

In 2019, Moreno allowed the US to operate anti-narcotics airplanes from an airport in the Galapagos Islands, a move considered illegal by key sectors of the opposition. Article 5 of the Ecuadorian Constitution states: “The establishment of foreign military bases, or foreign facilities for military purposes, shall not be permitted. The ceding of national military bases to foreign armed or security forces is prohibited.”

Following the new constitution’s entry into force in 2008, the Correa government did not renew the US lease on the Manta Air Base in September 2009. During Correa’s presidency, Ecuador also terminated several cooperation agreements with the United States after evidence emerged suggesting that Ecuador’s intelligence services were heavily infiltrated by US agencies. 

However, the creation of more autonomous security institutions has since been reversed under the presidencies of Lenín Moreno and Guillermo Lasso. In 2021, Ecuador and the US signed an agreement to create specialized units in the Ecuadorian Judicial Police that would work with the US embassy to investigate human trafficking and other crimes. Later that year, under President Guillermo Lasso, the US Southern Command of the Department of Defense (SouthCom) and Ecuador signed an agreement to include Quito in a regional cooperation and intelligence sharing system intended to combat illicit trafficking. 

Despite the close ties between the two countries since 2018, there is still no sign of improvement in Ecuador’s security situation. On the contrary, the situation has continued to deteriorate sharply, with Ecuador’s homicide rate rising from 5.8 homicides per 100,000 inhabitants in 2017 to 25.5 in 2022, the highest in the country’s modern history.

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