Bloomberg
(Bloomberg) -- Career banker Guillermo Lasso won Ecuador’s presidential election runoff after a late surge in the polls, preventing a return to socialism and reassuring bondholders in the default-prone country.With 98% of votes counted, the 65-year-old Lasso had 52.5% compared with 47.5% for economist Andres Arauz, a left-wing protege of former president Rafael Correa. The win caps a surprise comeback by the pro-market candidate in the final weeks. Arauz, who conceded defeat on Sunday evening, won the first round by 13 percentage points.Lasso’s victory will likely be well received by investors when markets open Monday as he’s vowed to uphold a $6.5 billion financing agreement with International Monetary Fund and stay current on the country’s overseas bonds. The nation’s recently restructured notes rallied in recent weeks as polls showed his chances improving.In his victory speech, Lasso said he will work to create “the prosperity we all long for.”Why Ecuador’s Runoff Vote Matters for the Bond Market: QuickTakeEcuador’s notes due in 2040 have risen from an early-March low to trade at 45.5 cents on the U.S. dollar. Lasso’s comfortable win will likely be a catalyst for bonds to rally more, according to a report by Goldman Sachs Group Inc.“Lasso’s victory should reduce political uncertainty and raise the prospects of a fairly orthodox and market-friendly macro policy agenda being pursued in coming years,” Goldman analyst Tiago Severo wrote.Sigh of ReliefWhile bond investors may breathe a sigh of relief, Lasso won’t have an easy time running the country of 17 million people which is far behind in its vaccination campaign and reeling from the economic impact of the pandemic. Last year the dollarized economy contracted 7.8%, its worst performance since at least the 1970s.To govern successfully, Lasso will also have to find a working relationship with the National Assembly, where his backers hold just 31 of the 137 seats. He will also need to reach out to the more than 1.8 million Ecuadorians who voided their votes, including many from indigenous movements.“I’m just hoping the job doesn’t end up too big for Lasso,” given his lack of a majority in the next legislature, said Maria Paz Jervis, dean of law and social studies at SEK University in Quito.Lasso will find it tough to implement unpopular economic policies since legislators from other parties will be reluctant to spend their political capital on his behalf, said Maria Jose Calderon, political scientist at the Pontifical Catholic University in Quito, in a phone interview.Arauz, 36, had vowed to use central bank reserves to pay poor families and was expected to strengthen ties with left-leaning governments in the region including Argentina, Mexico, Venezuela and Cuba. Lasso’s win represents a victory for U.S.-aligned governments in the region, including Brazil, Colombia and Chile.Ecuador’s southern neighbor Peru also voted for president on Sunday. Exit polls showed the country heading for a runoff after no candidate got anywhere near the threshold needed for a first-round win.Self-Made MillionaireLasso, a self-made millionaire and father of five, was president of Banco de Guayaquil, one of the nation’s biggest private banks, and has also served as a regional governor and as finance minister. This was his third run for president.The now president-elect has said he’ll promote policies that boost investment and private sector job creation, and will phase out a tax on taking money out of the country. He’s also promised to boost the monthly minimum wage to $500, from $400, and oversee the vaccination of 9 million people against Covid-19 during his first 100 days in office.“Lasso’s reasonably comfortable victory represents an important turn of events, especially considering the outperformance of leftist presidential and congressional candidates during the first round election,” Goldman’s Severo wrote.(Updates with quotes from Goldman Sachs from 6th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
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