As Ecuadorians prepare to vote for a president Sunday amid its most violent election cycle in memory, investors are betting an unexpected rally in the country’s battered bonds isn’t finished.
The assassination of presidential candidate Fernando Villavicencio and a shocking rise in crime has made security and stability a focus of the election. That’s raised the chances a conservative, market-friendly candidate will at least make it to a second round in October, and reduces the odds of an outright win by a leftist ally of former President Rafael Correa.
The violence adds to political chaos unleashed earlier this year when lawmakers mounted a campaign to impeach President Guillermo Lasso, who responded by dissolving congress, triggering snap elections. A second-round will be held in October if no candidate gets an absolute majority Sunday — or at least 40% of valid votes with a 10 percentage point lead over the runner-up.
“I don’t think any government can govern under default and stay in default and pretend to be a successful economy,” said Favini. “It’s a very shortsighted strategy.”Investors demand an extra 17.5 percentage points of yield to hold Ecuador’s dollar debt, on average, over similar US Treasuries. And the market for credit-default swaps — a type of insurance against default — suggests a 91% chance the government will start missing payments within five years.
A runoff vote between her and center-right candidate Otto Sonnenholzner or Christian Zurita — the former journalist who’s replacing Villavicencio — would also be welcomed by the market. Investors would fret a runoff between Gonzalez and Indigenous leader Yaku Perez.
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