Ecuador Bi-Weekly Report

On the Brink of Recovery?

September 1, 2017BancTrust & Co. Research Team
  • The economy expanded 0.19% y-o-y in June while total tax collection spiked 13% y-o-y in July, thus making a serious case for economic recovery
  • The Attorney General moves forward to prosecute VP Glas on alleged corruption cases, setting up a new battle within the ruling party “Alianza Pais”
  • The Esmeraldas Refinery is shut down for 45 days while Oil Minister reaffirmed Ecuador’s commitment with OPEC at leaving oil output at 541k bbl/d

The Monthly Economic Activity Index (IDEAC in Spanish) expanded 0.19% y-o-y in June while on the trend-cycle data series -which adjusts for seasonality and historical irregularities- the indicator registered a 6.12% y-o-y increase, per a report released earlier this week by the Central Bank of Ecuador (BCE in Spanish). In YTD terms, the Ecuadorian economy accumulates a 2.9% increase. These new figures have come to reinforce our view that the Andean nation is on track to recovery yet to a weak one; reason why we believe that upcoming economic measures by the Moreno’s administration will be paramount to strengthen -or weaken- such recovery.

Ecuador Bi-Weekly Report

Political Challenges Emerge

August 18, 2017BancTrust & Co. Research Team

• President Moreno faces his biggest challenge up-to-day while trying to keep unity in its political party in the midst of his spat with VP Jorge Glas – meanwhile benchmark 2024 bonds rally and near six-month high
• Ecuador might be setting of a reorganization of its oil industry while oil output continues on the rise following its departure from the OPEC cut agreement
• Inflation performance deteriorated further in July with a y-o-y figure of 0.18%, thus setting alarms off about deflation and its consequences over the economic recovery

This week, President Lenin Moreno continued to separate further from his predecessor, Rafael Correa, as in a rally just outside the Presidential Palace he made a call to “rescue the values of the revolution”, while affirming that “no one” will prevent the ruling of transparency in his administration. Moreno stated that corruption investigations will not be stopped and that he will not succumb to intimidations. In this regard, Prosecutor General Carlos Baca informed that his office has launched inquiries into alleged corruption cases by more than 20 individual including Vice President Jorge Glas. The internal political conflict hit a new high this week when President Moreno stripped Glas from all his functions as VP, after Glas accused Lenin Moreno of treason against the ruling party, Alianza Pais (AP in Spanish).

Ecuador Bi-Weekly Report

Tackling Fiscal Imbalances

August 4, 2017BancTrust & Co. Research Team
  • The Moreno’s administration aims at reducing the public deficit to 4.5% of the GDP in 2017 with help of a new fiscal devaluation plan
  • Ecuador bonds represent an interesting bet when looking for high carry in the short-term
  • Ecuador pulls out of the OPEC cut agreement and reached a new amendment to the agreement with Schlumberger to cut services tariffs and invest over USD1bn

As we stated at the beginning of the presidential term of Lenin Moreno, taming fiscal imbalances remain paramount to guarantee long-term growth sustainability in Ecuador. In the last year, Ecuador has significantly raised its external debt, as oil prices fail to stand north of USD50/bbl and the previous administration undertook an aggressive expansionary fiscal policy to boost economic growth. According to data provided by the Finance Ministry, fiscal expenditure rose by 15% y-o-y in 1H17, reaching USD11.6bn, with the second quarter of year seeing the highest public spending – which makes sense per the electoral context. Public works peaked at USD917mn in March and accumulated a 39% y-o-y growth in the first half of 2017, close to the USD4bn mark.

Ecuador Bi-Weekly Report

“Encouraging” GDP Results

July 21, 2017BancTrust & Co. Research Team

• GDP expanded 2.6% y-o-y in 1Q17. We believe results for the 2Q17 will be fundamental to determine the economy’s path as particular domestic risks persist
• Inflation reached 0.16% y-o-y in June, the lowest figure since 2007, signaling worries about the anticipated economic recovery
• The government is considering scaling down the Manta Refinery project, while oil exports fell 2.6% m-o-m in May due to lower shipments to the US and Peru

The economy expanded 2.2% q-o-q in 1Q17, according to the Central Bank of Ecuador (BCE in Spanish), and an accumulated figure of 2.6% y-o-y. The economic sectors with the highest growth rates were: Oil Refining, 28.4% – due to the repowering of the Esmeraldas refinery; Electricity and water supply, 22.4%; Fishing (except shrimp), 11.0%; Financial services activities, 5.7%; Trade, 5.7%; Domestic service, 5.6% and Transportation, 5.3%. In this regard, the BCE manager Veronica Artola stated the institution sees the economy in an expansion phase and that next month figures are encouraging.

Ecuador Bi-Weekly Report

Between Good News and Bad News

July 6, 2017BancTrust & Co. Research Team

• Economic Activity grew 5.8% y-o-y in April while several international agencies upgraded their growth prospects for Ecuador. We stick to our original estimation of 1% of GDP shrinkage as significant external and domestic risks persist, in our view
• S&P downgraded its long-term foreign and local currency sovereign credit ratings on the Republic of Ecuador to “B-“ from “B” with stable outlook, mainly due to the financing and liquidity limitations the central government is undergoing
• Imports increased 72% y-o-y in the first half of June, thus signaling the first shocks from the safeguards scheme lifting. We remain confident the overall effect for the economy will be positive in the medium term

According to the National Institute of Statistics and Census (INEC), the economy activity index expanded 5.8% y-o-y in April, below than the 8.6% y-o-y figure reached in March. Nonetheless, in seasonally adjusted terms, the economy activity registered a stark 6.9% y-o-y increase in April, higher than the 6.3% y-o-y registered the previous month. This result came hand in hand with latest revision by the World Bank (WB) which upgraded its forecast on the performance of the Ecuadorian economy in 2017 from -2.9% to -1.3% – in line with a year-end estimation- while reducing its Latin America growth outlook from 1.2% to 0.8%. Meanwhile, Bloomberg released the results from its latest survey of seven top economists which concluded Ecuador will likely expand 0.5% in 2017.

  • Monday, September 25 2017

    - Last Friday, the government of Canada announced economic sanctions on key Venezuela’s officials which affects 40 individuals who have played a key role in Maduro´s regime. In detail, these sanctions prohibit any person in Canada or any Canadian outside the country to have any type of economic relation with these members of the Venezuelan government. We see that the consequences of this sanctions are very similar to those applied by the United States government, affecting only individuals, reason why we do not expect the conse

  • Thursday, September 21 2017


    - Yesterday rumors started of the country being late on the payment of an USD185mn coupon of the VENZ27, which had to be canceled on September 15. Nevertheless, near the end of the day the national public credit office said that it sent the money on time to the corresponding financial institutions and the delay is due to "operational changes" in order to make future financial transactions effective. Furthermore, the credit institution reiterated Venezuela’s commitment in paying its debt and ca

  • Tuesday, September 19 2017

    - According to some new information, it seems that PetroChina Americas is revising its oil for cash agreements with PDVSA after the US sanctions were imposed, which would made them unable to act as an agent to commercialize Venezuelan crude. In detail, there is no change –as the sanctions detailed- in the ongoing contracts; the effect comes for the intention to renew or to extent the terms of the existence contracts. Read More >>

  • Friday, August 25 2017

    -Yesterday, it was known that some representatives of the Venezuelan government has been trying to reach a general agreement in China that comprises the creation of a sub-fund for the repurchase of Venezuelan debt –sovereign and PDVSA’s- which will allow the government to take advantage of the savings made when buying at discount the bonds with maturities in 2017 and 2018, savings are calculated around USD700mn. The final strategy will be to swap at maturity the bonds that are repurchase for new PDVSA’s debt with maturities


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