Ecuador's Challenge: Security, Trade, and Growth

Ecuador is at an inflection point, poised to harness comparative advantages in mining, agriculture, and tourism as catalysts for sustainable economic growth. But these require enhanced security and a more tranquil social environment.

Ecuador’s President Daniel Noboa has just declared war on the notorious gangs that have turned his bucolic nation into one of the region’s most violent, leaving citizens in a state of fear and disbelief. What was once a bastion of peace in a rough neighborhood is now grappling with unprecedented security challenges. This seismic shift has not only shattered Ecuadorians’ sense of tranquility but also exacerbated economic difficulties, ushering in deep uncertainty with presidential elections barely one year away. The United States has engaged effectively and productively with the new government with meaningful security assistance, but the road ahead remains difficult. And forthcoming gains will not be sustainable without a concurrent economic growth agenda including trade.

With palpable hope for change, citizens elected Noboa at the end of 2023 to fulfill the remainder of his resigned predecessor’s term. After a brutal campaign season that saw a leading candidate assassinated, voters elected the young and untested Noboa who promised a new security strategy aimed at restoring peace and kick-starting the economy.

He is responding resolutely, instituting a “mano dura” or “strong hand” approach to crime and criminal gangs. Drawing inspiration from the experiences of others, including Colombia, Ecuador is also seeking to strengthen international cooperation. Somewhat controversially, there are reports that Noboa is also seeking guidance and perhaps assistance from Salvadoran President Nayib Bukele, who has been criticized by human rights groups for his heavy-handed tactics to suppress the gangs that previously overwhelmed his country. But Bukele’s results smashing crime are undeniable, and he has just been overwhelmingly re-elected.

Despite having only been in office for a few months, Noboa is now faced with the urgent need for decisive action before the next election campaign begins. If Noboa is unable to get the gangs under control, the economy will flatline. Absent the security Noboa promised, businesses suffer, and the economy languishes. Capital and non-business-related costs have ballooned, fatally impacting start-ups and small and medium enterprises, a critical engine of job creation and economic growth.

Even without the gangs, the needs are many: increasing employment in the formal sector, additional investment in infrastructure, export diversification, debt reduction. Despite significant strides made toward diversification, the nation’s heavy reliance on oil exports persists, while a staggering 70 percent of its population remains entrenched in informal employment. By the close of 2023, only nine of 20 key industries reported positive growth trajectories compared to the previous year. Notably, the confluence of lower oil prices and escalating financial risks, including debt service and high unemployment, exacerbates Ecuador’s precarious position...

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