Ecuador's Correa consolidates power winning Election

Reuters, Monday April 27 2009


QUITO, April 26 (Reuters) - Ecuador's left-wing President Rafael Correa claimed an easy re-election win on Sunday after exit polls gave him over 50 percent of the vote, a sign that his message of radical social change still resonates strongly.

Correa is popular for his firm leadership and heavy spending on the long-neglected poor but lower oil revenues and a flagging economy pose a serious challenge in the politically unstable OPEC country.
Here are some of the implications of his victory:

HARD LINE ON INVESTORS

Correa will likely stick to his tough stance with foreign investors even though the global slowdown is hurting Ecuador's delicate economy. He will push hard for big state participation in future mining deals and pressure debt investors to sell back to the government at a steep discount the 2012 and 2030 global bonds it defaulted on in December.

Correa has recently moderated his rhetoric and also cut infrastructure investment, a move investors welcomed as a sign of economic prudence in lean times. But analysts say the softer tone will likely be short-lived and is primarily aimed at avoiding a major recession in an economy dependent on oil exports and immigrant remittances.
A deep economic crisis could cost Correa his job in a country used to deposing presidents every two years or so, often due to their mismanagement of the nation's finances.

SOCIALIST PLANS

Correa's party looked certain to be the largest block in the legislature after Sunday's vote and will now move to pass bills that boost his control over key sectors of the economy and state institutions, while limiting the power of media companies.

Correa's fourth electoral win since he took office in 2007 is also likely to strengthen his young National Alliance party and improve its internal discipline. Last year a more radical faction emerged in the party, clashing with a center-left group aligned with the president.

INSTABILITY RISK

Correa could fall quickly from grace if oil prices stay low and the economy deteriorates. In the decade before Correa took office, three presidents were toppled because of popular anger at economic policies.

Correa will try to protect the spending on pensions, housing and schools that underpins his popularity, but he does not have a great deal of room for maneuver.
Ecuador uses the U.S. dollar as its currency and so is unable to print money to cover spending promises. It has limited access to finance after Correa chose to default on $3.2 billion of debt the government declared illegal last year.
If low oil revenues force him to cut social programs, Correa could face protests by workers and the poor. Discontent over spending cuts and management of the economy would likely deepen divisions in Correa's party, making it harder for him to pass key legislation such as a bill to increase state regulation over the banking system.

(Reporting by Alonso Soto; Editing by Frank Jack Daniel and Kieran Murray)