Ecuador’s Conflict Against Drug Gangs Is Taking a Blow to the Economy

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In early January, Ecuadorian President Daniel Noboa declared that his country had entered an “internal armed conflict” against 22 criminal gangs. Noboa named the groups terrorist organizations and instituted a state of emergency, deploying the military across the country. The announcement followed a rapid wave of gang attacks in the early days of 2024 that included prison riots, car bombings, homicides, and kidnappings. While gang violence is a problem across many countries in Latin America, Ecuador has witnessed a significant escalation in recent months.

In the weeks since the armed forces first took to the streets, violence in Ecuador has decreased. Yet the costs of the nationwide deployment have taken a hit to the already-fragile Ecuadorian economy. With no end to the conflict in sight, the government in Quito must balance the dual imperatives of financing its war and ensuring economic stability.

Even before the start of the conflict, Ecuador was in economic crisis. The government ended 2023 with a fiscal deficit exceeding $5.7 billion. That put strains on the country’s liquidity, resulting in delayed government payments of nearly $4.5 billion total—impacting the processing of social security benefits, local government officials’ salaries, and government contractor fees. Now, Ecuador’s Ministry of Economy and Finance estimates that the sustained mobilization and equipment of military forces for the internal armed conflict will cost the Ecuadorian state an additional $1.02 billion annually.

In addition to impacting Ecuador’s macroeconomic stability, the immediate costs of the conflict leave little room for social investments that could address the root causes of organized crime and drug trafficking, including the lack of basic government services, education, and employment opportunities across the country. Between January and June 2023, the National Police arrested 1,326 adolescents between the ages of 12 and 17 for crimes such as illegal possession of weapons, murder, micro-trafficking, and robbery. Poverty and violence leave these Ecuadorian youth with limited alternative opportunities—creating the ideal environment for gangs to recruit and flourish.

Meanwhile, according to Noboa, Ecuadorian criminal gangs benefit from a lucrative global market for drugs and other illicit goods. The president claims that organized criminal groups operating in Ecuador have mobilized approximately $60 billion in total revenue, nearly the same value as Ecuador’s external debt. Criminal groups’ illicit operations are far more efficient than the state’s efforts to contain them.

To make matters more complex, Ecuador’s politically fragmented National Assembly is hesitant to take immediate action on Noboa’s economic proposals. The country holds general elections next year, and lawmakers are worried about being politically vulnerable if they are seen as supporting policies that could put consumers in a pinch. For instance, the National Assembly rejected Noboa’s initial proposal to increase Ecuador’s value-added tax from 12 to 15 percent from now until 2026, which would have resulted in additional annual tax revenue of more than $1.3 billion.

Opposition lawmakers from both the left and right of Noboa, who is a centrist and friendly to the private sector, said they would only back the measure if it was paired with a special tax contribution from banks and cooperatives as well as an increase in Ecuador’s currency outflow tax. They ultimately passed a bill that combined both proposals. While it will lead to increased revenue in the immediate future, it is not sustainable in the long term. Overly broad taxation will curb investment and job creation in Ecuador, two of Noboa’s main objectives as president.

Quito has already been forced to make difficult trade-offs in addressing security and economic concerns. In February, Ecuador reached an agreement with the United States, under which Quito would send Washington Russian-made military equipment scrap, which would then be shipped to Ukraine for its war against Russia. In exchange, the United States would give Quito advanced military equipment, which the government could use in the ongoing conflict.

But the deal backfired after Russia retaliated against Ecuador by imposing a ban on the country’s banana imports. The move had an immediate economic impact on Ecuador: Moscow is currently Quito’s third-biggest trading partner, and more than 90 percent of bananas in Russia are sourced from Ecuador. Within days, Noboa pulled out of the pact with the United States, and Russia dropped its export ban. The incident reveals how Latin American countries could face both national security and economic repercussions if they are unable to balance relations with competing great powers.

One reason that Noboa may have chosen to side with Russia in the banana dilemma is that Ecuador’s various crises require more than the military aid the United States had offered. Quito’s allies—including drug-producing nations such as Colombia and Peru, as well as major drug consumers such as the United States and Europe—must engage in more meaningful economic cooperation with Quito to address the root causes of organized crime and violence. Ecuador’s instability has implications for the entire Western hemisphere.

In the United States, this is most visible in high migration flows—a significant political issue ahead of the U.S. presidential election this fall. In both parties, immigration ranks among voters’ top concerns; President Joe Biden and his expected rival, former President Donald Trump, are making competing visits to the U.S.-Mexico border this week as the campaign intensifies. If elected, Trump is reportedly planning a crackdown on migrants that could include mass deportations and detention camps.

Ecuadorians are at the forefront of the recent migration surge into the United States. In 2021, the Ecuadorian diaspora residing there reached almost 1 million people. Up until that year, annual increases in migration from Ecuador to the United States were gradual. In 2023 alone, 57,250 Ecuadorians migrated to the United States via the Darién Gap, the dangerous jungle region between Colombia and Panama, according to the Panamanian government, marking a 95 percent increase from 2022. In the first 11 months of fiscal year 2023, there was a 312 percent annual rise in unauthorized entries of Ecuadorians apprehended by U.S. Border Patrol compared to fiscal 2022. The surge in migration coincides with rising levels of criminality and violence in Ecuador.

Economics, security, and migration are linked. That means that all three issues must be combated in tandem. Across Latin America, countries incur substantial economic losses due to organized crime. Ecuador alone suffered a loss of more than $12 billion (6 percent of its GDP based on purchasing power parity) in 2023 due to violence, according to the Institute of Economics and Peace—an annual per capita hit of approximately $1,127. That value is expected to increase this year.

Other countries across the region—such as Colombia, Mexico, and Brazil—also face substantial economic losses due to criminal gang violence, costing their economies an estimated 29 percent, 11 percent, and 11 percent of their GDPs based on purchasing power parity, respectively. But unlike these nations, Ecuador lacks a trade agreement with the United States, its main trading partner. This impacts the competitiveness of Ecuadorian products in the United States, which face high tariffs. It also limits the ability of Ecuadorian industry to scale up production and job creation.

The U.S. Congress is considering a bill that could have an almost immediate positive economic impact on Ecuador. The Innovation and Development in Ecuador (IDEA) Act would help eliminate U.S. tariffs for 99 percent of Ecuadorian export products. Ecuador’s tuna and broccoli industries would be the main beneficiaries of the program. Both sectors employ many women and Indigenous people and are located in territories that are often subject to heightened levels of violence and influence from criminal organizations. Creating formal employment opportunities and attracting investment in these areas would be a game changer for Ecuador in its fight against organized crime.

Ecuador’s government must also act. It should put politics aside and work to create a comprehensive economic program to address the fiscal crisis. Narrowing fuel subsidies to those citizens who need them and improving the efficiency of state institutions will all help in the short term. However, without support from the Ecuadorian legislature to create a long-term economic plan that helps address structural problems in the country’s deficit, multilateral institutions such as the International Monetary Fund and World Bank are unlikely to provide Ecuador with the resources that it needs to thrive. If left unresolved, Ecuador’s economic situation could lead the country into a deeper chasm.

Ecuador’s path forward requires economic and security support to be linked. There is no sign that the internal armed conflict will end anytime soon, and the country remains in dire economic straits. The two issues must be addressed together. International aid packages that realize this may be Ecuador’s only hope.

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Source link : https://foreignpolicy.com/2024/02/29/ecuador-noboa-crime-drug-gang-economics-us-internal-armed-conflict/ Author : Publish date : 2024-02-29 03:00:00 Copyright for syndicated content belongs to the linked Source .

Ecuador’s Conflict Against Drug Gangs Is Taking a Blow to the Economy

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