A Diagnostic on Corruption in Ecuador: The Way Forward

Ecuador is fast approaching the end of the President Lenin Moreno’s administration. The general elections, scheduled for February 2021, come while the country reels from overlapping crises. Moreno came into office with admittedly outsized reformist hopes, particularly to end the political instability and dispel the perceptions of pervasive government corruption under his predecessor, populist Rafael Correa, under whom he had served as vice president.

Moreno broke with Correa and made some progress toward less-polarized governance and achieved more positive international relations for the country—mainly by ending its participation in the Bolivarian movement started by Venezuela’s Hugo Chávez. But Moreno now is struggling with the coronavirus pandemic, the related GDP and employment collapse, and a plummeting approval rating, down from 77 percent when he took office to 8 percent in August.

Nevertheless, there were modest steps forward on the corruption front, including corruption cases against high officials and against Correa himself (resulting in an eight-year sentence for campaign financing corruption ratified by the Supreme Court in September, thus blocking Correa’s plan to run for the vice presidency). Moreno started out by naming a respected international corruption commission with the blessing of both the United Nations Office on Drugs and Crime and Organization of American States (OAS), but with no support in the National Congress, he essentially let it lapse.

In the most recent 2019 Transparency International Corruption Perceptions Index, Ecuador received its best score since being included in the index, 38 out of 100 points, but still ranked 18th out of 30 countries in the region. These data, civil society research reports (64 percent of the population recently surveyed believed that more than half of the country’s politicians are corrupt, up 8 percent from 2016), and a series of criminal investigations of officials involved in fraud underscored the need for greater efforts in preventing and punishing corruption.

With that perspective, the CSIS Americas Program joined the Pan American Development Foundation (PADF) and Fundación Ciudadanía y Desarrollo (FCD), which has just been accredited as Ecuador’s local chapter of Transparency International, to spotlight the existing dynamic of corruption, examine vulnerabilities, and suggest reforms. Similar diagnostics were conducted in 2018-19 by the CSIS Americas Program with local civil society in the Northern Triangle countries of El Salvador, Guatemala, and Honduras. The hope is that the detailed review and recommendations in the Ecuador diagnostic can be debated during the current political campaigns, be useful to incoming administration and the Congress after the February 2021 elections, and offer avenues for both South-South and international financial and technical cooperation.

The diagnostic concentrated on five critical areas of governance:

  1. Transparency in political campaign financing;
  2. Fiscal and budget transparency;
  3. Transparency in public procurement;
  4. Civil service reform and public administration; and
  5. The fight against corruption and impunity and for judicial independence.

Each chapter includes sections covering the status, the existing legal framework, pending and desirable actions, and reforms and possible strategies, and the relevant actors to carry out those strategies.

Some may ask whether, given the threat from the Covid-19 pandemic and its economic consequences, how much attention should be placed on rooting out corruption. In fact, it is now more urgent than ever. Recent raids and investigations by the attorney general's office into dozens of cases of questionable purchases related to overpricing of masks, gloves, medical equipment, and even body bags show the danger of corruption in emergency purchases. Diversion of funds or fraudulent state contracts produce unacceptable and criminal consequences, not only in misuse of funds but in unnecessary deaths.

Among the main conclusions stemming from the diagnostic was the importance of the active participation of civil society. In each thematic area studied, the roles of civil society and an independent press are key in identifying the dangers of corruption, necessary political and institutional reforms, and in monitoring the authorities to comply with their obligation to implement the laws, adopt the policies, and run programs honestly for the common good.

First with respect to transparency in party and campaign financing, the diagnostic showed the same results found in other country studies: campaign or party financing is often the “quid pro quo” to obtain covert benefits—from being allowed to evade taxes, obtain overpriced or inappropriate state contracts, or avoid judicial investigation.

While the study found that recent reforms to the Democracy Code, which will enter into full implementation by the 2021 general elections, would improve transparency and accountability, including a ban on campaign financing by corporations, it also noted institutional weakness of the National Electoral Council (CNE) due to the lack of sufficient economic and human resources. In addition, there have been virtually no sanctions in the past against political parties and candidates for contravening electoral regulations. That may be changing with several parties losing their standing in the upcoming elections for failure to comply with the new norms.

The diagnostic focused on steps to meet the basic goal of letting citizens know who is financing which parties and candidates, how much they are receiving, and how the recipients spent what they received. For that, the report urges that parties and candidates be required to publish all of the details on their website and that the CNE also publish the information on its website in a timely manner—ideally before the election.

Coordination of auditing and oversight by the CNE, comptroller general, Finance Ministry, and Internal Revenue Service, and linked to the attorney general’s office, also can and should be strengthened.

The second thematic area was fiscal and budgetary transparency. While the Covid-19 pandemic has complicated Ecuador’s macroeconomic and fiscal condition enormously, even earlier, the report had recommended regulatory reform and Ecuador’s incorporation into the Global Initiative for Fiscal Reform (GIFT). Now the drop in economic output, lower revenues, and far greater health and social demands underscore the fiscal crisis facing the country.

The report also cites the Economic Commission for Latin America and the Caribbean’s (ECLAC) “Fiscal Panorama of Latin America and the Caribbean 2019,” which estimated that Ecuador loses close to $4 billion annually due to tax evasion. Last week, ECLAC's executive secretary Alicia Bárcena, in a presentation at the OAS, declared that tax evasion in the region reaches 6.1 percent of GDP, yet investment in health is just 2.3 percent of GDP. The impact in terms of lives lost from this poor fit is obvious.

With the economic crisis and its impact on workers, the diagnostic also clearly concluded that there is a need to expand the coverage of the social security system within a comprehensive reform that encompasses its liquidity and protects it from threats of politicization and fraud.

The third area studied was transparency in public procurement. Here, the evidence of fraud in infrastructure contracts reached millions of dollars even considering only those where indictments and convictions occurred. They demonstrated inadequate project planning, technical specifications, abuse of emergency, and post-approval contracts with direct linkage of bribery and inadequate inspection and oversight. Using the average corruption estimates in United Nations Office on Drugs and Crime studies, fraudulent contracts in 2019 alone because of overpricing, kickbacks, failure to perform could translate into losses of between $600 million and $1.5 billion. The diagnostic pointed to key reforms, beyond those which would result from Ecuador’s joining the Open Contracting Partnership and Transparency in Infrastructure. They include further significant strengthening of efficiency, transparency, accountability, and control nationally but also at decentralized levels of government, which in 2019 represented 37 percent of public contracting.

Specific measures needed include:

  • Comprehensive regulatory reform of the National Public Procurement System in accord with international transparent, competitive standards;

  • Institutional strengthening through technological innovation, greater support and protection for whistleblowers, and adopting and implementing the kind of web-based dashboards that Colombia and Chile use to assure greater transparency, higher quality, and lower costs; and

  • Online public access to contract information, more effective internal oversight mechanisms, and closer auditing by the comptroller general.

The fourth area of study focused on transparency in civil service reform and public administration. Despite the existence of adequate norms in the Constitution and the organic law related to the management of the civil service, the report found gaps. For example, it is unclear if anyone knows the total number of public officials at the different levels of government. Perhaps, the biggest problems are related to the processes of naming high government officials, where the study concluded that making public the requirements for those positions and adopting a more open competition process could reduce the current subjectivity.

Two priority measures were identified. First, an amendment to the Law on Asset Declarations to incorporate OAS standards and require that all the information contained in the declarations be public, with the limited exception of personal data.

The second would be the approval of the Organic Law for the Prevention of Conflicts of Interest to ensure effective control of lobbying, maintain registries to avoid conflicts of interest, and regulate the figure of “revolving doors” with full access for civil society monitoring.

The fifth and final chapter addresses the fight against corruption, the fight against impunity, and judicial independence with special emphasis on the justice sector, including courts, law enforcement, prosecutors, an activist civil society, and investigative journalism. All play fundamental roles in the fight against corruption but also in guaranteeing citizens' rights. The analysis cited some transcendental actions, including criminal proceedings in corruption cases against high officials from various administrations, and even former presidents.

The study recommended updating the regulations on transparency and access to public information in line with new standards and technologies; the evaluation, redesign, and implementation of public policies on transparency; judicial independence; and the prevention of corruption and the fight against impunity. Some specific reforms include:

  • Updating the Organic Law of Transparency and Access to Public Information to include OAS-approved standards contained in the Model Inter-American Law for Access to Information, such as the anonymity of the applicant, the digitization of access, the use of open data, the independence of the guarantor entity, and effective judicial recourse;

  • Strengthening oversight to prevent conflicts of interest in the justice system, ensuring access for competent authorities to bank records in corruption investigations, and approving legislation to recover stolen funds and assets;

  • Incorporating international standards for the prevention of money laundering, forensic and technological methods to prevent and investigate acts of corruption, and legal measures to penalize individual or corporate interference in the suppression of whistleblowers or witnesses; and

  • Modifying the Organic Code of the Judicial Function to eliminate discretionary elements and incorporate international standards on disciplinary processes covering judges and other justice sector officials.

The diagnostic report was conducted by the Fundación Ciudadanía y Desarrollo (FCD) with the support of the Pan American Development Foundation (PADF) and Mark L. Schneider, CSIS senior adviser, and complements previous work done by the CSIS Americas Program on anti-corruption.

The full report is available, in Spanish only, here. An English language executive summary is available here.

Mark L. Schneider is a senior adviser (non-resident) with the Americas Program and the Human Rights Initiative at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Mark L. Schneider
Senior Adviser (Non-resident), Americas Program and Human Rights Initiative