Ecuador roiled by protests after fuel subsidies scrapped

Ecuador roiled by protests after fuel subsidies scrapped

04/10 - 17:00 - Gasoline and diesel prices spike after Lenín Moreno’s move to appease IMF

Ecuador has sent armed troops to quell violent protests sparked by the government’s decision to scrap fuel subsidies — a key part of its effort to keep its $4.2bn IMF lending programme on track.

The government has declared a state of emergency after thousands of protesters, angry at a sharp overnight rise in fuel prices, fought with police in Quito and the country’s economic capital Guayaquil, where local media reported sporadic looting of supermarkets.

Taxi drivers and truckers blocked roads and forced a partial shutdown of Quito airport, forcing some flights to reroute.

Police arrested some 300 demonstrators including the president of the Chamber of Transport in the southern city of Cuenca and the head of a transport workers’ union in the surrounding province of Azuay, accusing them of trying to paralyse public services. Students and indigenous rights activists also joined the protests.

President Lenín Moreno said he would not back down and reinstate the subsidies, which cost the state around $1.3bn a year. “We will not give in to blackmail,” he vowed, adding that security forces had “almost totally” brought the protests, now in their second day, under control.

“Listen clearly. I am not going to change the measure. The subsidy is finished,” he told reporters in Guayaquil.

Mr Moreno announced the measure on Tuesday night. From Thursday, the price of gasoline rose by an average of 25 per cent, while diesel prices more than doubled.

The subsidies have been in place since the 1970s, and Ecuadorians have grown accustomed to some of the cheapest fuel in Latin America.

But the IMF says the state’s largesse is worth 1.9 per cent of gross domestic product each year. The Inter-American Development Bank says the subsidies account for 7 per cent of total public spending.

The IMF welcomed Mr Moreno’s move, saying it aimed “to improve the resilience and sustainability of Ecuador’s economy”.

The Fund agreed in March to lend Ecuador $4.2bn as part of an overall $10.2bn plan involving the Latin American development bank CAF ($1.8bn), the World Bank ($1.7bn), the Inter-American Development Bank ($1.7bn) and others.

The implementation of the programme is largely going to plan. But in the light of Argentina’s woes and the near-certainty that Buenos Aires will renegotiate its $57bn IMF bailout package, analysts are monitoring Ecuador’s progress closely. 

Other than Argentina, Ecuador is the only country in South America that has an IMF lending programme in place.

The programme envisages Ecuador’s fiscal deficit, which was worth 0.9 per cent of GDP last year, flipping into surplus next year, while it sees debt falling from 46.1 per cent of gross domestic product in 2018 to 36.6 per cent by 2023.

Perhaps the most audacious target in the IMF package is on foreign reserves, which stand at $5.1bn and have rarely risen above $5bn in the country’s history. The IMF wants Ecuador to take the total to $11.4bn by the end of 2021.

Analysts said the next few days would be crucial for the future of both the programme and the president, although most expected Mr Moreno to weather the storm.

“We think that the protest movement is unlikely to result in the ousting of President Moreno for two reasons,” said Carlos Sousa, lead economist at Oxford Economics. “First, the police and military seem to be on the government’s side. Second, the protests have been mainly by the taxi, bus and truck drivers. Unlike in previous episodes of political instability in Ecuador, they have not drawn large crowds.”

Siobhan Morden, head of Latin America Fixed Income Strategy at Amherst Pierpont Securities, said the president had “no other option than to resist the social pressure”. “If President Moreno backtracks, it could jeopardise the IMF programme,” she said.

Earlier this week, Ecuador announced it will withdraw from Opec next year, freeing itself from the straight-jacket of the oil-producer group’s quotas and in theory allowing it to boost oil production.

In practice, Ecuador has already largely turned its back on Opec. In 2017 it announced it would no longer abide by the cartel’s quota demands, and it has regular exceeded them since then.

 

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