Government backs down on subsidy elimination agreed with IMF, but low social tension, analysts say

With the announcement of “suspension of the monthly increases in fuel prices”, the government of Guillermo Lasso stopped On the other hand, the proposal to focus the fuel subsidy (give the subsidy only to those who need it and that the rest pay the international price) and set a price for everyone. He changed the system of bands that went towards the liberalization of prices by a fixation of the price, although with a significant increase in diesel as a final adjustment.

The decision represents, on the one hand, to breach one of the agreements with the International Monetary Fund (IMF), because the reduction of subsidies was one of the tools to lower the fiscal deficit. However, on the other, it is an option to lower political tension, analysts say.

For Fernando Santos, former Minister of Energy, the measure taken by President Lasso is positive because thanks to it “Win social peace.” The political environment had become complex. Freight and commercial carriers were felt to be very upset with the gradual increase. This could have meant that they actually took action and went out of business. There was also the indigenous sector, which has made the issue of fuels its flag of struggle. Therefore, consider the decision as a balanced measure, which on the one hand ends with the gradual increases, but at the same time, with the last rise, not generating such a large gap in the deficit.

He explained that on the economic issue the subsidy will continue to be maintained, since diesel should be sold at the moment at $ 2.50 a gallon, while the price in Ecuador will be $ 1.90. In other words, the subsidy is 60 cents per gallon and if you consider that the automotive sector consumes 1 billion gallons a year, then that subsidy can still reach $ 600 million. However, Santos believes that the price of crude will stabilize very soon, as the world can no longer support a barrel of $ 80 or $ 90 and could start to decline, which would also lower the subsidy.

Mauricio Pozo, Lenín Moreno’s former Minister of Economy, explains that the measure is contrary to the structural reform that had been proposed in the agreements with the multilaterals: “suspending that reform complicates the relationship,” he says. In addition, it considers that after the decision the Government must find how to arrive at the goals of fiscal balance and the agreed deficit.

According to Pozo, it raises many doubts as to whether this decision had the agreement of the IMF and about the political ability that the government apparently lacks to carry out a series of additional reforms that must be finalized.

Alberto Acosta Burneo, editor of Weekly Analysis, He said that we must not forget that the Government’s decision is not a simple graceful concession, but that it must be compensated with other income. He explained that these subsidies meant 0.9% of GDP. For Acosta Burneo, it is worrying to know that at the peak of its popularity the government has not been able to maintain the gang scheme.

For its part, Oswaldo Erazo, executive director of the Chamber of Petroleum Derivatives Distributors (Camddepe), I consider that several have been the problems that have prevented a targeting of the price is given effectively. He recalled that the price adjustments began in the Moreno government with the rise in super gasoline and then its liberalization. In October 2019 they went towards the measure of shock to finally go to the gang system.

He also regretted that not all the sectors involved, including distributors, have been contacted to establish the true possibilities of implementing artificial intelligence systems or evaluating the real infrastructure that the country has. He also said that there was a lack of confidence in the State, because at one point there was talk of compensation through invoices or a magnetic card that has money loaded, but this did not convince the carriers.

Meanwhile, the workers of the National Association of Workers of Energy and Petroleum Companies (Antep) they rejected the measure. They hold that Currently there is no fuel subsidy, so no increase is justified: “The freeze should have been at the 2019 price,” they argue. They also say that with the measure, now despite the drop in the price of crude oil internationally, fuel prices will not drop. With the new announcement by President Lasso, an increase in the 46% in the case of extra gasoline and eco-country and 90% for diesel since May 2020, they said. (I)