An agreement reached between the Ecuadorian government and a powerful indigenous movement brought peace to the country after 18 days of protests. Both sides made concessions, ending a nationwide strike.
Fuel prices were a central issue. In the face of a political deadlock and the impending chaos in the streets, the government of President Guillermo Lasso has promised to cut fuel prices by fifteen cents.
The amount is well below the 50 cents demanded by the CONAIE indigenous movement umbrella. However, along with other commitments, the cuts were enough to end a crisis that was threatening to take unpredictable proportions.
Despite domestic oil production and exports, Ecuador is dependent on oil imports. There is a shortage of refinery production capacities in the country. The largest banana exporter is struggling with high levels of debt and financial dependence on the International Monetary Fund and China.
Under pressure: Ecuador’s president and banker, Guillermo Lasso
How long is the money left for subsidies?
Now that the protests are over, the question is: how is the government going to finance this subsidy? And will it offer a permanent solution to quell Ecuador’s discontent?
“Why did we make this deal?” Asks Ecuadorian Foreign Minister Juan Carlos Holguín in an exclusive interview with DW in Quito. And he gives himself the answer.
“Because representatives of the indigenous movement also understood that we must use taxpayers’ money responsibly. We currently spend over $ 3.3 billion on fuel subsidies. So I think that in this agreement we managed to bring our views closer, but at the same time to start an exchange of views on the targeting of the subsidy. It will be very difficult, but we will do it. “
Leonidas Iza, president of CONAIE and the most prominent leader of the general strike, told DW: “We are not asking for a state to deteriorate. We did not even demand a definitive reduction in fuel prices. reduced so that citizens can breathe, then we can sit down and assess the possibilities for a targeted redesign. “
A powerful opponent: the native leader Leonidas Iza in front of the fans in Quito
Defining criteria for a possible subsidy redesign, scope and timing will determine the government’s agenda for Quito in the coming weeks. According to Esteban Ron, director of the School of Law at the International University of Quito, the reform should consist of two elements: a personal variable for the citizens’ privileged criteria and a strategic variable for the criteria of preferred production sectors (e.g. agriculture, stone and floriculture).
Ron also considers another source of funding: “In the medium term, the government needs to reallocate and finance budget lines.”
“Reach for currency reserves”
Critics fear that falling fuel prices may affect national budgets or the country’s ability to meet commitments to other countries or foreign institutions.
Native leader Leonidas Iza points to one of the main goals set by the IMF in a deal with the government of Ecuador in 2020: to build up foreign exchange reserves of $ 8.5 billion.
“The president needs to understand that he rules for the people of Ecuador, not for the International Monetary Fund (IMF),” he is convinced. “The money to finance this subsidy may come from the foreign exchange reserves.”
Economic expert José Emilio Vásconez also sees it this way: “In my opinion, international reserves or gold bars are wasted money in a post-crown world in need of economic recovery.”
Vásconez rejects other measures, such as cuts in public spending, as this would further undermine an already strained delivery service.
The expert also does not consider an interest rate increase feasible, because loans for investments in Ecuador are already very expensive. For this reason, it is keeping a close eye on the international shocks.
Fear of new unrest
“In the eyes of the IMF, tapping into foreign reserves will come at a price,” says economic expert Vásconez. “The government has to choose in its economic policy decision whether to anger the social sectors of society or the IMF. And I believe the IMF will be more flexible at this stage because it doesn’t want another failed plan in Latin America.
In any case, the government of the Ecuadorian president Lasso has a duty that must be fulfilled, otherwise, as CONAIE has already warned, the indigenous peoples will take to the streets again. The coming days will be crucial for the treasury of Ecuador.
Adapted from Spanish by Gabriel Gonzalez.