RIO DE JANEIRO, BRAZIL – The agreement reached between the Ecuadorian Executive and the indigenous leadership brought peace back to the country after 18 days of protests. Both parties made concessions to lift the National Strike, one of which was related to fuel price.
With the political game at a standstill and the streets on the verge of chaos, the Government of President Guillermo Lasso committed to lowering the price by US$0.15.
An amount much lower than the US$0.50 requested by the Confederation of Indigenous Nationalities of Ecuador (CONAIE). However, this, together with other commitments, was enough to seal the agreement that ended a crisis that threatened to take unpredictable dimensions.
Now that the waters have calmed down, the question arises: how will the Executive finance this new subsidy? Where will it get the funds to pay for the billionaire commitment? And, beyond the immediate, will it offer a lasting solution to appease the discontent of Ecuadorians?
BILLIONAIRE SUBSIDY: FOR THOSE MOST IN NEED?
“Why did we reach this agreement?” asks Juan Carlos Holguín, Ecuador’s foreign minister, in an exclusive interview with DW in Quito.
“Because it was also understood, from the indigenous side, that we have to be responsible with the fiscal coffers. Currently, we have more than US$3.3 billion in fuel subsidies. So, I think that, in this agreement, we managed to standardize the dialogue on the arguments for the decrease, but at the same time, think about a process of subsidy targeting. It is very difficult to find a successful process of subsidy targeting, but we are going to achieve it,” Holguín says.
A fundamental coincidence between the parties was precisely the targeting. Government and indigenous leadership agreed on the need to direct the fuel subsidy more efficiently so that the neediest sectors of society are the ones who benefit.
“We are not asking for the State to be embezzled. We have not even asked that the fuel price reduction be definitive. The important thing is to lower the price so that the citizens have some respite. Then we sit down to evaluate the possibilities of a targeting policy,” emphasizes Leonidas Iza, president of CONAIE and the most notable head of the National Strike, in an interview with DW.
It will be one of the key points of the coming weeks. Establishing the criteria that will govern this eventual targeting, its application mechanisms, and timing will be a priority in the Executive’s agenda.
For Esteban Ron, director of the Law School of the International University of Quito, the targeting should have two aspects: the personal variable (citizen quality to be a beneficiary) and the strategic production sector (agricultural, stone, floriculture, for example).
“In Ecuador, there is a pending debt by constitutional mandate, which is the population census. The same can be used to make such sectorizations, which would relieve the government to generate certainty with the beneficiaries,” he suggests.
THE CROSSROADS: TO USE UNPOPULAR MEASURES OR INTERNATIONAL RESERVES
The new subsidy critics claim it will impact the national budget, the State’s capacity to honor its foreign debt commitments, or its agreements with foreign institutions.
Indigenous leader Leonidas Iza, however, considers that “the president must understand that he is governing for the Ecuadorian people, and not for the International Monetary Fund (IMF). The money to finance this subsidy can be taken from international reserves”.
Iza refers to one of the main goals established by the IMF in the 2020 agreement: to reach almost US$8.5 billion in international reserves.
For political economy expert José Emilio Vásconez, that should be the first financing option to be considered by President Lasso’s government: “For those of us who see the economy in a more heterodox way, international reserves or gold bullion are idle money, especially in a post-covenant world that needs recovery”.
Vásconez dismisses other measures, such as reducing public spending, because it would damage the already worn-out services even more. Likewise, he does not believe increasing interest rates is viable since credit for Ecuador investments is already costly. For this reason, he is keeping a close eye on international reserves:
“Using reserves will have a cost in the face of the IMF, but it will not be an unpopular measure. That is where the government, in a political economy decision, will have to choose between agitating the social sectors or agitating the IMF. And I believe that, at this stage, the IMF will be more flexible because it does not want another failed plan in Latin America”.
Professor Esteban Ron also considers another source of financing: “In the medium term, the Government will have to generate movements of budgetary items and stabilize them, taking advantage of the positive oil gap it has, and make this budgetary compensation exercise transparent so that there is social support and in this way, another reaction is not generated”.
In any case, President Lasso’s administration faces a commitment that it is obliged to fulfill; otherwise – CONAIE has already warned – the indigenous people will take to the streets again.
It is such a complicated stumbling block that, at the time of closing this article and a week after signing the agreement that put an end to the protests, the Ministry of Economy and Finance of Ecuador confirmed to DW that meetings are still being held to consolidate the figures to decide which will be the sources of financing for this subsidy. The coming days will be crucial for the State’s coffers.
With information from DW
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