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Ecuador advances in the liberalization of the fuel market one year after the protests

Clashes between security forces and protesters in the wave of protests that shook Ecuador in October 2019.MARTIN BERNETTI / AFP

The Government of Ecuador is today where it wanted to be a year ago in terms of fuel subsidies: on the path of the free market. In October 2019, President Lenín Moreno issued a controversial decree in which he eliminated public aid for gasoline and liberalized prices. The carriers rose up and the indigenous movement took the protests to the limit for 15 days, paralyzing the country and forcing the Executive to move its headquarters from Quito to Guayaquil due to the tension that was breathed in the capital. The mobilizations, which left several dead, ended only when the president backed down. This October 3 marks a year since the escalation and, despite the unpopularity of the measures, the subsidy policy has been gradually fading.

The last step has been taken on the threshold of a new agreement with the International Monetary Fund (IMF). The Ministers of Energy and Finance have signed, together with Lenín Moreno, a new decree that eliminates the monopoly of Petroecuador, the state oil company, in the import of fuels for industrial and commercial use. The door is opened for nine branches of the private sector, such as aeronautics or shipping, to directly buy the gasoline they use “with the aim of generating relief for the fiscal box,” as justified by the Government, without specifying the amount of savings provided.

The public companies that, until now, were in charge of acquiring and distributing the fuel that entered the country exclusively must provide the infrastructure to the new players, according to the presidential order, in exchange for a “reasonable” rate.

The decision is focused on the industrial and commercial sector, but the Government has insisted on clarifying that it should not affect households. “Liquefied gas for family domestic consumption is not touched. Do not touch; still subsidized, still frozen at the same price. The consumer does not have to suffer any impact. And beware the residents, do not be fooled, “said the Minister of Energy, René Ortiz, a day after announcing the release.

The new measure, which rounds off the gradual withdrawal of the state subsidy to the price of gasoline implemented in July, precedes the IMF board session scheduled for this September 30 in which a new credit program to Ecuador for 6,500 million will be formalized of dollars. The previous agreement, dated March 2019, was suspended after the protests in October and the difficulties of the ruling party to get the support of the opposition in completing the legal reforms and adjustments to reduce the fiscal deficit that Ecuador has been dragging since the Administration of Rafael Correa.

With the new conditions, the Andean country will receive 4,000 million dollars this year to deal with the economic crisis derived from the coronavirus, which will help it catch up with the expenses and salaries of backward public officials. The first $ 2 billion will arrive immediately and the other $ 2 billion by the end of the year.

Unlike what happened last October, the liberation of the import of petroleum derivatives has not lightened the spirits of Ecuadorians. They already assumed an increase in the price of fuel for private use in July when, amidst the mobility restrictions imposed by the pandemic, the Government announced that the price of diesel and extra gasoline was being released. They are the two most economical used by trucks, taxis, public transport and by private vehicles. The authorities relied on the low international price of oil and its derivatives, but a system of bands was also established that prevents the price at the gas station from rising – according to the behavior in the international market – more than 5% per month. Super gasoline, which is also for private use, had already been liberalized in December 2018.