Ecuador Frees Up Fuel Prices, Unrest Erupts

(Argus, 3.Oct.2019) — Unrest has broken out in Ecuador ahead of the lifting of motor fuel subsidies tomorrow.

The government declared a state of emergency today to try to quell the unrest.

In a national address late yesterday, President Lenin Moreno announced a decree to remove the subsidies from diesel and gasoline that he said cost the state $1.3bn/yr. The scrapping of the fuel subsidies, long seen as drag on the dollarized oil-based economy, is part of a package of economic reforms unveiled by Moreno.

Wholesale motor prices will now be set monthly by oil regulator Arch based on weighted average costs plus costs for transport, storage and marketing by state-owned PetroEcuador plus any applicable taxes, according to Decree 883 issued overnight.

To calculate the cost of national production, the crude price will be based on the weighted average cost of crude exported in the previous month, the decree states.

The measure applies to diesel premium and diesel 2, extra and super gasoline grades, extra gasoline with ethanol for vehicle transportation.

“On the continent the only country that has this (fuel) subsidy is Venezuela! It is not the best example to follow,” Moreno said. “And as you know, this subsidy has benefited for decades mainly those who do not need it and that live off of contraband. These resources should be invested in health, education, housing, social security for all Ecuadoreans.”

The number of low-income Ecuadorean families entitled to monthly support of $15 to offset the increases will be rise by 300,000 to 1.3mn, he said in a national address late yesterday.

Moreno pledged that a 12pc value-added tax will not go up, and import tariffs on industrial equipment and industrial and agricultural raw materials will be cut or eliminated to try to revive the economy.

Taxes on banana production, technology imports and vehicles used for business, among others, will also be reduced, he said. To spur exports, Moreno announced streamlined tax rebates and other stimulus measures.

He reiterated the government’s belt-tightening steps to date, including the elimination of 20 ministries and the layoff of some 23,000 state employees. High-level salaries were cut by 20pc and 170 cabinet advisers were laid off.

Earlier this week the government announced that Ecuador will withdraw from Opec as of 1 January.


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