Ecuador’s Government Crisis, Explained

(Bloomberg, Matthew Bristow and Stephan Kueffner, 8.Oct.2019) — Ecuador’s government abandoned the capital city, Quito, as demonstrators sabotaged oil installations and ransacked government offices and businesses over rising fuel costs.

As violent unrest spread, President Lenin Moreno accused supporters of his predecessor, Rafael Correa, of trying to overthrow his government. Correa denied any involvement but his supporters have been critical of Moreno since his former protege unexpectedly steered the country of 16.5 million people to the right after taking office in 2017.

1. Who is protesting, and over what?

Truckers and taxi drivers began to block highways around the country after the government ended subsidies on gasoline and diesel on Oct. 3. They were joined by indigenous groups, students and other opponents of the government, including supporters of Correa. Protesters in Quito damaged Ecuador’s congressional building and violently entered the comptroller general’s office across the street. Rioters also attacked an oil production facility, a major dairy and dozens of rose plantations. They burned police and military vehicles as security forces struggled to contain the violence and the government declared a state of emergency.

2. Why are fuel subsidies such a big issue?

They cost the government about $1.4 billion per year — about 5% of the budget — and Moreno needs to improve public finances under an agreement with the International Monetary Fund. The IMF and bond ratings agencies welcomed the move, but Moreno’s opponents say the poor can’t afford higher fuel costs or bus fares. They also say that the price hikes are unjustified at a time when oil prices have been flat. The subsidies had been in place since the mid 1970’s. Fuel price rises have a long history of provoking unrest not just in Latin America but around the globe — a gas tax increased sparked the Yellow Vest movement in France.

3. What’s gone wrong with the economy?

Like many of its Latin American neighbors, Ecuador is vulnerable to swings in global commodity prices. The country, which just announce that it will leave the Organization of Petroleum Exporting Countries, was badly hit by the 2014-15 drop in crude prices, and was in recession in 2016. Moreno also blames what he calls Correa’s spendthrift ways. The former president mixed populist largesse with propaganda and repression, raising public sector salaries and embarking on a string of ill-considered public work projects that drove the national debt load above the legal limit of 40% of gross domestic product. The $10.2 billion in loans Moreno has secured from the IMF, the World Bank and the Inter-American Development Bank were meant to soften the blow as he cut spending.

4. What do the protests say about Moreno?

His popularity, which peaked at 77% in August 2017, according to pollster Cedatos, had fallen to 22% by July of this year, largely because of a sense that he hasn’t worked fast enough to get the economy on track. His crackdown on fuel subsidies helped solidify his backing among the business elite as well as the middle class but stoked anger among indigenous groups, poorer Ecuadorians and transport organizations.

5. What’s Correa’s role in the protests?

None, he says, and Moreno hasn’t provided any evidence to back his accusations, although Foreign Minister Jose Valencia said the government has intelligence on a conspiracy to infiltrate the demonstrations. Correa denies attempting to organize a coup and called for elections now rather than when Moreno’s term ends in 2021. The two have been at odds since Moreno took office. Many assumed he’d continue along Correa’s socialist, pro-Venezuela path. Instead, Moreno dramatically broke with his mentor, patched up relations with the U.S. and fell out with the Maduro regime in Venezuela. Correa, who held office from 2007 to 2017, now lives in Belgium as he fights charges that he had a political opponent kidnapped.

6. Why did the government flee the capital?

Quito, in a mountain valley 2,800 meters above sea level, is vulnerable to a shutdown if protesters cut relatively few access roads. Flights have been canceled as roads to the airport were blocked. The government said that the unprecedented step of temporarily moving the capital to the coastal city of Guayaquil will help de-escalate the conflict.

7. What’s been the economic impact?

Petroamazonas estimated losses of 165,000 barrels a day after staff, for safety reasons, halted operations at three oil blocks following protests. That’s about a quarter of Ecuador’s total output. Bondholders also dumped the nation’s debt amid investor fears that public finances will deteriorate if the government caves in and reinstates the fuel subsidies.

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