Ecuador New Austerity Package Risks Renewed Upheaval

On 19 May, Ecuador’s President Lenín Moreno announced a new package of fiscal austerity measures, proposing to reduce public spending by over US$4bn.
Ecuador coronavirus fiscal gap Austerity Package Risks

Analysis:

Previous attempts by the Moreno government to reduce Ecuador’s fiscal deficit have been met with fierce opposition, most notably the widespread protests of October 2019 following a decree eliminating fuel subsidies, subsequently withdrawn. But the issue has not gone away, with the government compelled to make cuts to meet the terms of its 2019 financial support agreement with the International Monetary Fund (IMF). The coronavirus (Covid-19) pandemic has exacerbated the situation, as the resultant economic crisis has ramped up Ecuador’s fiscal gap while simultaneously building public pressure to increase spending, to address the health and economic emergencies. With a state of emergency in place until at least 14 June, the capacity for protests is limited – the government will hope that these conditions will prevent it from being forced to backtrack once again on its fiscal agenda.

  • Energised by the long-awaited passage of two emergency laws through the national assembly (albeit subject to considerable amendment), Moreno outlined a package of measures far exceeding any previous proposals. Savings will include reduced public sector salaries, cutting the working day from eight to six hours; the dissolution of seven state-run companies, ten public ministries, and a number of foreign embassies; and the US$1.3bn saved through debt restructuring agreements, delaying interest repayments until 2021.
  • Fuel subsidy reforms were posed more cautiously, as the proposed new pricing system (based on international markets) will see fuel prices drop initially, given the low cost of oil at present - but the reduced subsidies will provide only limited protection once prices start to rise again. Energy Minister René Ortiz declared “the end of the state monopoly” on fuel provision.
  • Moreno also announced plans to increase emergency spending in certain sectors, financed primarily by the US$1.4bn in credit secured from various multilateral organisations, as well as through savings elsewhere. This will include US$750m to reinforce health and social protection provisions, and a US$1bn economic reactivation programme, most notably promising to provide loans for micro, small, and medium-sized enterprises.
  • These announcements were not well-received by the civil society groups that led October’s protests. Mesías Tatamuez, president of the umbrella trade union movement Frente Unitario de Trabajadores (FUT), condemned the “handover of power and concessions to the private sector”, “sealing the alliance between government, businesses, and the IMF”. Salvador Quishpe, of the indigenous organisation Confederación de Nacionalidades Indígenas de Ecuador (Conaie), claimed that “the people are mobilising, and could return to the actions of October at any time”.
  • The FUT and Conaie relaunched protests on 18 May in response to the recent emergency laws, objecting most significantly to the proposal to allow employers to renegotiate workers’ salaries under emergency conditions, a measure the FUT says will be exploited. There was also continued criticism of the government’s prioritisation of fiscal responsibility and debt servicing over emergency spending.

Looking Ahead:

Protests are scheduled to continue all week – the key to their success will be whether quarantine restrictions limit participation, after the government extended the state of emergency for another 30 days from 15 May.

In brief: AT&T closes Venezuela’s main television service

* US telecommunications company AT&T has closed its DirecTV television service in Venezuela, the most popular in the country. A statement by the company cited the “impossibility” of “complying with the legal requirements of both countries”, noting Venezuela’s requirement that DirecTV broadcast news channel Globovisión and the channel of state-owned oil company Pdvsa, and the US government’s prohibition of the transmission of either channel. Diosdado Cabello, the vice president of Venezuela's ruling Partido Socialista Unido de Venezuela (PSUV), condemned this as an attempt at “censorship”, and called on Venezuelans to watch broadcasts on YouTube instead.

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