Ecuadorian Economics - A Nation Divided

October 11, 2019

“To ensure citizens’ security and avoid chaos, I have ordered a national state of emergency,” so said the Ecuadorian president, Lenin Moreno, as students and transport sector workers flooded the streets of the capital, Quito, on a national strike last Thursday. The minister of government, María Paula Romo, said at a news conference that at least 350 people had been arrested over two days of unrest, yet disruption and chaos continues.

Ecuadorian history has seen previous protests, founded upon economic turmoil and neoliberal policies, toppling three presidents in the decade before Correa, who came into power in 2007. So what has managed to create this new havoc in a country known for its political instability?

 

It is due to the simple fact President Moreno has set the oil-producing nation on a centrist track after years of socialist rule under his predecessor by introducing controversial measures. The most controversial of all has been the elimination of the petrol subsidies that had been in place since the 1970s. This removal led to a staggering 123% rise in the price of diesel, with similar increases in the price of other fuels. These subsidies are part of Moreno’s plan to support Ecuador’s slowing economy, ease its debt burden and cut public spending as part of a loan deal with the International Monetary Fund (IMF). On Tuesday, Ecuador also announced it was leaving the Organization of the Petroleum Exporting Countries (OPEC) to pump more oil and raise revenues. 

 

Economically, the Ecuadorian government has always struggled with a large foreign debt and fiscal deficit, however recently it reached a three-year, $4.2 billion (£3.4 billion) loan deal with the IMF. As a result, the government had introduced money-saving policies such as removing fuel subsidies, said to cost the government $1.3bn (£1bn) annually.

 

Those living in Ecuador are not accustomed to these new policies, having lived under socialist rule for more than a decade as well as having fuel subsidies for the past 40 years. This unrest that is now occurring throughout the country was, therefore, to be expected, especially given the track record of public reaction to other economic turbulence in Ecuador in previous years.

 

Ecuador's economic debt had grown under Correa, the former President, who previously endorsed Moreno in the 2017 election but has since become a critic of his successor's turn toward more market-friendly economic policies. “These measures increase poverty, but they are also inefficient; they do not generate growth, employment, anything,” Mr Correa argued and he is not wrong.

 

According to the official numbers, the level of structural poverty (which is poverty due to inadequate income) has increased from 23.1% in June 2017 to 25.5% in June 2019. Furthermore, some economists have projected that structural poverty will reach 30% by the end of the year if the new economic measures are enacted. Extreme poverty has also seen a rise from 8.4% to 9.5% during the same time period. These numbers are worrying for the Ecuadorian government who now have an increasing number of problems due to their methods of governance.

 

Moreover, the Gini coefficient (a measure of economic inequality) has increased from 0.462 in June 2017 to 0.478 in June 2019, demonstrating that Moreno’s policies of reducing social spending have principally benefited the rich. 

 

Given Ecuador’s history, the overthrowing of presidents is not unusual; although Moreno’s popularity has sunk to below 30% compared with above 70% after his 2017 election, his political position appears firm given the support from the business elite, military loyalty, and the lack of any strong opposition. However, the thought of overthrowing Moreno is undoubtedly crossing many protesters minds, especially given protestor’s past history. 

 

In a statement on Thursday, Mr Moreno denounced the protests in strong language. “To those who want to impose chaos as a mechanism to achieve something, that time is over,” he said. He added that he was unwilling to reconsider revoking the fuel subsidy: “The measures we have taken together are firm,” he said. “There is no possibility of change.” 

Moreno's unwillingness to compromise has left cities across Ecuador paralyzed and with no end in sight, this can be expected to continue in the near future.

 

 

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