Elimination of gasoline subsidies tightens Ecuadorians’ belts even more, why is Daniel Noboa taking the risk?

Although it will not be the final price, and although the price will not be liberalized, From then on, on the 12th of each month, the price will be reviewed using a band scheme to level the value in reference to the international price of oil.which would cause a monthly fluctuation of between minus 10 percent and a maximum ceiling of five percent.

If abrupt increases arise due to the international situation, to “protect users” the State will cover the differential over the established maximum of five percent.

A risky move for Daniel Noboa, a politician seeking re-election

The measure is bold and risky for a president who, despite having a 53 percent approval rating, according to the firm Click Report, has already begun to feel the effects of popular reactions. for the increase from 12 to 15 percent in the Value Added Tax in force since last April, as an urgent measure to confront organized crime that engulfs Ecuador in a wave of violence and insecurity.

The Noboa Government has acted intelligently to set a single price at all gas stations and, before taking the measure, negotiated compensation with taxi drivers.

This will be done despite the fact that in the past attempts to increase or target fuel prices have provoked strong social unrest. which destabilized governments and forced the leaders in power to backtrack on their decisions.

“The measure is positive and necessary,” says economic analyst Alberto Acosta Burneo.In the country it has been very complex to establish a targeting of subsidies or a price band. Previous governments have backtracked on their decisions and they froze fuel prices. The Noboa Government has acted intelligently to set a single price at all gas stations and, prior to taking the measure, negotiated compensation with taxi drivers,” he told EL TIEMPO.

From now on, and to avoid an increase in rates, The Government will compensate monthly with the value of the increase in the subsidy corresponding to 156 gallons for taxis, 90 gallons for tricycles and motorcycle taxis and 145 gallons for mixed transportAccording to official calculations, it is estimated that around 84,000 transporters will benefit from the compensation.

Eliminate the gasoline subsidy, the straw that can inflame tempers in Ecuador

“If the economic and social shock of the elimination of the gasoline subsidy is added to the problems of insecurity and violence, the increase in VAT and the electricity that is turned on and off, “Eliminating the gasoline subsidy could be the spark that ignites the spirits of Ecuadorians,” warns economics researcher and professor at the National Polytechnic School, Yasmín Salazar, in her opinion column.

It is said that more than 85 percent of the subsidies go to where they are not needed, between smuggling and the people with more resources.

And Miguel Molina, president of the National Federation of Public Passenger Transport (Fenacotip), agrees with that. “They are governing with their backs to the people to comply with the demands of a multilateral. Raising the price of fuel and the price of diesel in the future can cause a social outbreak,” he warns in dialogue with this medium.

But Noboa must do so to fulfill the commitments he made last May with the International Monetary Fund. to receive a credit of four billion dollars, of which it already received one billion on June 4. Compliance with the agreements will be reviewed on November 15, prior to a new disbursement of 500 million that the IMF must make in January 2025, for which it must already have a tax reform ready to reduce expenses and expand the taxpayer base.

This way, Noboa partially puts an end to 50 years of fuel subsidies that cost the State around 3 billion dollars. Most of it goes to diesel and liquefied petroleum gas, LPG. The subsidy for Extra and Ecopaís gasoline, 84 octane, meant the State around 644 million dollars in 2023, according to official figures.

In December 2018, the price of Super Premium 95 octane gasoline, the least consumed in the country, was already released and is adjusted monthly according to the international price of oil. It is currently trading at $4.11 per gallon.

“For years, gasoline subsidies have been provided without any positive impact; On the contrary, billions of dollars were wasted sponsoring smuggling and criminal activities, since the subsidized fuel is also used in boats that take drugs out of the country,” the government defends.

The Minister of Economy, Juan Carlos Vega, says that it is an “inequitable and distorted” subsidy, Well, according to their figures, “53 percent of these subsidies, some 330 million dollars, benefit the population that earns more than 1,800 dollars per month.”

The Chambers of Production support the measure as the first correct step to dismantle gasoline subsidies. “The Ecuadorian economy needs to be honest and become productive,” says the president of the Guayaquil Chamber of Commerce, Miguel Ángel González.

“Decisions have to be made, even if they are hard. It is said that more than 85 percent of subsidies go where they are not needed, between contraband and the people with the most resources. So, if we want to put the fiscal coffers in order, if we want to reduce the fiscal deficit, if we want to manage things in the right way, eliminating subsidies is essential in a country that does not have the necessary resources for all its expenses,” he highlighted. .

Ana Lucía Román – EL TIEMPO Correspondent – ​​Quito