Ecuador is bracing itself for more protests after President Lenin Moreno announced a new austerity package including public-sector cuts. Speaking on national television on Tuesday evening, Moreno said that he will seek to improve debt payment terms and slash $1.4 billion from the government’s budget in response to the crash in oil prices and the economic effects of the coronavirus.
“The global coronavirus disease is creating an economic crisis worldwide and has hit Ecuador hard.”
He added that production, exports, tourism “and many other commercial activities” have been damaged by the outbreak.
The collapse of crude prices, due to falling demand as the new coronavirus spreads globally and a price war between major producers Saudi Arabia and Russia, has also upended Moreno’s hopes of closing Ecuador’s gaping fiscal deficit and cutting debt.
Moreno cited the global slump in oil prices as a factor in the country’s economic crisis. Brent crude oil has dropped to less than $36 per barrel, while the government had budgeted for $51 in 2020.
“That means that, every day, we lose a little more than $8 million in revenue,” he said, warning of cumulative losses of $2.9bn in 2020 should the trend continue.
Given the circumstances, Moreno said he will eliminate and merge state agencies and cut spending. The austerity plan includes a budget cut of $1.4 billion, to be achieved in part by shrinking the public sector.
He also plans to seek improved payment terms of bilateral debt to “reschedule and adapt to our new reality,” and to seek more than $2 billion in financing from international financial institutions, without giving further details.
Other proposals include a 5% tax on the value of vehicles worth more than $20,000 and increased income tax withholding for large companies.
The neoliberal measures put Moreno on a collision course with opposition groups once more.
Indigenous protesters led almost two weeks of demonstrations in October after Moreno announced he would eliminate decades-old subsidies on diesel and gasoline following a financing deal with the International Monetary Fund (IMF). Following the protests, he walked back the measure and promised to find other ways to close the fiscal deficit.
Moreno said the IMF continues to support his government after completing a technical visit last month, “regardless of the difficulties we have had.” Ecuador is still waiting for a disbursement of about $348 million from the multilateral lender.
Late on Monday, Moreno named Rene Ortíz, an oil analyst and consultant, as the new Energy and Mines Minister after the previous Minister, José Agusto, resigned because of health problems.
The country, which produces some 540,000 barrels per day of oil, left OPEC earlier this year to free itself up to raise crude output.