The measure would be implemented from July 2024, when the government finishes dialogues with social organizations.

The price of Extra and Ecopaís gasoline will rise by 25 and 30 cents per gallon, respectively, after the elimination of fuel subsidies. This was stated by Juan Carlos Vega, Minister of Economy and Finance, in an interview with Teleamazonas on the morning of June 12th. Vega said the decision has been made and announced, although the government has not issued an official statement.

The announcement on how the scheme for stabilizing gasoline prices would be implemented was planned for Friday, June 14th, but was suspended the same day. According to the Ministry of Economy and Finance, it was postponed because Vega has COVID-19.

That same day, in an interview for the radio program A Primera Hora, the Vice Minister of Finance, Daniel Falconí, said that the announcement was planned but “we have been asked to wait a little longer for all the conversations to arrive in a good way.” The expectation is that the announcement will be soon, he said, with the idea to communicate it in June and start implementing it from July 2024.

In the last few days, officials have given vague statements, and there is still no certainty about how the subsidies will be applied. In the interview on June 12th, Juan Carlos Vega said that they are holding technical meetings with the unions involved “to give people peace of mind.” The meetings, he added, are to explain what the compensation mechanism would be like, how to register to access it, and what the values would be after targeting. The dialogues, according to Vega, are led by the Ministry of Transportation and Public Works and the Ministry of Government.

In a press conference on June 12, 2024, Esteban Torres, Vice Minister of Government, confirmed these dialogues and said that although they are happening quickly, it is not known when they will end. Since June 11th, information has circulated that there would be a compensation system for taxis, moto-taxi tricycles, and registered vans due to the elimination of fuel subsidies. In the interview with Teleamazonas, Vega confirmed that there will be compensation. This economic compensation maintains the subsidy for users of these three means of transportation. In theory, this is to prevent an increase in the price of taxi, tricycle, or van services from affecting low-income people.

According to government estimates, around 85,000 vehicles will receive this compensation. The number of beneficiaries can be expanded depending on the regularization of means of transportation. For Minister Vega, this process is positive because it will lead to more means of transportation being regularized, formalized, and able to access the financial system to receive compensation.

Regarding price fluctuations, they estimate that prices could rise by a maximum of 5% or fall by 10%. With the government’s calculation, Extra would rise from $2.47 to $2.72 per gallon, and Ecopaís would rise from $2.47 to $2.77 per gallon.

With this economic measure, according to Vega, they are addressing the most inequitable subsidy in the country. He presented data showing that 53% of the gasoline subsidy benefits the wealthiest 20% of the population. If in 2023 $644 million were allocated to cover this subsidy, then $341 million went to those wealthier individuals, he said. Those $644 million invested per year are almost double what is spent on malnutrition programs and nearly double what is spent on senior programs, he noted.

In an interview during President Daniel Noboa’s last trip to Europe, in mid-May 2024, he said that they do not plan to touch gas or diesel subsidies because they have a direct relationship with inflation and the cost of living. “We cannot do that at this moment.” But the President said on that occasion that the targeting of subsidies for Extra and Ecopaís fuels should be eliminated gradually, targeting groups that do not need it. “That way you don’t touch the true cost of living,” he added. With the new compensation modality, Vega estimates that between $80-$100 million a year would be spent to cover it. The rest will be invested in more efficient uses, he said. Despite all this explanation, Minister Vega said that they are still very close to making the decision. “The important thing is that everyone has clear information and feels comfortable.”

Compensation that is Not Clear to Beneficiaries

On the website of the Ministry of Transportation and Public Works, there are no further details about the compensation mentioned by Minister Vega. The Ministry has not explained how the compensation will be calculated—monetary according to Vice Minister Esteban Torres—nor how the beneficiaries will receive it.

Carlos Brunis, President of the Pichincha Land Transportation Federation, says they will not participate in the registry proposed by the government because they have not been part of this decision. He said they took that position because they do not know what the benefit will be, for how long, and what the methodology will be for calculating the value that, as they understand, will be deposited into the beneficiary’s bank account. “This must be documented so that it does not fail,” says Brunis.

The representative of the Federation, which brings together 50,000 taxi drivers in Quito, said that they learned about the registration process from a document they received on Friday, June 7, 2024, from the Undersecretary of Transportation of the Ministry of Transportation and Public Works, Fernando Amador. The document in capital letters closes with the message: “You will be able to access the benefit that the National Government will grant to this sector.”

Among the doubts that Brunis mentioned is that they have no guarantees that this compensation will last forever. For this reason, they asked the members of the Federation not to register until there is something more concrete that “generates trust.” According to Brunis, a meeting with the Government may take place in the coming days to resolve doubts and participate in the registration process.

When asked if he would register in the government compensation system, Marco Quishpe, a driver of a taxi cooperative in Quito, said that he has not been notified of this procedure and would ask his union leader. Apparently, the only way some unions have found out about this government plan is through the letter without letterhead and capital letters that they received a few days ago. The registration page (https://registro.mtop.gob.ec/#/login) has a white box with a simple title: Beneficiary Registration. Taxis – tricycles – vans (regulated). Below, there is a space to insert the username, a password, and the option to log in or register. In the lower right corner, there is another option that says, “Check your license plate.”

Reactions to the Possible Elimination of Subsidies

Faced with the possible elimination of the fuel subsidy, the organizations that make up the Popular Front and other unions held—poorly attended—nationwide demonstrations on June 12th, rejecting the economic measures adopted by Daniel Noboa. With just over 40 people, the mobilization in Quito began at four-thirty in the afternoon on June 12th. The idea was to march from the Insurance Fund to the Carondelet Palace.

As they walked, more people joined until they numbered just over a hundred. They carried red flags with the white logo of the Popular Unity political organization, flags with the face of Che Guevara, purple flags from Ecuador, vuvuzelas, and a few posters. “Gas goes up, everything goes up,” said one. There were also people with a cardboard figure of Daniel Noboa, used by the president himself since he was a candidate. On the torso of the figure, they had pasted posters with messages: “The IMF orders, Noboa complies,” “NO to the increase in gasoline prices,” “Raise VAT, raise gasoline and insecurity continues.”

In a slow-moving march, amidst music, whistles, and shouts, more people joined. “Down with neoliberal measures,” the people shouted. They advanced along 10 de Agosto Avenue towards the Historic Center, taking only one lane because the trolleybus and some vehicles were circulating on the other. Near the old Central Bank building, they set fire to the cardboard figure of Noboa. While it was burning, they shouted “Noboa out, out.” The march advanced a few more meters and stopped on Briceño Street, in front of the Ministry of Tourism building. Along the way, people dispersed, and the protest ended at five-thirty in the afternoon.

Nelson Erazo, president of the Popular Front, said during the walk that these marches and sit-ins will generate new mobilizations in the country. He said that with this, they seek to make a call to the indigenous movement, environmentalists, and citizens, so the government must respond.

How Subsidies Work in Ecuador

A subsidy is a financial contribution by a government or public body that grants a benefit on a product. To do this, the government pays a portion of the price so that the user pays less. In Ecuador, gasoline, diesel, and liquefied petroleum gas have been subsidized since 1970. The benefit has not had profound changes until the announcements by Daniel Noboa’s government.

Subsidies can be monetary transfers such as bonuses, or economic compensation—such as the one the Noboa government intends to offer—to target the benefit. They can also be tax incentives, the supply of goods or services, among others. Although the measure sounds positive for consumers’ pockets, the International Monetary Fund (IMF) warns of some risks. For example, the inefficient allocation of resources, greater debt, or that the subsidy does not reach the target population. The government uses money that should be invested in social development projects or public investment.

According to a 2019 IMF study, subsidies must be targeted and temporary. They need to reach a specific sector of the population and do not extend over a long period. In that year, Ecuador’s goal was to save more than $500 million. In addition, the study mentions that in times of high international oil prices, subsidies have greater impacts on the national economy and “represent a greater share of the country’s GDP.” In a globalized market, subsidies are inefficient because their benefits are received by people who are not the target of the benefit. Furthermore, subsidies impact the environment because fossil fuels are responsible for greenhouse gas emissions. “They contribute to climate change,” concludes the study.

In October 2019, former President Lenín Moreno attempted to eliminate the fuel subsidy, resulting in protests that caused more than $800 million in damages and a death toll of eight, according to the Ombudsman’s Office. This measure would have allowed the government to save more than $1.4 billion a year. As a result, the government had to backtrack.

In June 2022, former President Guillermo Lasso also announced the elimination of fuel subsidies. He did not achieve it. The measure was reversed after 18 days of a national strike that left six dead and caused damages of $1 billion. With these announcements, Lasso and Moreno expected that the savings from subsidies would be invested in targeted social spending and productive investments.

Distribution of Subsidies Favors the Wealthy

Only 5% of Ecuador’s $640 million annual subsidy for Extra and Ecopaís gasoline actually reaches the poorest families, those earning less than $266 monthly, amounting to just $32.2 million. This group includes about 4.8 million Ecuadorians living below the poverty line, surviving on less than $98 monthly.

Higher income brackets benefit more significantly from this subsidy: those earning between $266 and $471 per month receive $52 million annually, while those earning between $472 and $688 monthly get $83 million, and the highest earners making $689 to $1,809 per month receive $122 million. The largest share, $341 million annually, goes to those earning over $1,809 monthly.

Similarly, the diesel subsidy, amounting to $1.5 billion in 2024, primarily benefits high-income earners, with 24% of it, totaling $375 million yearly, going to those earning over $1,809 monthly. Low-income earners, on the other hand, receive $150 million annually, which accounts for 10% of the total diesel subsidy.

For domestic gas, which receives $737 million annually in subsidies, low-income earners receive $132 million yearly, constituting 18% of the subsidy, whereas high-income earners making over $1,809 per month receive $160 million annually.

Overall, the distribution of subsidies reveals a stark inequity, with the wealthiest disproportionately benefiting from gasoline, diesel, and domestic gas subsidies in Ecuador.