Despite concern for the national debt, both Lasso and Moreno would keep LP gas and gasoline subsidies and ‘poor bonus’

Mar 21, 2017 | 8 comments

Although reducing Ecuador’s growing national debt is a central campaign theme for conservative presidential candidate Guillermo Lasso, he says now is not the time to cut government subsidies for LP gas and gasoline. He also says he will increase, not reduce, the Human Development Bonus (BDH), also called the “poor bonus,” that is paid to the poorest Ecuadorians.

Ecuador has the lowest price for LP gas in the world.

Alianza País candidate Lenin Moreno is in agreement with Lasso on subsidies although he has offered a lower BDH increase than Lasso.

“We will not raise the price of domestic gas cylinders and we will maintain the fixed price for gasoline for the next four years if I am elected,” says Lasso. He also says he will increase the BDH from its current of $50 a month to $150, although he said the increase would be based on a review of individual and family circumstances.

Moreno says his administration would not change the subsidies either and has promised to increase the BDH to $100.

The subsidies for gas, gasoline and the BDH amount to about 3% of the country’s GDP, or about $3 billion annually, according Quito economist Lorenzo Iglesias. “This is a very large part of the budget but the subsidies are very popular and you wouldn’t expect candidates up for election to say they will eliminate them,” he says. “That would be like touching the proverbial third rail.”

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Under the subsidies, a 60-lb. cylinder of LP gas, costs $1.60, not counting delivery costs, or less than 7% of the international market price. A gallon of regular gasoline is $1.48, about half the market rate. According to International Energy Monitor, an organization that tracks energy costs, Ecuador’s rate for gas is the lowest in the world.

“An irony is that two years ago President (Rafael) Correa said the country could not afford the subsidies and announced a phase-out,” says Iglesias. “Not so mysteriously, the plan was never mentioned again in Ecuador although Correa did admit later in an interview with a Belgian newspaper that he would have been ‘lynched’ if he had followed through with the plan.”

The subsidies are costing significantly less than than they did in the past. Because of the drop in fuel prices, the government has saved about three billion dollars since 2014. It has also realized savings in BDH payouts by reducing poverty. It paid $1.2 billion in 2012 and only $421 million in 2016.

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