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Moreno missed the signals for the indigenous revolt and now has no escape route

Indigenous celebrate their victory over Moreno in Quito.

By Mac Margolis

Ecuador’s President Lenin Moreno knows something about indigenous politics. Before rising to the top office in 2017, he served two terms as vice president to Rafael Correa, the disruptive caudillo who tapped the frustrations of excluded indigenous communities to fuel his “Citizens Revolution” before they turned against him. Before that, Moreno saw two other presidents fall, in 1997 and 2000, after they clashed with the powerful Confederation of Indigenous Nationalities of Ecuador (Conaie).

Now Moreno is the target of native wrath. How the usually astute leader failed to foresee the conflagration caused by his Oct. 1 announcement of cuts to fuel subsidies and other austerity measures is a mystery. So are his plans to escape it.

After 11 days of marches, vandalism, looting and clashes with security forces, indigenous-led crowds chased Moreno from the capital Quito to the coastal city of Guayaquil and back again. After appealing for a national dialogue, Moreno on Sunday announced a truce and promised to scrap the offending fuel decree for another negotiated measure. Indigenous leaders in turn agreed to call off their general strike, but tensions still smolder.

Moreno was right to order the dismantling of fuel subsidies. Ecuador’s economy is slowing, unemployment is ticking upward and consumer confidence is low. Bankrolling cheap fuel costs Ecuador $1.4 billion a year, distorts prices across the economy, encourages waste and helps the wrong people.

President Lenin Moreno during negotiations with Conaie.

An Andean-sized sierra of policy papers shows that garnishing taxes to keep fuel cheap may please the people, but doing so disproportionately benefits the wealthier classes. The International Monetary Fund found in a study of several developing countries that just 7% of the benefits from fossil fuel subsidies found their way to the poorest 20%.

Nonetheless energy populism is a classic sleight of hand by crowd-trolling Latin American demagogues and authoritarians: Ecuador’s fuel subsidies date to the days of military rule. Although low-income earners may get relatively paltry benefits, they come to see cheap fuel as a modest compensation for their misfortune. That makes removing subsidies politically hazardous.

It’s even worse if the national leaders do so at the behest of foreign bean-counters like the IMF, with whom the Moreno government signed a $4.2 billion Extended Fund Facility Arrangement early this year. The fund, typically, prescribed broad austerity measures, including a tax reform and changes to the rigid labor code, which discourages hiring, plus an overhaul of the money-hemorrhaging pension system.

Correcting those distortions would go a long way to restoring Ecuador’s fiscal health after years of checkbook profligacy. Buoyed by climbing oil prices, Correa lavished money on public works and payroll, driving public debt from around 29% of gross domestic product in 2006 to more than 40% in 2017. He further undermined government accounts by loading up on foreign debt through oil-backed loans, relying on China as Western lenders wary of Ecuador’s legacy of defaults kept their distance. Moreno inherited those debts just as oil prices slumped, then added some of his own.

Yet the sudden end to fuel perks triggered an insurrection. You wouldn’t have guessed that from the wonks in Washington. In its July report, the IMF argued that scrapping subsidies would have “a relatively small impact” on the poor and that the savings (0.5% of  gross domestic product this year) would “create additional space for compensation.” Moreno apparently was counting on just such a trade-off, and offered a $15 monthly family benefit and a government housing plan for the 5 million poorest Ecuadorans.

Monica de Bolle, of the Peterson Institute for International Economics, says that call gets the policy priority exactly backwards. “If you are going to scrap energy subsidies, you create compensations first. Then you transition out of the subsidy,” she told me. “Otherwise you impose an immediate burden on the lowest earners, because fuel prices are inelastic and prices will go up by the amount of the subsidy.” Ecuador’s gasoline prices rose 25% last week while diesel better than doubled.

A recent Inter-American Development Bank study had flagged the danger, noting that many countries have tried and failed to remove fuel subsidies. The reason: “even if economically inefficient, subsidies are a visible and effective means to transfer some income to poor and vulnerable households.”

And yet the harsh measure announced by decree was vintage Moreno — a mostly mild-mannered politician nonetheless given to centralizing decision making and then springing fait accompli on a wary public. Recall that in April, Moreno abruptly ordered Wikileaks impresario Julian Assange to vacate the London embassy where he’d taken refuge seven years before. That, too, was the right decision: Assange had become the guest from hell. But the move made the Andean nation a target of nasty street protests and still rankles some citizen groups.

Likewise, the decree ending fuel subsidies came “suddenly, with no public discussion and little apparent preparation,” noted Andres Mejia Acosta, a political scientist and scholar of Latin American politics at Kings College London. “Moreno has a knack for latching onto ideas and then letting off a bombshell.”

Moreno’s tempestuousness doubtless delighted his opponents. No one perhaps more than Correa, whom Moreno accused of ventilating discontent to force him to resign or call early elections. Although Correa is ineligible to run again for president, he cheerfully offered his services for any other posts.

Yet Correa’s clout is limited. He left Ecuador for Belgium under a legal cloud and has since seen former aides and associates targeted by police or, like his former vice president, jailed for corruption. Even if Correa returns to politics, his abrasive legacy alienated allies and left a fractured opposition.

For all his impolitic ways, Moreno is working on fixing problems he didn’t create. His spendthrift predecessor burned through the bounty of the commodities boom and called it a revolution. Moreno got stuck with the check and the riddle of how to break promises no one could keep. Restoring subsidies Ecuador can’t afford won’t solve the problem. Angry Ecuadorans must decide whether he deserves a chance to finish the job or, like three presidents press-ganged from office in the last three decades, be shown the door.
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Credit: Bloomberg, www.bloomberg.com

36 thoughts on “Moreno missed the signals for the indigenous revolt and now has no escape route

  1. I’m glad someone sticks up for President Moreno. He is doing the best he can and yet made mistakes that angered the people. He is a good man and I fear who the next one will be.

    1. Mistake? No offense, Maggie, but Moreno didn’t forget to send his mother a birthday card. He pulled the rug out from under an impoverished nation, without the competence to understand the obvious consequences. A true leader doesn’t even come close to making that kind of “mistake”.

      1. Who’s a true leader Acbig1? Can you please explain?
        Perhaps in your experience, Trump is a great man:))

        1. You guys just can’t help yourselves, can you? What does Trump have anything to do with any of this?is Trump a great man? No one says he is….but on the other hand…name a high ranking U.S. politician (in our lifetimes) that is / was. In terms of options, did you watch the Clown Show called “The Democratic National Debates tonight?

        2. I accept your challenge. I have listed only a few of the 200+ accomplishments of President Trump since only March of 2019. THEY ARE FACTS, which liberals don’t want to read or hear about. What is a true leader? Read below and make your own decision:
          • More than 5 million jobs have been created since President Trump’s election and the unemployment rate remains below 4 percent.
          • This is the eighth time this year that the unemployment rate has been below 4 percent.
          • Prior to this year, the unemployment rate had fallen below 4 percent only five times since 1970.
          • The unemployment rate for African Americans in May fell to 5.9 percent, which is the lowest rate on record.
          • Asian and Hispanic-American unemployment rates have reached record lows this year.
          • Since the election, 4.6 million Americans have been lifted off of food stamps.
          • Consumer confidence has soared under President Trump, recently reaching an 18-year high.
          • The women’s unemployment rate recently reached its lowest rate in 65 years.
          • The Administration helped launch the Women Entrepreneurs Finance Initiative, which could leverage more than $1 billion to support women entrepreneurs.
          • President Trump is holding China accountable for its unfair trade practices, such as the theft of intellectual property, by imposing tariffs on $250 billion in Chinese goods.
          • In 2017, the United States became a net natural gas exporter for the first time in 60 years.
          • America is the largest crude oil producer in the world and production has hit a record high.
          • President Trump signed “Right to Try” legislation to expand access to experimental treatments for terminally ill patients.
          • The President helped secure a record $6 billion in funding to fight the opioid epidemic.
          • ISIS’ territorial caliphate has been defeated and President Trump has announced that he is bringing America’s troops in Syria home.
          • President Trump secured a record $73.1 billion in funding for the Department of Veterans Affairs (VA) to provide quality medical care for our veterans.
          PRODUCTIVITY IS DEFINED BY FACTS. LEADERSHIP IS DEFINED BY HIS/HER PRODUCTIVITY, OR LACK OF.
          https://710wor.iheart.com/featured/mark-simone/content/2019-03-09-the-list-of-president-trumps-accomplishments-so-far/

          1. You´re counting unemployment multiple times (he inherited that economy from Obama) and you can’t seriously be saying that the president is responsible for the fracking boom.

            And serious, you probably shouldn’t be so quick to announce victory in Syria in light of this week’s events.

            Incidentally, has he fulfilled any of his campaign promises?

            You copy/pasted that from a fan site, didn’t you?

          2. Actually, Jason, Acbig has swallowed all the nonsense all US governments want them to swallow.
            1. US employment figures are massaged. Both Reps and Dems add part time jobs and contract work..none of which entail any benefits to those that possess them. They do nt count the millions who have left the work force after too long looking for worthwhile employment without sense. These people reduce the “unemployed” on paper, but the reality of it is horrible. Additionally, NO LEADER has an effect on the main street economy in less than 2 years. What we have seen so far is the result of Obama measures, not Trump’s.

            2. The reality is that American wages, in real terms, have risen on 2-3% since the 1980s. And this is in a period when medical care and drugs have gone up 80%+, housing 50%+, food, transport,

            3. Life expectancy has stagnated and/or begun dropping, especially in Acbig’s demographic.

            4. Income inequality has reached levels not seen since the days of the robber barons in the late 1800s and is still falling further.

            But rather than continue a detailed rebuttal..one merely should compare America on the lists of objectively sourced examinations and world comparisons. The drop of the USA by any measure is shocking.

            The fault for this is the systems adopted by that nation have failed and continue to do so at an accelerating rate. America is not alone in this, but has fallen more than any other and has become a rogue nation risk for the entire planet.

            The cause, not only for America but for the entire world, is the tiny minority of Acbig types. They are mob cult.

            1. Yea Globie, it’s all a big lie. The only problem with your assessment is that even the Demo-dummies don’t challenge the number and facts. FACTS! Something liberals don’t want to debate. It’s easier to just retreat and criticize. Wake up, Globie. You can’t live the dream forever.
              TRUMP 2020

    2. ” he’s a good man “, are you serious about that? Don’t you see, He’s Wagging the dog…and you my friend, are part of that game.
      Please, wake up and smell the coffee:)

    3. How exactly is he good? He lies every time he’s on television. He broke every single one of his campaign promises. He jails his political opponents without cause and shuts down media outlets that criticize his policies.

  2. Wiping out the subsidies in one fell swoop was a big problem. Had he done it gradually, like a couple of cents now and then over time, mostly likely would have worked out better.

    1. The Sunday night “Economic Committee that are players are, purportedly, part of should begin its first few sessions with an economics class and another class that defines and shows what “balancing a checkbook” is all about. If done instructively instead of a “You Have To Do It” approach, maybe all players could understand why Moreno did what he did, but poorly.

  3. It’s was totally predictable that there was going to be a populist backlash to the elimination of subsidies. As they say, expecting a different result under the same conditions is a sign of insanity. Now I’m saying that Moreno is crazy but expecting a different outcome was crazy thinking.

    What steps did he take to minimize this reaction before his announcement?

    Did he engage potential opposing forces beforehand?

    Did he write an editorial to explain his position?

    Fuel prices are an emotional issue everywhere and even more so in Ecuador. He was ill served if his advisors didn’t recognize this beforehand.

    1. About 5 days before the announcement we saw numerous military vehicles leaving Cuenca , maybe 30 vehicles and they were filled with soldiers. So he was definitely ramping up the military before it happened. He knew it would be a mess.

  4. I enjoyed reading Mr. Margolis article. Well documented, not partial, good point of view, from an American living in Ecuador. Let me add that Mr. Moreno has missed all the signals since he was elected. We are governed by a misser.

  5. I used to think that Moreno was a good man with progressive ideas. Unfortunately, since he became the president of Ecuador, he not only cracked down on corruption (which was much needed), he also signed the worst deal in Ecuadorian history with the IMF (or what former vice president of Canada, Paul Hellyer used to call the International Misery Fund).

    I am not an economist, but Andres Arauz is. He is also the former director of the Central Bank of Ecuador and is currently a doctoral fellow in financial economics in Mexico. Ecuador is the first country in the world to have good growth, low debt, and huge oil reserves, to sign a deal with the IMF to borrow money and to do so at a huge cost to the country, the environment and its people.

    According to Arauz, Ecuador did not need this loan. His detailed analysis of how bad this deal is (and how it affects us all) is a real shocker. See what he has to say in the following short but insightful interview:

    Ecuador Takes Harmful IMF Loan, Even Though it Doesn’t Need it: https://www.youtube.com/watch?v=_JNrxb7jB_0&feature=youtu.be

    Moreno is a Trojan Horse for the Globalists. Once he became the president he turned his back on the progressive social agenda of his own party. He is being called a traitor by many in his own party and unfortunately I have to agree. The IMF deal included selling-off all profitable publicly owned infrastructure to private industry, opening-up mining in protected water sheds, allowing oil exploration in currently protected Amazon regions, slashing public sector wages and benefits, increasing fuel prices (to the same level paid in countries that make an average wage that is between 300 and 500% higher) and much much more.

    Don’t kid yourself, if you could not afford to live in the USA in retirement, its because of the these kinds of changes that are already part of our North American history. Now, thanks to Moreno the tyranny of Globalism is spreading its infection to Ecuador.

    I give thanks that this is one of the few countries in the world that has stood up to the Globalists. Thank you to the indigenous groups, students, unions, and government employees for taking a stand.

    1. I enjoyed reading your post. However, some people don’t get out much, clearly. Since when does Canada have presidents. Or vice presidents?? Paul Hellyer was an MP – a Member of Parliament. (He was also an engineer, a writer, a commentator and a pilot, but that’s not pertinent to the post above.)
      Thanks for posting.
      Have a good one.

      1. My bad. Too immeshed in US politics and forgot that Paul Hellyer was the “deputy Prime Minister” of Canada (many years ago now). He resigned when the then Prime Minister at the time, Pierre Trudeau, went back on his word to support social housing (after he won the election). Hellyer has lectured for years about Globalism and the “tyranny of the IMF”.

        1. Jennifer, Are you Canadian? I am curious. You have worked in government in U.S. or Canada, it sounds like . You have written a thoughtful piece and thank you. I agree with your ideas and feel precisely the same about Mystery Man Moreno. He has NO political savvy at all. What about the influence of the real elephant in the room in Ecuador, the Chinese?

  6. 1. Amazing how the most obvious is missed. Who owns the oil, the refinery, the distribution? Ecuadorian public.
    2. The oil company of the people of Ecuador was selling gasoline at a smaller than usual profit. How does that equate to a loss? Yes, I agree the profit could be higher but why raise the price to the very people who are the owners of the oil, Ecuadorians?
    3. How, if it was being sold at a profit, it is owned by the citizens, it is processed in a refinery built with tax dollars of the citizens can any one in their right mind call it a subsidy? I think it is time to look at the fact that the citizens are subsidizing the government of Ecuador and should be respected for it.

    1. Because….. the prices were set by the Government, when it took out the loans from the Chinese…… in your entire laying out of your circular reasoning, you made no mention of the single, largest factor in the equation.

      1. Really, would that be the factor that the government has crawled into bed with others to the benefit of the wealthy of Ecuador at the expense of the rest?
        Could it be the large factor that to secure another big loan from IMF, they must make the people’s oil production more profitable so that when the country fails to pay back the terms of the loan, according to the agreement, ownership of the people’s oil company could transfer to the IMF for pennies on the dollar? Or, maybe you are talking about the provisions that would open up the mineral resources for bid to pay back the bad loan? Either way Ecuador get screwed!
        Kick the carpet baggers back to the USA, France, and Israel where they belong.
        Read the histories of all of the countries the IMF has cough, cough, helped.

      2. Set prices and subsidies predate the Chinese loans by about 25 years. Your “single largest factor” is completely madeup.

        1. Exactly Jason. The elimination of the so called “subsidy” is nothing more than theft of Ecuador’s resources to help fund the requirements set forth by the IMF. There will not be rest until Ecuador has been stripped to the bone just like all the other countries that get caught in the crosshairs, and Moreno is the trigger man.

  7. There’s no doubt in my mind, that Ecuadorians would be better off under Correa, than under Moreno. Also the people trust Correa and would listen to ideas on adjusting the economy. If subsidized fuel disproportionately benefits the rich, then tax the rich. Solutions are not that difficult. Moreno is selling out Ecuador to the global elite. Doesn’t he have a lot of money in an offshore account?

  8. This message brought to you by the neoliberal capitalists at Bloomberg.

    Ever notice how no country has ever voted for neoliberalism yet it gets imposed behind riot police all over the world?

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