In a major policy reversal, President Guillermo Lasso announced Friday that the government is freezing the price of gasoline and diesel fuel at current levels. He said the policy of allowing prices to rise gradually to international market rates is suspended and that the price of a gallon of regular gasoline will be maintained indefinitely at $2.55 a gallon while diesel will cost $1.90.
The move comes under the threat of indigenous protests planned for Tuesday and complaints by bus, heavy transport and taxi owners.
Friday night, the Confederation of Indigenous Nationalities (Conaie) called the freeze a “sham,” insisting that prices be rolled back to early 2020 levels and said they will continue with plans for Tuesday’s protest. “We declare ourselves in permanent resistance against the neoliberal government,” Conaie President Leonidas Iza said.
Other indigenous leaders said, however, that the government’s action will likely defuse protests. “Most indigenous people do not want a repeat of October 2019 and although the October 26 protest will go forward, today’s announcement will mean less people will participate and the threat of violence is lower,” said Jorge Salazar, a former member of the Conaie governing council.
According to Transportation Minister Marcelo Cabrera, a factor that led to Lasso’s decision was the rapid increase in the price of oil. “We are above $80 a barrel in world markets and there is no sign the increases will end soon,” he said. “This puts extra strain on the budgets of Ecuadorian families at a time when they are recovering from the pandemic.”
Cabrera also said that the price freeze offers a solution to public transportation and trucking companies who claim high fuel costs could put them out of business. The government has been in negotiations with bus, taxi and trucking company owners, proposing targeted subsidies for those sectors.
The plan to allow fuel costs to rise to market levels was instituted in March 2020 by former president Lenin Moreno. Ecuador has subsidized gasoline and diesel prices since 1978 and continues to subsidize the price of natural gas. In 2019, subsidies cost the government about $4 billion.
Some business leaders and economic analysts attacked Lasso’s decision, claiming that it jeopardizes the country’s agreement with the International Monetary Fund and puts added pressure on the national finances. “We appeared to be on the right path and now we turn our back on that policy,” said Walter Spurrier, an economic writer for several publications. “We have an agreement with the IMF that is now in doubt and we return to the failed policy of not living within our means.”
Alberto Acosta, editor of the financial newsletter Market Analysis, agreed and said that the public will have to pay the price of the government’s capitulation. “The previous plan was sound since it followed the rhythm of the markets and did not add stress to public finance,” he said. “It was also an important educational lesson for the population, teaching them that the government cannot solve all their problems. With this, we lose that advantage.”