Global Macro Service > Research Briefings > Ecuador

The government can appease protestors and the IMF

On Sunday, Ecuador’s president agreed to revoke the controversial elimination of fuel subsidies that had sparked violent protests over the last 10 days. But this doesn’t mean fuel subsidies – and their hefty fiscal cost – will be reinstituted. A new mutually agreed decree (still under negotiation) will include mechanisms to compensate the poor for higher fuel costs.

Fuel subsidies reached 3.1% of GDP in 2018 and could surpass 2% this year. Their elimination is key for the success of an ongoing IMF loan program amid legislators’ reluctance to increase taxes. Given Ecuador’s highly unequal income distribution, we think the government can fully compensate the poor for losing the fuel subsidy without jeopardizing the IMF program.

To read the full briefing please
If you are not a subscriber, request a free trial of our Global Macro Service by filling out the form below