Published on 23 October 2019

SUSTAINABLE FINANCE

The crisis in Ecuador demonstrates the risks of an unjust transition on the poorest populations

The Indigenous and most vulnerable segment of Ecuador’s population set the streets ablaze after a presidential decree ended subsidies that effectively doubled the price of fuel.  The decision was a condition imposed by the IMF in exchange for a several billion-dollar loan.

Csm Manihestation Equateur Quito Twitter santiak dc493310c2
Several fires raged during protests in Quito, Ecuador.
@Santiak/Twitter

After a 12-day crisis in Ecuador, the country was left to pay a heavy toll: 8 deaths, 1,340 injured (some critical), 1,192 arrests and a capital in flames.  Despite an agreement between the government and protestors, there seems to be no long-term reconciliation.

At the origin of the revolt is the decree by President Lenin Moreno.  President Moreno agreed to end fuel subsidies in exchange for a $4.2 billion loan from the International Monetary Fund (IMF).  The decision spurred a 123% increase in fuel costs, and consequently, was not supported by the country’s poor, particularly the Indigenous groups that represent one quarter of the Ecuadorian population.

An indigenous movement against the government

People took to the streets in uproar. The country came to a halt for nearly two weeks due to protests, roadblocks, school closures, public transport delays and inactive oil wells, which suspended almost 70% of crude oil production. On October 12th, an agreement was made with the government that simply consisted of withdrawing the presidential decree, which essentially resulted in a return to the status quo through numerous victims and an economic loss of $1.5 billion.

“These days should teach us to value peace, stability and security,” declared President Moreno in a televised message from Guayaquil, the largest port city in Ecuador located on the west coast of the country. During the standoffs in Quito, the President had to relocate executive functions to the city.

Impossible to change position on fuel

This Ecuadorian crisis is without a doubt the most piercing example of a global trend demonstrating the need for a fair ecological transition.  Such situations mirror the events taking place in France with the yellow vest protestors. At the origin of the tension in France is the rise in carbon tax which naturally increased the price of fuel, particularly affecting the poorest in the country.

Even in a rich country like Germany, it is impossible to implement a truly ecological tax system. In September of this year, the coalition government presented its €100 billion green plan that was to roll out over the next 10 years.  However, the coalition was incapable of enacting an environmental tax reform due to the government’s fear of its potential social impact, as observed in France and elsewhere around the world.

At a time when even the world’s economists deem the carbon tax to be one of the most powerful tools to accelerate the global ecological transition, efforts are frozen in France, inapplicable in Germany, and subsidies remain inviolable in Ecuador. Such is the situation for numerous oil-producing countries.

Ludovic Dupin @LudovicDupin


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