(Bloomberg) -- Ecuador’s President Lenin Moreno declared a state of emergency as protesters barricade roads across the country over fuel price hikes.
Moreno pledged to maintain the policy of ending diesel and gasoline subsidies, which he says are no longer affordable.
This year, Ecuador had to budget close to $1.4 billion to keep gasoline and diesel prices below market prices. Moreno’s move was welcomed by the International Monetary Fund and by Moody’s Investors Service, but not by drivers of buses, taxis and trucks, who blocked key highways with vehicles and burning tires.
“The decision is unprecedented and very courageous,” said Sebastian Hurtado, president of political risk consultancy Profitas in Quito. “I have serious doubts whether the government has the political capacity to manage the backlash.”
Airlines including American Airlines, Iberia, Air France, and KLM rerouted flights, as protesters blocked all routes in and out of Quito’s airport.
The umbrella group CONAIE, which represents indigenous communities, and some student organizations also pledged to support the strike.
Ecuador’s Red Cross said protesters refused to allow ambulances to pass.
A group of mostly young protesters with communist flags marched through the historic center of Quito, where police kept them from occupying Independence Square, where the presidential palace is located.
The Interior Ministry reported several injuries and close to two dozen arrests in the capital.
Resources Minister Carlos Perez said oil industry installations are being guarded against attempts to occupy them. Local news media report demonstrations in cities throughout the nation of 17 million, as well as looting of some supermarkets in Guayaquil. Some banks have closed branches for security reasons, according to the banking regulator.
The fuel price increase went into effect at midnight, causing long queues as drivers tried to fill their tanks before the deadline. Moreno announced the measure amid a package of economic reforms aimed at keeping a $4.2 billion funding package with the IMF as he struggles with the legacy of profligate spending inherited from his predecessor, Rafael Correa.
To mitigate the impact of the reforms on the poor, Moreno pledged to increase a social safety net so that it would protect close to 5 million Ecuadorians, increasing a monthly transfer by $15.
By targeting fuel prices rather than raising the value-added tax, Moreno has at least been able to win support of Ecuador’s economic elites and middle class, Hurtado said.
Transportation organizations, many of which supported Correa, said Wednesday that they would strike indefinitely after Moreno ended the subsidies.
The government says the fuel subsidies have cost the nation close to $60 billion since they were introduced by a military dictatorship in the 1970s.
Speaking after a cabinet meeting at the presidential palace in Quito, Moreno said he was open to discuss the situation, but declined to reverse the decision and pledged to have the roads opened.
On Tuesday, Ecuador said it would quit the Organization of Petroleum Exporting Countries, to avoid having to cut output to meet quotas.
(Updates throughout with more information on events and with background on Moreno’s reforms)
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