(Bloomberg) -- Ecuador’s government-on-the-run is making overtures to protesters to negotiate an end to the chaos that drove it from the capital city.
Officials who took refuge in coastal Guayaquil are negotiating with organizations of indigenous Ecuadorians that blocked mountain roads to protest increases in fuel prices favored by the International Monetary Fund. Deputy Finance Minister Esteban Ferro said in a Tuesday interview that the government has money set aside for indigenous people, who are often poor and historically discriminated against. But it won’t reverse last week’s decision to end gasoline and diesel subsidies, Ferro said.
President Lenin Moreno, whose austerity measures set off the protests, promised citizens on a Tuesday afternoon broadcast that “violence and chaos” wouldn’t win and said that he wanted the crisis resolved within two days.
“We will continue to protect the rule of law and civil tranquility,” he said. “We will always avoid any bloodshed.”
Protesters have occupied government offices, oil fields and looted businesses this week as security forces in the South American nation of about 16.5 million struggled to enforce a state of emergency. The government decamped after another night of unrest. Demonstrators in Quito damaged Ecuador’s congressional building and violently entered the comptroller general’s office across the street.
An oil pipeline known as SOTE was halted for more than two hours Tuesday after vandals sabotaged it, the Energy Ministry said. State oil producer Petroamazonas estimates losses of 165,000 barrels per day after staff halted operations following a protest Monday, the company said in an emailed statement.
Security forces have retaken several major oilfields from protesters, and workers are now getting output back to its normal level, Ferro said.
The tumult began when the government eliminated subsidies on gasoline and diesel, which caused a 30% rise in low-octane gasoline prices, while diesel prices more than doubled. The move was welcomed by the IMF and debt-rating companies including Moody’s Investors Service. Moreno reiterated Monday night that he wouldn’t reinstate the support, which had been in place since the 1970s and which was costing the government close to $1.4 billion a year. Observers didn’t take that as the final word.
“There is a non-zero risk that Moreno knuckles under pressure and rolls back the subsidy cuts,” Edwin Gutierrez, London-based head of emerging-market sovereign debt at Aberdeen Asset Management, wrote in a written reply to questions. “Given the violence and protests, that risk has clearly risen.”
The nation’s dollar bonds due in 2028 fell 3.6 cents to 93 cents on the dollar, the biggest drop since they were sold in January 2018, sending yields up 0.65 percentage point.
Moreno tried to shift blame for the uprising, saying that protests had been infiltrated by supporters of exiled ex-President Rafael Correa. Morena said Correa, his former mentor, is promoting violence to bring down the government, though he provided no evidence.
Correa, who is living in Belgium as he fights charges that he had a political opponent kidnapped, said in a Twitter post that Moreno “is finished” and called for elections.
“There is no coup-mongering here,” he said in a video posted to the site. “Conflicts in democracy are resolved at polls, and that’s precisely what we’re asking for.”
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The protests have engulfed Ecuador, a producer of commodities such as oil, copper, shrimp and bananas. Central regions were cut off from television and radio service as demonstrators seized repeater antennas. Indigenous communities blocked numerous main roads in the Andean region, home to half the nation’s residents. Cuenca, the third-largest city, is receiving supplies by air.
In Quito, traffic on a cool Tuesday was unusually light and the city was oddly quiet. Schools were closed, and many evening events canceled. The unprecedented scale of the unrest, including rioting and looting, has worried many residents who stocked up on goods, emptying supermarket shelves. Police and armed forces are escorting supplies to stores as numerous important roads remain cut off by protesting indigenous people.
The crisis marks a turning point for Moreno, who was expected to lead as a leftist but has governed as a maverick.
When he took office in 2017, many assumed he’d continue to lead the country along the repressive and spendthrift path forged by Correa, who held office for a decade. Correa is responsible for a string of ill-considered public works projects, including power plants, refineries, pipelines, airport terminals and a railway. They’ve been dogged by cost overruns, construction and design flaws and accusations of corruption. Correa defaulted on $3.2 billion in bonds for political reasons.
Correa is due to be judged in absentia this month on charges that include illegal campaign financing.
Moreno has pushed economic and political reform, fought corruption and tried to restore an independent press and judiciary. He championed term limits for elected officials and helped judicial reformers replace a constitutional court so discredited that several members were under suspicion of money laundering. He remade economic policy, which led to a decrease in yields on Ecuadorian bonds and a $4.2 billion agreement with the IMF to restore dollar reserves and stabilize public debt -- in part by removing the fuel subsidy.
“The stakes are high,” said Siobhan Morden, the head of Latin America fixed income strategy at Amherst Pierpont Securities in New York. “If President Moreno reinstates the subsidies, then the IMF program is at risk.”
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