The silver lining in a month-long national strike in Ecuador
A month-long protest campaign by Ecuador’s umbrella indigenous organisation Confederación de Nacionalidades Indígenas del Ecuador (Conaie) from 22 September-22 October over diesel subsidy cuts caused US$300m in economic damages, resulted in three deaths, and paralysed parts of the country. And yet, it could have been much worse. Previous strikes against attempted fuel subsidy cuts in 2022 cost over US$1.1bn. Since 1997 protests backed by Conaie have forced three presidents out of office, the last of which was Lucio Gutiérrez (2003-2005). In 2019 and 2022, respectively, former presidents Lenin Moreno (2017-2021) and Guillermo Lasso (2021-2023) were forced to reintroduce fuel subsidies after violent protests.
So, if there was a winner coming out of this national strike, it was President Daniel Noboa, who pinned his political fortunes on defeating the demonstrators when he said he would “rather die than back down”. Indeed, Noboa stood his ground. He made a minor concession to help end the strike by pledging to lower diesel prices from US$2.80 to US$2.78 from 15 December, and to US$2.70 from 15 February 2026. But essentially, the elimination of diesel subsidies – one of the biggest bones of contention in the country’s recent history – stands.
Barring any future setbacks, Ecuador’s youngest elected president has become the first to succeed in weaning the country off fuel subsidies that had been in place for more than half a century and cost the country a disproportionate amount of taxpayer money. In 2022 the Lasso administration said that the cost of fuel subsidies had risen to US$3.3bn per year. In some years the government has spent more on fuel subsidies than on health care.
The move to eliminate diesel subsidies was widely expected but the decision to do so in one fell swoop wasn’t. Noboa on 11 September announced that the price of the fuel would rise from US$1.80 to US$2.80 per gallon, a 56% increase. The measure was part of the government’s broader effort to reduce deficit spending and prevent the country’s debt from rising and follows the elimination of petrol subsidies in 2024.
Why did Noboa succeed? For one he played hardball, declaring a state of exception in ten of the country’s 24 provinces that suspended the right of assembly and authorised police and armed forces to break up gatherings. He also declared a night-time curfew in five provinces and temporarily relocated the government to Latacunga, the capital of the Andean highland province of Cotopaxi. In doing so he challenged protesters to cause disruption in their local area, rather than blockade the capital. Meanwhile, farmers were given aid, and pro-government marches organised. The government also froze the bank accounts of three indigenous foundations, Fundación Alianza Ceibo, Nacionalidad Kichwa de Pastaza (Pakkiru), and Unión de Afectados por Operaciones Petroleras de Texaco (Udapt), claiming that they posed a security risk.
Critics argue Noboa rides rough-shod over civil liberties such as the freedom of speech and assembly. They cite as further evidence the Solidarity Law approved in June to grant authorities sweeping powers to combat criminal gangs, including reduced restrictions on the use of lethal force.
Still, polls indicate that the vast majority of Ecuadoreans supported Noboa’s handling of the strike. A Cedatos survey published on 1 October found that 69% of respondents opposed the protests. Meanwhile, 50.8% of respondents disapproved of the elimination of the diesel subsidy while 44.6% agreed with the move. This suggests that, whilst the subsidy cancellation has not been welcomed, the government is doing a reasonable job of explaining the fiscal reasoning to voters.
Also favouring the Noboa administration were deep divisions within Conaie, even before the strike began, as well as flagging popular support. Pachakutik, the political arm of Conaie, had finished a distant third in general elections in February with just over 5% of the vote. That is down from nearly 20% in 2021.
The government had argued that decades of fuel subsidies benefitted not the poor but wealthy car owners, as well as smugglers who sold contraband fuel in Peru and Colombia. A study by the United Nations University confirmed that gasoline and diesel subsidies benefited mostly the wealthy, while domestic gas subsidies benefited primarily the poor.
According to a 13 October public opinion survey carried out by Cedatos, Noboa has a 52.7% approval rating, down only three percentage points from his second-round re-election victory in April.
The government has said that savings from scrapping the diesel subsidy will be used to benefit those impacted the most, providing bonuses for farmers, fishermen, low-income families, and transport companies to compensate them for the higher cost of fuel. In addition, the government will reimburse value-added tax (VAT) payments to 115,000 elderly people; invest US$10m in patrols along roads that are vulnerable to accidents; and pay US$80m to 210 construction and housing companies to boost the economy and generate jobs.
Unquestionably Noboa is pushing a free-market economic agenda and stands with both feet in the pro-business camp. But seemingly he has been more able in implementing, or at least publicising, welfare policies to offset his liberal reform agenda than several previous leaders in Ecuador or than President Javier Milei in Argentina, who has relentlessly pushed belt-tightening measures that have helped erode his popularity.
“Enhancements to the social safety net continue through targeted compensatory measures to mitigate the impact of reforms on vulnerable populations,” the International Monetary Fund (IMF) wrote in the latest review of its US$5bn credit line for Ecuador that was published on 29 October. “Additionally, the authorities continue expanding the coverage of the social safety net for lower-income households, surpassing program targets.”
Gaining steam
Meanwhile the economy seems to be on a roll, having grown 4.3% in the second quarter compared with a year earlier. The central bank sees this year’s gross domestic product expanding 3.8%, while Noboa has predicted growth of “above 4% and very close to 4.5%”. Meanwhile the IMF is projecting 3.2% growth. This is a significant recovery from last year when the economy contracted by 2% due to political uncertainty amid the election campaign, public security challenges, as well as a drought that caused power blackouts.
“The environment reflects a sustained recovery in domestic demand, supported by higher private consumption and expanding investment, along with increased trade with the rest of the world, in a context of increased productive activity in the main value-added sectors,” the central bank said in its most recent quarterly financial statement.
Ecuador’s financial situation has also improved. Country risk has dropped since the election’s second round in April. The country’s dollar-denominated bond maturing in 2035 rallied from 35 cents on the dollar when Noboa first took office in October 2023 to 76 cent per dollar in early November. That trend could continue, as investors turn toward emerging markets in search of higher yields as interest rates in the US and Europe fall. That would help reduce the cost of financing Ecuador’s debt and generate additional fiscal leeway to narrow the budget deficit, boost social welfare, or redouble investment in security or infrastructure.
In October the government passed its third review of the 48-month IMF loan facility with flying colours, thereby obtaining an immediate disbursement of about US$600m. That pushed its international reserves to US$9.2bn, more than double what it was at the beginning of last year, according to a 28 October central bank report.
The IMF said that all performance criteria had been met, “many with significant margins” and that the government had made substantial progress in implementing structural reforms to benefit public finances, governance, and economic growth. “The authorities are taking decisive actions to strengthen fiscal sustainability and liquidity buffers while protecting the most vulnerable,” the IMF said in a statement on 29 October. “They have affirmed their continued commitment to implement their reform agenda to boost private investment and job-rich growth.”
Indeed, a lid on government spending, a new VAT tax and a one-off levy on banks and large companies will reduce the budget deficit to less than 1% this year, according to the World Bank and government projections. That would be the second-best performance since 2008.
Economic pitfalls
To be sure, Ecuador’s economy still faces a laundry list of challenges, most notably the drop in the price of oil, which accounts for roughly one-third of the country’s exports. That comes on top of a steady decline in the country’s oil output in recent years, due to maturing fields and ageing infrastructure, with pipelines vulnerable to damage from landslides.
Public security concerns continue to weigh on the country’s economic prospects. Noboa’s war on gangs seems to have suffered a setback this year, which risks undermining progress made elsewhere. In the first half of the year the number of homicides jumped to 4,619, the highest on record and a 47% increase from a year earlier, according to the non-profit Observatorio Ecuatoriano de Crimen Organizado (OECO). By the end of October that number had risen further to 7,439. For the whole year, it is set to exceed the all-time record of 2023.
In that context of ongoing uncertainty, international investors have largely remained on the sidelines. By contrast, Ecuadoreans living abroad sent record remittances of US$3.7bn in the first half of the year, a 24% increase over the same period a year earlier.
Support from China
On 28 October President Noboa announced that China will donate US$17m towards economic reactivation efforts in Imbabura province and the north of Pichincha province, which were particularly affected by protests against the elimination of diesel subsidies. In a social media post, Noboa’s office said that China will support “productive reactivation by delivering lorries, agricultural technology, and other things”. Noboa said that the elimination of diesel subsidies, which was the spark for the unrest, has enabled the government to provide more efficient and targeted support to key sectors. He said that “instead of kneeling before the demands of a minority sector, we’re supporting the victims of the protests”. Noboa had previously announced on 27 October that the government intends to provide over US$500m in the next six months to support economic reactivation in areas that were most affected by the unrest.