Fear of protests over Ecuador fuel price rises

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Fear of protests over Ecuador fuel price rises

By Guy Hedgecoe in Quito Published: September 4 2001 17:45GMT | Last Updated: September 4 2001 17:54GMT

Ecuador is to increase fuel prices by 10 per cent, raising the spectre of protests and social unrest that brought the country's capital Quito to a standstill two years ago.

The government announced the politically sensitive move in its 2002 budget to compensate for a high court decision that decreed an increase in value added tax from 12 per cent to 14 per cent was unconstitutional.

At $5.6bn, the budget is 14.1 per cent bigger than this year's and forecasts a 33.7 per cent increase in tax collection. The government hopes that the higher tax revenue and fuel price rise will compensate for the reversal of the tax increase, which will cost $240m next year.

The high court decision led many observers to wonder if Ecuador's standby loan deal with the International Monetary Fund (IMF) will survive the fiscal shock.

President Gustavo Noboa's government has forecast gross domestic product growth of 5 per cent and inflation of 8 to 10 per cent for 2002 in the budget. Public debt payments are down 6.4 per cent at $854m.

The government presented the bill to Congress for approval and a congressional commission is studying the document prior to its debate.

Congress cannot alter the overall amount contained in the government's proposed budget, it can only reassign spending. It must approve the budget in one debate by November 30, or the bill will automatically come into effect.

The government has decided to leave the traditionally volatile issue of domestic gas subsidies alone. However, fuel price increases saw striking transport workers bring Quito and other parts of the country to a standstill for 10 days, when then President Jamil Mahuad introduced a 13.5 per cent rise two years ago.


-- Martin Thompson (mthom1927@aol.com), September 05, 2001

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