The fuel and the fire
Latin America’s energy subsidies are good politics but bad policy
For a month now protesters in Panama have blocked highways, prompting shortages of food and medicine in a country that for the past three decades has enjoyed social and political stability and steady economic growth.
Their target is the price of fuel, which rose by almost half in the first six months of this year.
The shaken government of President Laurentino Cortizo buckled, agreeing to cut the price of petrol to 3.25 dollars a gallon from 5.20 dollars.
But the protests continued, with unions demanding other price controls to ease living costs.
Panama is far from alone.
With the cost of oil soaring since Russia’s invasion of Ukraine in February, and with prices rising more generally, a string of governments across Latin America have introduced or increased subsidies on fuel to assuage protesters, or pre-empt them.
To end almost three weeks of disorder, in which seven people died last month, Ecuador’s pro-market president, Guillermo Lasso, granted subsidies on fuel and fertilisers.
These subsidies are worth around 0.8% of gdp, according to calculations by J.P.Morgan, a bank.
Brazil’s right-wing president, Jair Bolsonaro, who is seeking a second term at an election in October, has been pressing Petrobras, the state-controlled oil giant, to cut prices.
On July 27th the company said it would review its pricing policy.
In Mexico petrol prices are 35% lower than they would otherwise be, as the government of Andres Manuel Lopez Obrador has spent higher oil revenues on a subsidy equal to 1% of gdp.
When protests broke out in Peru in April the government scrapped a fuel tax and announced other tax cuts, totalling perhaps 0.9% of gdp.
In the Dominican Republic this month the government suspended a plan to wind down electricity subsidies.
Both Chile and Colombia have augmented stabilisation funds which smooth the rise in fuel prices.