A CRISIS WAS defused in Quito, Ecuador’s capital, on Sunday. After 11 days of mass protests, which left at least seven dead and more than 1,000 injured, President Lenín Moreno’s government agreed not to scrap subsidies on petrol and diesel. Repeal of the popular subsidies, which cost the government an estimated $1.3bn a year, was part of a package of public-spending cuts needed to secure a $4.2bn loan from the IMF. Promises to soften the blow by increasing welfare payments to poor families were to no avail.

It is little wonder that Mr Moreno’s decision to end subsidies sparked unrest. Petrol prices have since climbed by 30% while diesel prices have more than doubled. Ecuador has subsidised fuels for 40 years. According to the Inter-American Development Bank, the subsidies have gobbled up 7% of the country’s yearly spending over the past decade. Although they benefit poor Ecuadorians, better-off households gain most. As a way of redistributing income, they are remarkably inefficient. A recent study finds that using petrol subsidies to transfer $1 to the poorest fifth of households costs the government $20. It would make far more sense to pay them in cash.

Costly as fuel subsidies are to Ecuador, plenty of countries (including many big energy producers) spend far more of their national income in this way. These include two other Latin American governments, with spendthrift Venezuela far outstripping the field (see chart). In all, governments around the world blew $427bn in 2018, according to the International Energy Agency, a Paris-based intergovernmental think-tank. Governments rarely succeed in getting rid of subsidies. Social unrest in Bolivia in 2010, Nigeria in 2012 and Sudan in 2013 were all sparked by energy reforms.

Such “pre-tax” measures of the cost of subsidies are based on the difference between the price paid by consumers and the cost to the state of supplying fuel. A broader “post-tax” measure, based on the difference between consumer prices and estimates of efficient prices (taking into account environmental damage, traffic accidents and so forth), yields higher numbers. The IMF puts the post-tax cost of energy subsidies in Ecuador at three times the fiscal cost.