MINISTER OF FINANCE CONFIDENT OF STABILITY

C O N F I D E N T I A L QUITO 002941

SIPDIS

STATE FOR WHA/AND, TREASURY FOR SIGNORELI

E.O. 12958: DECL: 11/08/2009
TAGS: EFIN ECON PGOV EC
SUBJECT: MINISTER OF FINANCE CONFIDENT OF STABILITY


Classified By: ADCM FRED KETCHEM, REASONS 1.4 (B,D)


1. (C) Summary: Minister of Finance Yepez believes the
Gutierrez regime can make it through the current crisis, but
remains handicapped by bad advisors at the top. The GOE is
maintaining its responsible fiscal policy and continues to
work on plans to eliminate the gas subsidy. End Summary.


2. (C) Ambassador had breakfast with Minister of Finance and
Economy Mauricio Yepez on November 5 to discuss the political
and economic situation of Ecuador. In response to
Ambassador's question, Yepez said that he was concerned about
the political situation, but expected Gutierrez could survive
the current attempt at impeachment.

Bad Advice
--------------


3. (C) Unfortunately, Yepez said, some of Gutierrez's
advisors, in particular Secretary of the Presidency Xavier
Ledesma and Presidential Advisor Oscar Ayerve, were so bad
that they could jeopardize the president's position. At
present Raul Baca, Minister of Government and a sensible
advisor to the president, had little access. (Embassy
sources report on November 8 that Baca has resigned.
Reported reasons for the resignation are various and
conflicting.) For his part, Yepez said, he was avoiding the
cabinet meetings in order to see the President afterwards in
small meetings where he was better able to influence him.

Fiscal Continuity
--------------


4. (C) Up to this point, the political situation had not
affected the budget in significant ways, Yepez said. He was
looking at funding completion of some municipal
infrastructure projects, especially in Quito, as a way of
strengthening the President's position in Congress,
particularly among members of the Democratic Left (ID) party
which controls the city government and supports impeachment.
These were projects which would be funded eventually and the
money would come from re-prioritizing all the infrastructure
projects, so the effect on the budget would be nil. He was
working with the armed forces on a restructuring package
which might include a pay raise. Overall, though, the
restructuring package would be budget-neutral, streamlining
military spending and moving funding from unnecessary and
antiquated efforts to more useful purposes.


5. (C) Yepez said he was drafting a letter to Treasury
Secretary Snow to follow up on their meeting in September.

SIPDIS
He intended to lay out an idea Snow had reacted favorably to
in their meeting. The idea was to create a new financial
instrument under the multilateral development banks to smooth
out the debt payments developing countries owed to the banks.


6. (C) Ambassador asked whether Yepez thought his proposal
to Gutierrez on increasing the price of cooking gas could go
forward given the current political situation. Yepez said he
thought so. He had good relations with the indigenous and
was working with them on the idea. All or most of the
initial fiscal benefit from eliminating the subsidy would be
given back to the indigenous and poor through direct payments
or projects. He thought they would go for it.


7. (C) Comment: Yepez is one of the adults in the
Gutierrez administration. His continuation of the
responsible fiscal policies of his predecessor is one of the
few real accomplishments of the Gutierrez government. This
meeting was another demonstration that he is keeping to that
line. Eliminating the gas subsidy would be a huge step
forward, but would demonstrate a political ability far beyond
that which the GOE has so far demonstrated.
KENNEY