PRESIDENT PALACIO ON IMF, FTA AND HEALTHCARE

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 001257

SIPDIS

DEPT PASS TO USTR BENNETT HARMAN

E.O. 12958: DECL: 06/01/2015
TAGS: ECON PGOV ETRD EPET EFIN EC
SUBJECT: PRESIDENT PALACIO ON IMF, FTA AND HEALTHCARE

REF: QUITO 1181

Classified By: Ambassador Kristie A. Kenney, Reason 1.4 (b)(d)


1. (C) Summary. In a May 31 meeting with the Ambassador,
President Palacio, a heart surgeon, discussed his ambitious
national health care plan. He also told the Ambassador to
pay little attention to the exuberance of youth displayed by
Palacio's Minister of Economy and Finance Rafael Correa. In
a public show of support for the FTA, Palacio said he planned
to bring his entire cabinet to the FTA talks next week in
Guayaquil. Palacio's economic team leaves much to be
desired. Septel will address the political issues addressed
during the meeting. End Summary.

Healthcare a Priority
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2. (C) President Palacio spoke at length with the Ambassador
about Palacio's pet project, a national healthcare system.
Palacio, a U.S. trained heart surgeon, has been pushing for
such a program since he became Vice President in January
2003, but was largely ignored by then president Lucio
Gutierrez. Palacio sees this as his opportunity, and perhaps
his legacy for the country. Though, it was unclear where the
expertise would come from to implement such a program,
Palacio said his recent proposed changes to Ecuador's oil
stabilization fund (FEIREP),allocating 15% of the fund's
revenues to health matters, would give the program a jump
start.

Ignore Economy and Finance Minister's Exuberance
-------------- ---


3. (C) Palacio said he was pleased with his cabinet, but
volunteered that his Minister of Economy and Finance Rafael
Correa suffered from the exuberance of youth and was not as
careful as he should be with his public statements. However,
Palacio assured the Ambassador that his administration was
dedicated to strict fiscal discipline. Though, he added,
social investment was also important.


4. (C) The Ambassador noted that press statements attributed
to Correa indicated that he was not taking such a hard line
on fiscal discipline and that Correa appeared confrontational
with those who did not share his views. She also alluded to
Correa's unfounded allegations that the Gutierrez government
(of which Palacio was Vice President) had a "secret" pact
with the International Monetary Fund. Palacio responded that
Correa simply needed to tone down his rhetoric and that
Palacio had full confidence in him.

Trade Issues
--------------


5. (C) To contrast the styles of the ministers, the
Ambassador mentioned that the Embassy had been working with
Minister of Trade Oswaldo Molestina to resolve pending trade
disputes with U.S. companies. She noted specifically though
that the Oxy case remain unresolved. In response, Palacio
said he was pleased that Molestina was working with us. He
added that he would show his report for free trade by having
his entire cabinet come to Guayaquil for next week's 10th
round of the U.S.-Andean FTA negotiations.

Comment
--------------


6. (C) We are not convinced that Minister Correa's only
problem is the tone of his rhetoric (see reftel). Nor are we
convinced of Palacio's commitment to an FTA. His past public
statements cast doubt on that commitment. Also, prior to
becoming Vice President, Palacio had little government
experience and gained none when he was isolated from the rest
of the Gutierrez administration.


7. (C) Palacio's failure to appreciate the sensitivities of
the Ecuadorian financial picture and how it can be affected
by the "exuberant" comments of its populist Minister of
Economy are another indication of the steep learning curve
Palacio has. With one presidential candidate (Alvaro Noboa)
already starting his campaign, Palacio will have little time
to be schooled.


8. (C) Thus far, Palacio has not proven to be too adept in
the selection of his economic team. The proposals of his
Minister of Economy and Finance have created considerable
uncertainty in the financial sector. Minister of Energy
Fausto Cordovez has no experience in the sector and refused
or was unable for eight years to pay is delinquent debts,
until last week. Robert Pinzon a Palacio confidant and now
President of state-oil company PetroEcuador also has
considerable outstanding debts and the lowest credit rating
one can have in the country, spent time in jail for fraud.
The most promising economic team member, Minister of Trade
Oswaldo Molestina, cannot seem to decide who will lead his
FTA negotiation team. The one bright spot in the Gutierrez
administration was its economic record. The new Palacio
administration might soon blot that bright spot out.
Kenney