Identifier
Created
Classification
Origin
05QUITO1663
2005-07-14 22:58:00
CONFIDENTIAL
Embassy Quito
Cable title:  

GOE CONSIDERING CHAVEZ LOAN

Tags:  PGOV PREL EFIN EC 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L QUITO 001663 

SIPDIS

E.O. 12958: DECL: 07/14/2015
TAGS: PGOV PREL EFIN EC
SUBJECT: GOE CONSIDERING CHAVEZ LOAN

Classified By: Charge d'Affaires A.I. Kevin Herbert for reason 1.4 (b&d
)

C O N F I D E N T I A L QUITO 001663

SIPDIS

E.O. 12958: DECL: 07/14/2015
TAGS: PGOV PREL EFIN EC
SUBJECT: GOE CONSIDERING CHAVEZ LOAN

Classified By: Charge d'Affaires A.I. Kevin Herbert for reason 1.4 (b&d
)


1. (C) Summary: The Palacio government may be considering a
$500 million loan from Venezuela, after visits to Caracas by
FM Parra and MinFin Correa. The GOE is apparently
considering turning to Chavez to fill a looming budgetary gap
caused by investor lack of confidence in Correa, the
possibility that IFIs will not disburse as planned, and
likely Congressional devastation of the social security fund
(septel). Initial reaction to the dramatic shift has been
muted here, but expected to build. With the GOE still
divided on the issue, we recommend USG public reserve until
the facts are clearer. End Summary.


2. (C) FM Parra dined on July 9 in Caracas with President
Chavez, MinFin Correa visited with his counterpart there on
July 12, and on July 13 financial press reported that
Venezuela will buy $500 million in Ecuadorian bonds (although
Correa is denying it). FM Parra's visit to Caracas was
unannounced here, only confirmed by the MFA several days
later after press inquiries.


3. (U) According to an MFA statement, the dinner was at
Chavez' invitation, and also included Venezuelan FM
Rodriguez. At the dinner, Chavez "expressed his hope to
increase integration and cooperation between the two
countries on issues of common interest, including education,
health, science and technology, and in energy and petroleum."
Chavez reportedly also invited Ecuador to participate in the
creation of an Americas Fund for Cooperation and Development,
to which the GOV had pledged $100 million. Before leaving,
Parra invited his counterpart to attend an upcoming meeting
of South American foreign ministers in Guayaquil. Press here
are speculating that President Palacio may meet with Chavez
on the margins of the Andean presidential summit in Lima on
July 18.


4. (U) Parra's visit was followed by a July 12 visit to
Caracas by MinFin Rafael Correa, who reportedly met with GOV
Energy Minister Ramirez, and likely with Minister of Finance
Merentes. According to some reports, Venezuela promised to
purchase $500 million in GOE bonds. Correa, however, after
answering initial inquiries about the deal with the cryptic
"money is money, politics is something else," at midday on
July 14 denied that any agreement regarding bond purchases
was reached, suggesting, rather, that the discussion centered
on cooperation in the oil sector, including the possibility
that Venezuela would invest in the development of refinery
capacity in Ecuador.

GOE Sending Mixed Signals
--------------


5. (C) MFA U/S for Bilateral Affairs Susana Alvear,
discussing GOE-GOV relations with ADCM on July 12, did not
raise the meeting. In response to USG concerns about
democratic weakening in Venezuela and about destabilizing
Venezuelan influence in the region, Alvear stated that the
GOE is not concerned about the level of "Bolivarian"
influence in Ecuador, and wishes to maintain the best
possible relations with all nations, especially its neighbors
in the region.

6. (C) Presidential secretary Luis Herreria told ADCM on
July 14 that the Parra visit and the loan offer were hatched
by Parra and Correa without President Palacio's approval. No
decision has been taken on whether to accept Venezuelan
assistance. He added that Chavez had asked Palacio to fire
Herreria for his recent public statement calling Chavez'
designs in Ecuador "diabolical." Herreria, Palacio's closest
confidant, said he was not going anywhere.

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


7. (C) Divisions clearly exist within the Cabinet on whether
to accept Chavez' offer. We will continue to press for
greater clarity from the GOE on this issue and the strings
attached to any economic deals with the GOV. With MinFin
Correa doubtful about IFI support, investors refusing to roll
over short-term local debt, and Congress taking irresponsible
actions on the social security system, Chavez' offer may be
tempting to the GOE. We need to emphasize the political
costs to help balance the equation, but caution against a
public USG reaction until the facts are clearer.
HERBERT