PALACIO STUMBLES BUT RECOVERS AT 100 DAYS

UNCLAS SECTION 01 OF 02 QUITO 001787

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: PGOV PREL AORC EC
SUBJECT: PALACIO STUMBLES BUT RECOVERS AT 100 DAYS

REF: A. QUITO 1747

B. LIMA 3224


1. (SBU) Summary: Tension generated by recent political
missteps by President Palacio has been reduced over the past
week thanks to Congressional restraint and the intervention
of outsiders. Congress' recent votes in favor of the
presidential veto on social security and returning his
political reforms avoided outright confrontation with the
President, and helped prevent the Vice President's widely
rumored resignation. Congress' attempt to replace members of
the constitutional court remains stalled. The visit of OAS
General Secretary Jose Miguel Insulza on July 26-28 helped
promote dialogue and democratic reconstruction. Meanwhile,
ousted President Lucio Gutierrez, currently in northern Peru
(Ref B),clamored for attention, appealed his arrest warrant
and said he plans to return to Ecuador soon. Despite this,
Presidential advisors seem confident that he will not return,
and found a silver lining in Congressional inaction on
Palacio's reform proposal. End Summary.

Congress Returns Reform Proposal to President
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2. (U) Congress formally returned Palacio's seven-point
political reform program (Ref A) to him on July 26,
requesting he take citizens' suggestions, that had been
submitted to the Vice Presidency and Ecuador's modernization
council (CONAM),into account before resubmitting a new
package. The President reportedly admitted it was an error
to submit the seven points prematurely, and instead will
speed up the Vice President's timetable for integrating
public input to the reform process. The Vice President, who
was rumored to be considering resigning in protest over not
being consulted by the President before he announced his
reforms, now looks likely to stay on. Many in Congress
reportedly believed they prevented an institutional crisis
that would have resulted if the Vice President resigned.
Luis Villacis, a deputy for the MPD party, publicly accused
other parties of "going easy" on the President in return for
constitutional court seats.


3. (SBU) Alexandra Perez, head of CONAM, told PolChief on
July 27 that she believes the political reform proposal will
have better prospects when resubmitted to Congress, since
legislators have publicly committed to consider the revised
referendum. The Vice President would now speed up (to 30
days) the analysis of the 7,800 suggestions received from the
public before Palacio pushes the issue again, she said.


4. (SBU) Presidential Advisor Jose Modesto Apolo told
PolChief on July 27 he was receiving criticism (he implied
unjustified - MinGov Gandara later admitted to being behind
the Presidential surprise) from Congress for being
responsible for Palacio's gaffe on political reform. He
echoed Perez' view about a "silver lining," namely that
Congress would not be able to put forward a competing
proposal lacking citizen input.

Congress Votes on Social Security, Constitutional Court
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5. (U) After returning the President's reform proposal,
Congress, meeting in special session, approved the
President's amendments to the bill on the return of social
security reserve funds to workers, belying concerns that the
presidential veto would be overridden by Congress. The
line-item veto by the President still means that $400 million
in reserve funds will be returned to the population this
year, with the rest to be refunded in 2006-2008.


6. (U) Congress then attempted but ultimately did not select
members of a new constitutional court, the last item on the
agenda for the session. The vote failed when the Pachakutik
party dropped out of a coalition with the PSC and ID on the
issue. Regrouping in an effort to block alternative
proposals, the PSC and ID affirmed that a new constitutional
court could not be chosen until a new Supreme Court was in
place, according to the Constitution. PRE and MPD party
leaders differed, but did not have the votes to push their
own candidates.

Insulza Welcomed By All
--------------


7. (SBU) OAS Secretary General Jose Miguel Insulza arrived
in Ecuador on July 26 to encourage dialogue and democratic
institution-building. Insulza publicly emphasized that he
came only to complete the OAS mandate of offering assistance
to Ecuador. When asked if he believed Ecuador's democratic
crisis was over, he replied that it was for Ecuadorians to
decide, but that he had a very positive opinion of the
situation. Insulza visited the Foreign Ministry, the Supreme
Electoral Tribunal (TSE),and met with the President, Vice
President, CONAM officials, and Congress members. Insulza
also offered OAS technical support for the 2006 elections to
TSE officials. Insulza's message of political sacrifice in

SIPDIS
favor of compromise was well received by all he met with,
including the local press. OAS sources tell us that the GOE
rejected an OAS request to draft a document committing both
to a core democratic agenda.

Gutierrez, in Peru, Fights Arrest Warrant
--------------


8. (SBU) Gutierrez is appealing his arrest warrant, arguing
that the Supreme Court of Quito did not have jurisdiction
over alleged crimes committed after his ouster, while in the
US. Gutierrez reportedly met with 80 supporters in Tumbes,
Peru on July 27. Presidential Advisor Jose Modesto Apolo
told PolChief he believed Gutierrez had no intention of
risking arrest by crossing into Ecuador. He speculated that
Gutierrez remained near the border for "fear of being
forgotten by the Ecuadorian public."

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


9. (SBU) Approaching 100 days in office, and having just
survived his first major setback on reform, we expect greater
caution from Palacio, and perhaps even an effort to build
political consensus in the future.
MEMMOTT