MUSICAL CHAIRS MOVES INTO HYPERSPEED: TRADE TO

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 002092

SIPDIS

DEPT PASS USTR FOR B. HARMAN

E.O. 12958: DECL: 09/08/2010
TAGS: ETRD ECON PGOV PREL EC
SUBJECT: MUSICAL CHAIRS MOVES INTO HYPERSPEED: TRADE TO
GOVERNMENT, FOREIGN AFFAIRS TO MADRID

Classified By: ECON LARRY L. MEMMOTT, REASONS 1.4 (B,D)


1. (C) Summary: Minister of Commerce Oswaldo Molestina told
Ambassador he would be designated as the new Minister of
Government (police, security forces, congressional relations)
late on September 8. One of his deputies, Jorge Illingworth,
would take over as Minister of Commerce and Manuel Chiriboga
would take over as Chief Negotiator for the FTA. He made
clear that he also expected Minister of Foreign Affairs Parra
to be replaced before President Palacio left for New York the
night of September 13. He said Ecuador would keep up with
Colombia and Peru in the FTA negotiations, which he thought
could be concluded by the end of 2005, but not by October.
End Summary.

Moving On


2. (C) Ambassador paid an introductory courtesy call on
Molestina the afternoon of September 8. Molestina began the
meeting by dropping the bombshell: his move to the Ministry
of Government would be announced within hours. He said this
should not be seen as a setback for FTA negotiations. The
GOE had managed to maintain continuity in the change of
governments in April, and would do it again. The new
minister, Jorge Illingworth, was well acquainted with the
negotiations. The new chief negotiator had been Ecuador's Ag
negotiator, so was also well up to speed. Molestina noted
that his own past experience in the congress as president of
the international relations committee - where the TLC will
get its first hearing - will also be a plus.

And Parra to Go Too


3. (C) Molestina expressed exasperation with his Peruvian
and Colombian counterparts for leaving Ecuador out of the
meeting between the Presidents of the two countries the week
before "which had only one agenda item: the FTA." He said he
had protested to the Peruvians, only to be told that Peru had
informed Ecuadorian Minister of Foreign Affairs Parra.
"Parra forgot to tell us," he concluded with obvious
distaste. Molestina said he had intended to accompany
Palacio to New York for the UNGA, but would now need to stay
in Ecuador to get up to speed on his new issues. Asked by
Ambassador who would be going, he said, "well, Parra WAS on
the list. There will be big changes before the delegation
leaves, though." Molestina noted that Palacio had taken over
the presidency "without a formed team." The cabinet had been
cobbled together from friends and the recommendations of
friends. Some ministers had clearly not worked out, and were
now being replaced. "By the time the President leaves for
New York," he promised, "it will be easier for the U.S. to
understand his real intentions," implying that cabinet
changes would result in a government with a consistent
message and a profile more acceptable to the U.S.

Speeding Up FTA Negotiations


4. (C) Back on trade, Molestina said he understood that
Toledo and Uribe had agreed to conclude the negotiations by
October. He did not think it was possible. Ambassador noted
that House Ways and Means Chairman Thomas had said that the
negotiations had to be concluded by the end of the year if
they were to be ratified by the U.S. Congress in time to
prevent expiration of ATPDEA benefits. Molestina said he
understood and had no doubt that the agreement could be
concluded by the end of the year.

A Very Bad Banking Law


5. (C) Ambassador raised the new banking law which
surprisingly had passed the first hurdle in the Ecuadorian
Congress on Sept. 1. She pointed out that this law, which
would fix interest rates, ban fees, and allow the state to
direct the lending of private financial institutions, would
be a disaster for the financial sector and the nation.
Molestina agreed. He said he had just met with private
bankers and it was clear that this proposal could not become
law.


6. (C) Ambassador noted that the USG also has many issues
before the Ministry of Government. We would look forward to
working with him in his new capacity on such crucial issues
as counter-narcotics, counter-terrorism cooperation and
trafficking in persons. Molestina responded with enthusiasm.

Comment: All to the Good


7. (C) Gandara and Parra have been, together with Minister
of Finance Correa who was jettisoned in July, the most
problematic ministers for us, frequently coming out publicly
against the United States and our interests, and, in the
cases of Parra and Correa, pushing for closer relations with
Venezuela. Replacement of Gandara by Molestina, one of the
stars of the Palacio cabinet and one of those who has been
easiest for us to work with, will benefit U.S.-Ecuadorian
relations significantly. We expect Parra's replacement,
rumored to be a respected senior career diplomat currently
serving as Ambassador to Spain, will also be an improvement.

8. (C) Jorge Illingworth is the Chamber of Industry's person
in the Ministry of Trade. As such, he is committed to free
trade, and we are certain we will be able to work well with
him. We do not believe these changes significantly change
the situation for FTA negotiations. We continue to believe
that Ecuador will work hard to keep up to the slowest of its
partners, likely Colombia. If Colombia is ready to conclude
by the end of 2005, Ecuador should find a way to do the same.
JEWELL