ANOTHER DEFECTION FROM GUTIERREZ'S INNER CIRCLE?

C O N F I D E N T I A L SECTION 01 OF 03 QUITO 000236

SIPDIS

E.O. 12958: DECL: 01/27/2015
TAGS: PGOV KCOR KDEM PREL PHUM EC
SUBJECT: ANOTHER DEFECTION FROM GUTIERREZ'S INNER CIRCLE?

REF: GUAYAQUIL 132

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


1. (C) SUMMARY: Tired and forlorn, Presidential Legal
Advisor and close Embassy contact Carlos Larrea informed
Poloffs January 27 that President Lucio Gutierrez was feeling
growing pressure from legislative allies for cabinet and
policy changes. The PRE party sought ministerial positions
from which it could rob public troughs, as well as exiled
leader Abdala Bucaram's return to Ecuador. Alvaro Noboa's
PRIAN opposed Gutierrez's judiciary reform referendum,
preferring the results of Congress's December 2004 court
housecleaning which left them controlling key criminal
tribunals. Neither wanted Larrea around, playing devil's
advocate to their Machiavellian maneuverings and advising the
president on Ecuadorian legalities. To preempt a move to
sack him, Larrea planned to resign from the Presidency and
return the Central Bank.


2. (C) Gutierrez's referendum required both legislative and
civil society backing to succeed, Larrea ventured. It
currently had neither. Should the measure fail, the
president was readying additional, further-ranging
plebiscites that included questions on dissolving Congress,
removing the sitting president, and even crafting a new
constitution (Poloffs warned that such moves would damage
heretofore good relations with the United States). Despite
the president's focus on referenda and Congress's continued,
petty bickering, Larrea thought the legislature would move on
its thick agenda in 2005. On items of interest to the USG,
anti-TIP and labor reform measures looked promising, but
energy sector changes appeared doomed. END SUMMARY.

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Signs of a Gathering Storm
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3. (C) Eternally candid and usually helpful, Larrea is the
Embassy's closest extradition contact and an ally in the
trafficking in persons (TIP) fight. He also is the
president's primary legal counsel and drafted much of the
judiciary reform referendum that Congress is currently
considering. Larrea visited the Embassy January 27,
talkative but unusually pessimistic. Changes in the
government were coming, he revealed, the product of
Gutierrez's alliances with his former detractors.


4. (C) PRE pressures were rising, Larrea claimed. To the
one constant -- that fugitive PRE leader Abdala Bucaram be
allowed to return without facing justice -- were added party
demands for key ministries. Energy, Public Works, and
Education topped the PRE list, all institutions flush with
cash and easily tapped. Bucaram's lackeys considered him a
wrench in their plans, Larrea boasted, and sought his ouster.
The pressure growing and the stress taking its toll, he was
considering submitting a letter of resignation. Larrea's old
post at Ecuador's Central Bank awaited.


5. (C) Noboa's ranks were not yet demanding ministries.
They strongly opposed the president's referendum, however,
seeing it contrary to party goals -- PRIAN-affiliated judges
now controlled the Supreme Court's criminal tribunals and
were well-placed to defeat legal efforts against Noboa's
business interests and practices.


6. (C) Larrea predicted imminent changes in Gutierrez's
cabinet. He was unsure whether the president would award his
PRE "allies" the ministries they sought. On Jaime Damerval,
however, Larrea was certain: the embattled minister of
government must go. Damerval picking a fight with popular
Guayas Governor Jaime Nebot had spawned Nebot's "White
March," a pro-autonomy protest in Guayaquil that buoyed the
opposition and made Gutierrez look bad (Reftel). Larrea saw
no change at the Foreign Ministry, despite recent public
outcry over FM Patricio Zuquilanda nominating presidential
brother-in-law Napoleon Villa, a retired police colonel, for
an Andean Court of Justice judgeship (Villa eventually
withdrew his name from consideration). In naming Villa,
Zuquilanda had sought to curry Gutierrez's favor, never a bad
thing in this administration, Larrea snickered.

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President Serious on Court Referendum
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7. (C) Gutierrez was committed to seeking the public's input
on the Supreme Court's eventual makeup; the current Court
truly was interim, Larrea claimed. Proof lay in the
president's recent letter to Congress, in which he threatened
to pull out of the "institutional majority" were the
legislature to vote down his initiative. Larrea thought
civil society outrage over sitting judges' poor
qualifications and alleged ties to drug traffickers was
appropriate. Rank-and-file Ecuadorians should have a vote on
individual judges or judge selection procedures, to prevent
such characters from obtaining public office.


8. (C) Larrea was skeptical the referendum would
materialize. One scenario had the Constitutional Affairs
committee in Congress issuing a majority opinion approving
the measure, but the plenary voting it down. There would be
no alliance discipline over this vote; PRE and PRIAN deputies
would vote no for self-serving reasons, leftist MPD and
Socialist for non-inclusion of pet issues, like opposition to
the Free Trade Agreement or the base in Manta.
Now-opposition parties the PSC and ID might support the
referendum, however, since it offered a chance to get
sympathetic justices back in office. Larrea noted that
Gutierrez realized the referendum, as written, was imperfect,
and would accept reasonable changes if they helped to gather
support.


9. (C) Civil society was wrong in opposing the measure only
because it came from Gutierrez's hand. Larrea believed the
referendum needed popular support even more than it needed
help in Congress. With current judges initiating legal
proceedings against protesters for excessive horn-tooting and
flag-burning outside Court headquarters, however, it was
doubtful that groups like Citizen Participation and
ProJusticia would back any government-driven judiciary reform.


10. (C) The president was readying contingency plans, Larrea
revealed. Other referenda were in the works, should Congress
shoot down the original. The first resembled the original,
but offered more generic questions on court depoliticization.
Another, which Larrea deemed dangerous to democracy, would
allow the president to dissolve Congress once during his term
(for balance, Congress could also remove the chief executive
with a two-thirds vote, without having to conduct a political
trial). Polchief responded that such moves would be fatal to
U.S.-Ecuador relations. Last, the president was considering
a call for a constitutional congress, with eyes toward
drafting Ecuador's 23rd Magna Carta.

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Congress Soon To Roll Up Sleeves?
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11. (C) Larrea brightened when he turned toward Congress's
agenda in 2005 (or perhaps it was the dozen Hershey's Kisses
he'd just downed). The administration was concluding
preparations of a much-needed competition law, a version of
which was struck down two year's prior. Responding to a
Polchief inquiry, Larrea believed the road open for anti-TIP
legislation before year's end. Labor reform, a necessity
should Ecuador wish to conclude FTA negotiations with the
United States, was further off but still do-able.


12. (C) The economic agenda looked tougher, Larrea feared.
Finance Minister Mauricio Yepez, a brilliant technician, was
a "horrible" politician. Yepez favored bundling electrical
sector reform, a popular measure, with hydrocarbon law
changes and a revamp of Ecuadorian Social Security. The
latter two were controversial, lacked votes, and could take
down the former. Larrea favored stand-alone bills.

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COMMENT
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13. (C) Larrea is plugged-in and not prone to hyperbole; his
assurances that Gutierrez supports fully the court referendum
are welcome. The bad news? The legal adviser's
sky-is-falling comments concerning pressures on the president
appear further proof that PRE and PRIAN support come with
long strings attached. Yet fissures exist between the two
parties that Gutierrez would be wise to exploit. An hour
after Larrea departed, an alarmed PRIAN bloc leader Sylka
Sanchez telephoned Polchief. Supreme Court President
Guillermo Castro, an ardent PRE supporter, allegedly was
considering issuance of a ruling to allow Bucaram's return.
Sanchez claimed Gutierrez was rumored to be on-board with the
action. She had confronted Castro, who denied the
allegations immediately. The PRIAN leader intended to follow
up with the president, however.
Kenney