FIRST LADY: CABINET SHAKEUP COMING SOON

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 002814

SIPDIS

E.O. 12958: DECL: TEN YEARS
TAGS: PGOV PINR PREL ECON EC
SUBJECT: FIRST LADY: CABINET SHAKEUP COMING SOON


Classified By: PolChief Erik Hall for reason 1.4 (b&d)


1. (C) Summary: First Lady Maria Paret de Palacio called on
the Ambassador on December 9 to share President Palacio's
intended Cabinet changes in advance of a public announcement
which she implied was imminent. The First Lady said Palacio
wished to assure the USG that Alfredo Castillo, his choice
for Government Minister, would not have negative implications
for Ecuador's good relations with the U.S. End Summary.


2. (U) Speculation has been rampant over Palacio's
contemplated cabinet shakeup since December 7, when all
cabinet members were required to submit letters of
resignation for the president's consideration. Presidential
Secretary General of Administration (chief of staff

SIPDIS
equivalent) Luis Herreria stepped down on December 2, to be
replaced by rival presidential advisor Jose Modesto Apolo,
presaging the internal conflict and jockeying underway.
Press had speculated that Defense Minister Oswaldo Jarrin was
likely to go, given the president's abrupt changes to the
military high command while Jarrin traveled abroad. The First
Lady met with the Ambassador on December 9, carrying a
message from the President that she said he preferred be
relayed in person since he thinks his phones are tapped.


3. (C) President Palacio intended to make the following
changes to his Cabinet, she said:

-- Government: Galo Chiriboga will return to his post as
Labor Minister, and be replaced in the Government (Interior)
ministry by presidential advisor Alfredo Castillo.

-- Economy/Finance: Magdalena Barreiro will be replaced by
Eduardo Cabezas, the current president of the Central Bank.
Barreiro is the subject of soon to be public allegations of
corruption, according to the First Lady. She will be
replaced by Eduardo Cabezas, a former diplomat and economic
official recent appointed president of the Central Bank.

-- Education: Consuelo Yanes Cossio ("she is so weird," the
First Lady commented) will be replaced by writer and educator
Raul Vallejo.

Defense Minister Jarrin and Energy Minister Ivan Rodriguez
would not be changed, despite press speculation to the
contrary, she said, nor would "the other ladies" (Tourism and
Environment ministers) in the cabinet. (Note: Jarrin
confirmed he was staying in a phone conversation with the
Ambassador that same morning.) After last-minute pleading by
his wife to the First Lady, a long-time friend, Social
Welfare Minister Alberto Rigail will be permitted to serve a
few more months, but has been put on notice that he must be
more productive. No mention was made by the First Lady of
Foreign Minister Carrion, whose position has not been the
subject of any speculation.


4. (C) According to the First Lady, President Palacio had
asked her to speak with the Ambassador because he was
concerned that his intended Government Minister, whose
position is first among equals in the cabinet, might cause
USG concern about a possible Palacio government shift toward
the left of the political spectrum. That is certainly not
the case, the First Lady assured the Ambassador. Castillo is
certainly a leftist, but is less hard-line than in the past,
she said. She said that Palacio told Castillo that he must
stay out of issues that affect the U.S., including the FTA,
Occidental Petroleum, and existing agreements with the U.S.
including the Manta basing accord. Those issues would be
handled directly by the president.


5. (C) The Ambassador thanked the First Lady for informing
her of these prospective changes, and urged that regardless
of the changes, the Government resist any temptation to
depart from fiscal responsibility in an election year and
seize the opportunity offered by an FTA with the U.S. in

2006. The First Lady was optimistic about prospects for the
signing of an FTA with the U.S., saying "we'll get there."

Reform Hopes Dead or Reborn?
--------------


6. (C) Dr. Alfredo Castillo Bujase, Palacio's apparent
choice for his highest-ranking minister, was the founder of
the now-defunct Marxist National Liberation Party, was an
advisor to disgraced populist president Abdala Bucaram and
was the running-mate of populist banana magnate Alvaro Noboa.
A well-connected politician from the ID party had recently
told us that Castillo and another prominent leftist,
presidential advisor Pedro Saad, had been the key advisors to
the president on his failed initiative to compel a referendum
on a national constituent assembly. That initiative was
roundly rejected by the Supreme Electoral Tribunal on
December 5, after Congress intervened to readjust the
tribunal's composition. However, after being rebuffed for a
second time by the Tribunal, the President again publicly
appealed for citizens to express their support for reform in
a nationally televised address on December 7.

7. (C) According to the First Lady, Castillo's appointment
would come after Palacio had played his last card on the
referendum. "Alfredo (Palacio) did all he could to advance
the cause of the assembly," she said. "Now it is up to the
people to press Congress from the streets." Asked if she
thought the people would act, after Palacio took to the
airwaves to encourage them to do so, Paret confessed she did
not.

Job Taking its Toll on Sleepless President
--------------


8. (C) Paret lamented that members of the political
opposition were actively seeking grounds to impeach the
president, most recently looking into presidential spending
during his weekly visits to his hometown, Guayaquil. She
complained that Palacio's health was suffering from his work,
citing his high blood pressure and persistent insomnia in the
capital (but not on the coast). He is being treated by his
daughter, a doctor practicing in the United States. She said
that he was now re-directing his energy to his project for a
new national health plan, spending hours every afternoon
sequestered with advisors.

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


9. (C) The appointment by Cabezas to the Finance Ministry
would not appear to signal any significant change in policy,
and his establishment background hopefully portends smooth
relations with the international financial community. The
decision to retain Jarrin at Defense is very good news as is
the decision to keep Rodriguez at Energy. But Castillo's
appointment, regardless of Palacio's efforts to shield our
bilateral relations, is troubling. The Minister of
Government is typically the Executive Branch liaison with the
Congress, and we would worry about his role in an eventual
effort to pass the FTA through congress. Despite the First
Lady's assurances, Castillo will likely become involved in
issues that affect us. As one of the advisors who apparently
helped to create the current political confrontation between
Palacio and Congress, Castillo is more likely to make those
relations worse in his new, more prominent role. His leftist
leanings, however moderated, will almost certainly alienate
the powerful Social Christian party. Castillo's appointment
could indicate a political accord with PRIAN leader Noboa.


10. (C) We will carefully watch Castillo's behavior and
express concern to the President if his assurances regarding
our interests are violated. The Ambassador lauded his
decision to retain Jarrin and Rodriguez. We had heard no
rumors of corruption regarding Minister of Economy Barreiro.
If the allegations are true, she should be removed. However,
her dismissal after Ecuador's successful private market
financing of $650M in bonds this week and her leadership
returning Ecuador to a more responsible fiscal policy could
create more uncertainty about Palacio's commitment to sound
fiscal management.
JEWELL