PALACIO APPOINTS FOUR NEW MINISTERS

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 002970 SIPDIS E.O. 12958: DECL: TEN YEARS TAGS: PGOV PINR ECON EFIN PREL EC SUBJECT: PALACIO APPOINTS FOUR NEW MINISTERS REF: A. QUITO 02814 ¶B. QUITO 02863 Classified By: PolOff Rosemary Macray for reason 1.4 (b&d) ¶1. (U) Summary: Following weeks of speculation, President Palacio on December 29 named new economic, education, health and housing ministers. The most significant change to USG interest is the naming of flower sector businessman Diego Borja as Minister of Economy and Finance, replacing Magdalena Barreiro. Ivan Zambrano, head of the Northern Border Development Organization, takes the helm in the Ministry of Health. Hector Velez, an undersecretary in the Housing Ministry, moves to that ministry's top spot. Raul Vallejo will return to the office of Education Minister, which he held previously under President Rodrigo Borja. Considered with the earlier naming of Interior Minister Castillo, these changes appear to complete the president's year-end cabinet renovations and could signal new investments in social spending. End Summary ¶2. (SBU) New Minister of Economy and Finance Diego Borja hails from the leadership of Expoflor, Ecuador's largest association of flower growers. Although Borja is considered by most of our contacts to be on the left side of the political spectrum, we have not seen evidence of that in our relations with him over the past few years. As President of Expoflor, perhaps the producer association most dependent on exports to the U.S. and the ATPDEA, Borja has been a forceful and vocal supporter of the FTA negotiations. We have been told by mutual acquaintances that Borja accepted the appointment on the condition that Palacio would provide him with the political support necessary to cut back the current budget, bringing it into line with the Fiscal Transparency Law. That would be a strong positive sign of responsible fiscal intentions. ¶3. (C) Barreiro told the Ambassador in their first meeting, some four months ago, that she did not expect to last in the Ministry beyond December. She said someone with more political stature would be needed to deal with the increased pressures for spending of the upcoming election year. She told EconCouns a month ago that she did not trust volatile President Palacio not to fire her on the spot on any given day. Last week she told Commercial Counselor that she would resign within two weeks to begin the teaching year at the University of San Francisco (a local private university) where she taught before moving to the ministry. Pressure was building for Barreiro's removal from the mayors of Ecuador's three largest cities, Guayaquil, Quito and Cuenca. Barreiro has resisted the decision by the Ecuadorian Congress to reclassify oil revenue as current, rather than capital, income, which resulted in that revenue being subject to a 15 percent preassignment to the three city governments. This windfall is expected to be a major boon for electoral aspirations of the political parties that control the three municipalities (the Social Christians and Democratic Left). Biographic Information on New Ministers -------------- ¶4. (U) Raul Vallejo returns to the post of Education Minister where he served with the Leftist Democratic Party (ID) in the early 1990s under President Borja. Born in Manta in 1959, Vallejo received his master's degree at the University of Maryland on a Fulbright-Laspau scholarship. Prior to this latest cabinet appointment, Vallejo was professor of literature at University Andean Simon Bolivar in Quito and rector of Liceo International. He writes occasional editorials for the Quito daily "El Comercio" and has written numerous novels. ¶5. (U) Health Minister Ivan Zambrano, 35, worked closely with USAID officials during his short tenure as executive director of the Northern Border Development Unit. The Guayaquil native has a long friendship with Palacio, a fellow medical doctor from Guayaquil. Recently however Zambrano has concentrated his energies more on business than medicine, marketing Lexmark, Intel and Microsoft products. He's described as having a hands-on management style and as promoting U.S. business practices. As director of the Northern Border Development Unit he frequently visited project sites and met with USAID and Embassy officials. Minister of Housing Hector Velez previously served as Undersecretary in the Ministry's Office of Land Surveying. Comment -------------- ¶6. (SBU) We are sorry to see Barreiro go. She was a fiscally responsible and competent minister, who rebuilt relations with us and the IFIs in the wake of a disastrous predecessor (Rafael Correa, now running for president). Given the mounting political pressures to increase spending in an election year, we will encourage Borja to maintain fiscal discipline. This is particularly important as Barreiro, via a debt placement in New York and a loan from the FLAR, has obtained close to $1 billion which she intended to use to roll over debt. We worry that an irresponsible finance minister could embark on a fiesta of spending, rather than setting the fiscal house in order for the next government. JEWELL