ECUADOR ECON WEEKLY: ALBA AND MERCOSUR, BOND PAYMENT,

UNCLAS QUITO 001889 SIPDIS SENSITIVE SIPDIS TREASURY FOR MMALLOY AND MEWENS E.O. 12958: N/A TAGS: ECON EFIN ETRD ENRG EC SUBJECT: ECUADOR ECON WEEKLY: ALBA AND MERCOSUR, BOND PAYMENT, ELECTRICITY SUBSIDIES, 2008 BUDGET. REFTEL: QUITO 1047 ¶1. (U) The following is a weekly economic update that reports notable developments that are not reported by individual cables. Ecuador Won't Join ALBA, Mercosur -------------- ¶2. (SBU) During his visit to Ecuador August 9, Venezuelan President Chavez extended another invitation for Ecuador to join ALBA, his Bolivarian Alternative for the Americas (President Correa previously declined to join the regional integration group, reftel). Correa replied that Ecuador would join ALBA when Venezuela returned to the Andean Community (CAN),implying that he prefers to focus on regional integration through the CAN. In an August 16 visit to Ecuador, President of Uruguay (and current President of Mercosur) Vazquez told Correa that Mercosur members would welcome Ecuador into the group "with open arms." Correa declared that he wanted to focus on the CAN, and later merge both the CAN and Mercosur into UNASUR, the Union of South American Nations (a yet-to-be launched regional integration group, which plans to establish its secretariat in Ecuador). Ecuador Pays Interest on Global 2030 Bonds -------------- ¶3. (U) The Ministry of Economy paid $135 million in interest on its Global 2030 bonds on time on August 15. This is the second and last interest payment for the year. The $2.7 billion bonds have an annual interest rate of 10%. In contrast to the widespread media and investor focus on the February payment, the first major debt payment due under the Correa administration, this payment was made with little fanfare. Lower Electricity Rates For Low-Usage Consumers -------------- -- ¶4. (U) The GOE implemented a plan to subsidize low-usage electricity consumers with lower electricity rates. Consumers from the coast and the Amazon region with an electricity usage of up to 130 kilowatt hours (kwh)/month, and consumers from the Sierra region with usage of up to 110 kwh/month are entitled to a 50 percent price reduction (a price of 4c/kwh versus the usual 8c/kwh). According to the GOE, the subsidy will benefit approximately 1.8 million subscribers in the country, and will have an estimated annual cost of $56 million. No details were provided on how the benefit will be financed. 2008 Budget -------------- ¶5. (U) The Ministry of Economy unveiled some of the parameters of the preliminary 2008 budget that it will present to Congress September 1. The notional budget would be $10.5 billion, surpassing 2007's $9.8 billion budget, although it could change before it is submitted. The Ministry assumes the price of oil will remain at $35/barrel (any revenue over the budget price goes to a petroleum reserve fund),oil production will increase due to increased investment, and oil exports will reach 185 million barrels (an increase of 2 million barrels over 2007). It also projects that debt service (interest and amortization) will fall to $1.9 billion (from $2.8 billion in 2007),as Finance Minister Ortiz plans to substitute short-term domestic Treasury certificates with long-term internal debt bonds. The GOE plans to issue bonds for $480 million in October 2007. BROWN