NEW MINISTER OF FINANCE: LOWERING DEBT'S POLITICAL

C O N F I D E N T I A L QUITO 001995

SIPDIS

SIPDIS

TREASURY FOR M.MALLOY

E.O. 12958: DECL: 08/31/2017
TAGS: EFIN ECON PGOV EC
SUBJECT: NEW MINISTER OF FINANCE: LOWERING DEBT'S POLITICAL
PROFILE

REF: QUITO 1758

Classified By: Classified by Ambassador Linda Jewell. Reason: 1.4 B a
nd D.


1. (C) Summary. Fausto Ortiz, the new Minister of Finance,
told the Ambassador that his top objective is to lower the
rhetoric on debt. Ortiz plans to travel to Washington the
first week of September for meetings with the Interamerican
Development Bank, World Bank and IMF. End summary.

Lowering the Rhetoric on Debt
--------------


2. (C) The Ambassador met with new Minister of Economy and
Finance Fausto Ortiz (reftel) on August 29. When asked about
his biggest challenge, Ortiz replied: lowering the political
profile of debt. He did not elaborate on how he would do
that, but made clear that while debt remains a significant
issue for the GOE, he does not want it to dominate his
agenda.


3. (C) When the Ambassador asked about a debt commission
that Correa established in July, Ortiz made two comments.
First, he said that Correa did not/not instruct the
commission to identify "illegal" debt that Ecuador would not
pay, but rather told the commission to investigate the
government's debt and show the nation how it could best
manage the debt. Second, he said that he (Ortiz) instructed
his representative on the debt commission, former Minister of
Economy Patino, that the commission has to give him several
options. He does not want the commission to only recommend
non-payment of debt.

Meeting the IFIs in Washington
--------------


4. (C) Ortiz said that he hopes to travel to Washington
September 4-6 to meet with the Interamerican Development Bank
(IDB),World Bank, and International Monetary Fund (IMF).
However, he was waiting for Correa's final approval for the
trip, and cautioned that if Correa had concerns with the
draft budget that is to be presented to Congress on September
1 he might have to remain in Ecuador.


5. (C) Tacitly confirming that it is more politically
acceptable in Ecuador to deal with the IDB than the other
Washington-based lenders, Ortiz stressed that the official
reason for his visit is to meet with the IDB. However, he
said that he will hold informal meetings, over dinner on his
own time at the end of the day, with the World Bank and IMF.


6. (C) Continuing on the theme of his need to proceed
carefully in establishing ties with the Washington-based
lenders, Ortiz said that he had met with the IMF's
representative in Ecuador, Jorge Guzman. He told Guzman that
he'd continue to meet with Guzman, but only after the
September 30 Constituent Assembly elections; in the interim,
he could not take the risk of being seen as "the IMF's best
friend" in Ecuador. (Note: Guzman confirmed to the Embassy
that he had met with Ortiz, after being blackballed by the
Ministry under Patino. Guzman believes that following his
meeting with Ortiz he will be able to meet with other
Ministry officials as well.)


7. (SBU) Ortiz told the Ambassador that if he does travel to
Washington and his schedule permits, he would also be
interested in meeting with U.S. Treasury officials.

Reexamining the Petroleum Funds
--------------


8. (C) When asked about a report that he is planning to
close several of the petroleum reserve funds and bring that
revenue onto the central government budget, Ortiz said that
he plans to take a careful look at what makes the most sense.
He said that he requested help from Economic Commission for
Latin American and Caribbean (ECLAC) to determine whether
Ecuador needs the petroleum reserve funds, and if so, what
would be the best structure. He said that in his view, the
FEISEH fund, which uses revenue from the former Occidental
Petroleum fields to finance electricity and petroleum
investment, probably makes sense. However, he said some of
the other funds, which have extensive earmarking, are rigid

and difficult to operate. He noted that Correa has never
called for the elimination of the funds, but has instead
called for the elimination of earmarks. Ortiz added that
2008 budget assumes that the petroleum funds will continue to
operate as currently structured.

Relations with Correa
--------------


9. (C) Ortiz said that he has known President Correa for 25
years. He implied that he has a sufficiently strong
relationship that he could tell Correa "we're friends, but I
disagree with your suggestion," but acknowledged that Correa
has the authority to say, "we're friends, I'm the president,
and you can go home now." He said that Correa is of the
left, but more importantly that he is pragmatic. He said
that it helps him, as Minister of Economy, that Correa is
also an economist because Correa readily understands the
issues, and once the President endorses a position proposed
by Ortiz, that helps him manage issues with other members of
the cabinet.


10. (C) Comment. Ortiz should be a very different Minister
of Finance than his politically outspoken predecessor,
Ricardo Patino. Patino focused heavily on making noise about
Ecuador's external debt obligations but showed little
administrative interest or ability. In contrast, Ortiz is
seeking to down-play debt issues and focus on managing the
budget. He also appears to be sufficiently confident of his
standing within the government to reach out cautiously to the
IDB, World Bank and IMF, which had little or no contact with
the GOE under Patino. While Ortiz did not say so, we suspect
that in reaching out to these institutions he recognizes that
he may need to turn to them for financing down the road.
JEWELL