SECOND ROUND OF CHANGES IN THE ECONOMIC CABINET

C O N F I D E N T I A L QUITO 002625 SIPDIS SIPDIS E.O. 12958: DECL: 12/14/2017 TAGS: ECON EFIN EAIR PGOV EC SUBJECT: SECOND ROUND OF CHANGES IN THE ECONOMIC CABINET REF: A. QUITO 2575 ¶B. QUITO 1182 ¶C. QUITO 2237 ¶D. 06 QUITO 1722 ¶E. QUITO 2571 ¶F. QUITO 2580 ¶G. QUITO 999 ¶H. QUITO 2585 ¶I. QUITO 1176 Classified By: Classified by Ambassador Linda Jewell. Reason: 1.4 b an d d. ¶1. (C) Summary. There have been a number of changes in Correa's economic team over the past two months, the second significant round of changes in his economic team in less than a year. For the most part, the new members are pragmatic or technically competent, but lack experience. The new Coordinating Minister for Production, Susana Cabeza de Vaca, is someone with whom the Embassy enjoys an excellent relationship, while the new Coordinating Minister for Economic Policy, Pedro Paez, is not. Correa appointees now control the previously autonomous Central Bank and Superintendency of Banks; they have technical experience but appear overwhelmed by their assignment to merge the two institutions. End summary. ¶2. (C) In a second round of changes in his economic team, on December 1 President Correa appointed Susana Cabeza de Vaca as Coordinating Minister for Production and Jorge Marun as Minister for Transportation. On December 3, he appointed Gloria Sabando as Superintendent of Banks. In addition, on November 29 he fired the President of Petroecuador and replaced him with Guillermo Fernando Zurita Fabre (reftel A). A month previously, on October 31, he appointed Pedro Paez as Coordinating Minister for Economic Policy. On November 13, the Central Bank board, now controlled by Correa appointees, selected Mauricio Martinez as General Manager of the Central Bank. This follows a previous large turnover in Correa's economic team over the summer (reftel B). Susana Cabeza de Vaca, Minister for Production -------------- - ¶3. (C) Susana Cabeza de Vaca, the new Coordinating Minister for Production, is well known to the Embassy, having served the past several years as Director of the U.S.-Ecuadorian Fulbright Commission. Cabeza de Vaca lived many years in the U.S., and studied at Michigan State. She established the business program at the San Francisco University, one of Ecuador's best private (and unabashedly market-oriented) universities. In that capacity, it was she who hired Correa to teach economics in the business program, and they have since remained close. Given her close relationship with both Correa and the Embassy, she should be an important interlocutor for us, as well as a moderating influence in the government. Cabeza de Vaca is a dual Ecuadorian-U.S. national. ¶4. (C) Cabeza de Vaca replaces Maurico Davalos, who had been one of Correa's few advisors with government experience, having served in a number of previous of governments. However, unlike other cabinet changes, Davalos has not been shuffled into a different position, suggesting either dissatisfaction on Correa's part with Davalos's performance, or frustration on Davalos's own part that he did not exercise sufficient influence over policy. ¶5. (C) The Ambassador will meet with Cabeza de Vaca on December 14, when we should learn more about her priorities in her new job, which notionally call for coordinating GOE policies to promote domestic production. She is supposed to have oversight over the ministries of petroleum, electricity, agriculture, industries, transportation and tourism. Davalos was a frequent point of call for businesses that were seeking to work with the government or resolve problems, but it was not readily evident that he played an effective trouble-shooter role. He appeared to have established his strongest niche on trade policy and chaired the COMEXI, the public-private trade policy body. However, it is not clear if that responsibility will shift over to Pedro Paez. Pedro Paez, Minister for Economic Policy -------------- ¶6. (C) When he was appointed in October as Coordinating Minister for Economic Policy, Pedro Paez took over half of what had been Mauricio Davalos's portfolio. The plan is that Paez will take over the economic policy side of the Ministry of Economy and Finance, freeing up the Minister of Finance, Fausto Ortiz, to focus on fiscal policy. To date, it appears that Paez has focused on the formation of the Banco del Sur, which was established in a December 9 signing ceremony in Buenos Aires. However, according to GOE statements when Paez was appointed, he'll also have oversight over trade policy. A conversation with the former Vice Minister for Economic Policy (whose bureaucracy will shift to Paez's office) suggested that the new position may try to improve GOE spending, since the GOE's inability to execute its ambitious investment plan has frustrated Correa (reftel C). ¶7. (C) Paez served as Vice Minister for Economic Policy under the Palacios administration, and is considered the author of the 2006 legislation that required private oil companies to transfer at least 50 percent of their extraordinary income to the state (reftel D). He spent most of his career at the Central Bank, and also held several academic positions. Paez was notably chilly in his meetings with the U.S. Embassy when he was Vice Minister in 2006, and comes across as one of the most ideologically-charged members of the current Correa circle. The Embassy has not yet sought contact with him in his new position. Jorge Marun, Minister of Transportation -------------- ¶8. (C) Jorge Marun takes over as Minister of Transportation and Public Works, replacing Hector Villagran, who himself had been appointed in the first round of cabinet changes during the summer. Villagran supervised the construction of new facilities for the Constituent Assembly, which were finished on time, and reportedly was appreciated by Correa. However, Villagran was caught up in a scandal of a nanny seeking child support, which may have been the reason that the morally conservative president asked Villagran to leave. Villagran remains as an advisor to Correa and will return to his previous position as president of the Ecuadorian railway. ¶9. (C) Marun was previously the Prefect (the highest elected official at the provincial level, who is primarily responsible for public works and projects outside of urban areas) of Los Rios province, and had been associated with the populist Roldosista (PRE) party. He served at Minister of Trade in 1996 and as a Member of Congress in 1998. Marun also worked for the insurance company Grupo Atlantis, and we've been told that he thinks like a businessman. However, his tenure as Prefect was marked by accusations of corruption, and there were few public works projects completed in Los Rios province. In one of his first acts as Minister, Marun met with Quiport, the operator of the Quito airport concession that has been challenged by President Correa (reftel E). This was the first meeting between Quiport and a senior federal government official, and Marun supposedly told Quiport that the GOE wants to respect the concession but is looking for the Quito municipality to provide a share of the airport's revenue to the federal government. Gloria Sabando, Superintendent of Banks -------------- ¶10. (C) Gloria Sabando replaced Alfredo Vergara, who was dismissed by the Constituent Assembly (reftel F). Vergara had been appointed by Congress, and President Correa had blasted him as incompetent (reftel G),a view that other observers also shared. Sabando has prior banking experience, having headed the Ecuadorian Deposit Guarantee Agency (AGD), and previously worked for several large Ecuadorian banks. An USAID financial sector advisor reports that she understands the technical issues in her portfolio, and her deputy requested additional USAID assistance to implement financial sector reform, reaffirming interest in an ongoing USAID project (reftel H). Mauricio Martinez, Manager of the Central Bank -------------- - ¶11. (C) Mauricio Martinez replaced Jorge Davalos as General Manager of Central Bank. Davalos had been appointed only in June, after his predecessor quit in May because of pressure from the Correa administration (reftel I). Davalos had been a member of the Central Bank Board appointed before Correa took office, but had been seen as more acceptable to Correa. However, Davalos retired along with five other senior Central Bank officials in November, supposedly for personal reasons but more likely because they opposed plans to reform the Central Bank. ¶12. (C) Since Jorge Davalos's appointment, Correa has named three new members of the Central Bank board, first Miguel Ruiz in August to fill Davalos's old board position, and then Robert Andrade and Luis Rosero in October to fill two vacant positions. This gives Correa appointees effective control of the five-member board, which they are using to shepherd a plan to merge the Central Bank with the Superintendency of Banks. Embassy officials have met Andrade, who is the de facto leader of the Correa team on the Board, and Luis Rosero, and believe that both are reasonable officials seeking to implement Correa's guidance in a pragmatic way. However, they seem to lack the experience to manage the challenging task that they have been given. ¶13. (C) Mauricio Martinez is a career Central Bank employee, who most recently had been head of the economic studies division in the Guayaquil office, rather than the main office in Quito. Prior to his appointment as General Manager, he had participated in a USAID-sponsored visit to the U.S. and El Salvador to study deposit insurance programs, and came across as a reasonable, technically competent official who focused his questions on how to combat corruption. Thus far he appears as more of caretaker manager, taking his guidance from above, rather than one who will set policy. Comment -------------- ¶14. (C) The combination of these appointments is a mixture of good and bad news. Mauricio Davalos's departure removes a moderate, experienced official from the government, although Susana Cabeza de Vaca is a close Embassy interlocutor who is pragmatic but relatively inexperienced in government. Pedro Paez is an unfortunate appointment, but thus far he does not seem to have played an influential role in economic policy making. Usually the Minister of Transportation is not a significant embassy interlocutor, but our contact with this minister will take on greater importance given the current focus on the Quito airport concession. It is a hopeful sign that Marun met with Quiport shortly after he took office, although the allegations of corruption are troubling. ¶15. (C) With the new appointments at the Central Bank and Superintendency of Banks, Correa has effectively gained control of two formerly autonomous institutions. In general, loss of autonomy is troubling, but Correa has been determined to reform these institutions. Therefore there are some practical benefits that his people are now inside the institutions and more aware of the implications of the changes they are going to make. The people that he has appointed to these positions are largely technically competent officials who have sought assistance from USAID and the Inter-American Development Bank. Senior Central Bank and Superintendency officials are now talking to each other as they draft their reform package, something that had not been happening previously. However, they do not have the experience or time to effectively make the wide-scale reforms that Correa is seeking to make in short-order. Furthermore, it appears that they do not have the confidence in their positions to make policy recommendations and are instead waiting for guidance from Correa. The one certainty is that Correa himself will remain the undisputed architect of GOE economic policy. JEWELL