EMBASSY QUITO WELCOMES D VISIT

UNCLAS SECTION 01 OF 04 QUITO 000978

SIPDIS

SENSITIVE
SIPDIS

FROM THE AMBASSADOR TO D

E.O. 12958: N/A
TAGS: OVIP PREL PGOV ECON EAID WHA EC

SUBJECT: EMBASSY QUITO WELCOMES D VISIT


1. (SBU) Summary: Please accept my warmest welcome of your
upcoming return to Ecuador. With Ecuador's government having
recently passed the 100-day mark, your visit comes at a time of
opportunity to advance mutual interests, and also to review some
concerns about the direction the government is taking. I believe
Ecuador is poised at a watershed moment, eager for systemic change
but not yet certain of what path it will follow. Your exchanges
with the new Ecuadorian leadership will improve understanding and
signal USG interest in this key member of the troubled Andean Ridge
community. Your public appearances will highlight a positive story
of how USG assistance is helping poor Ecuadorians and promoting
shared interests. I am convinced that respectful bilateral dialogue
focused on areas of convergence, as embodied by your visit, will
maximize the odds of Ecuador finding a positive path towards reform
and avoiding the ills that have beset some of its neighbors.


2. (SBU) I look forward to the chance to discuss these issues with
you in person upon your arrival, but in the meantime hope the
following information on the current situation and challenges in
Ecuador, and how we are making a difference here, will be of
interest to you. End summary.

Fragile Democracy Struggling to Change
--------------


3. (SBU) While Ecuador has modernized considerably since your
posting here in the 1970's, its historical pattern of chaotic
central government remains unchanged. Returning to civilian rule in
1979, Ecuador's democracy is fragile and caught in a cycle of
political instability reflecting popular disillusionment with the
central government. (Municipal governance, in contrast, is more
stable and increasingly delivers for its citizens.) Rafael Correa
became Ecuador's eighth president in ten years when he was
inaugurated on January 15. As you know, political fragmentation is
endemic in Ecuador, a diverse country with three distinct
geographical regions and crisscrossing ethnic and class divisions.
Given this situation, our top democracy goal in Ecuador is to
promote and support democratic stability here.


4. (SBU) Correa won the election by successfully presenting himself
as the "change" candidate to a population frustrated by the unstable
and disappointing governments of recent years. He ran on a platform
promising systemic reform of the political and economic systems, and
staked his presidency on the success of an unbounded national
constituent assembly to rewrite the constitution and reform the
state. His is not a class or ethnic-based majority; he enjoys broad
popularity among all demographic groups and regions. Small pockets
of entrenched elites, especially in Guayaquil, are currently
virtually the only elements not openly supportive or at least
cautiously hopeful about the Correa government.


5. (SBU) Voters overwhelmingly (by 82.1 per cent) backed Correa's
Assembly proposal by approving a referendum on April 15; elections
for the Assembly will take place September 30. The relentless push
for the Assembly in the run-up to the referendum took a further toll
on democratic institutions that had already been discredited.
Electoral authorities sacked 57 opposition members of Congress for
attempting to block the Assembly. When the Constitutional Tribunal
ruled on April 23 to reinstate the 57, the replacement Congress
voted to dissolve the Tribunal. All these moves, from all sides,
are of similarly murky legality and no fully creditable institution
is in place to sort out the situation.

The Economic Agenda
--------------


6. (SBU) The economy has performed well since the 1999/2000
economic and banking crisis, thanks to the stability provided by
dollarization and the fiscal windfall due to high oil prices.
Non-traditional exports and growing remittances have also helped.
With solid growth and low inflation, real incomes have risen and
poverty has fallen since 2000.


7. (SBU) Correa's economic agenda combines strongly held
ideological views, partially moderated by pragmatism, with increased
government spending to support education, health care, small
businesses, and infrastructure. In spite of his rhetoric during his
campaign and the first month of his presidency, Correa (thus far)
has not defaulted on debt, nor increased state control over the
banking and energy sectors, as some have feared.


8. (SBU) Correa's expansionary spending programs are designed to
address pressing needs and generate political support for his
government and the constituent assembly. If oil prices remain high,
the GOE can maintain current spending for 12-18 months by drawing
upon oil reserve funds. In 2008, though, the government could face
fiscal pressures unless it taps new financing (e.g., borrowing from
Venezuela, the Banco del Sur or other development banks, or
curtailing expensive energy subsidies).

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Trade and Economic Engagement
--------------


9. (SBU) The GOE is pressing for at least a five-year extension of
the Andean Trade Preferences Act (ATPA),and most Ecuadorians assume
that it will be extended before it expires in June. Correa said
that he would not accept a bilateral FTA as it was being negotiated,
but some GOE officials have inquired about alternatives. We
explained that we do not have any "FTA-lite" models. However, in
response to their inquiries about engaging on trade matters, we are
developing a proposal for a broad economic dialogue that would be
chaired by the State Department.


10. (SBU) Establishing an economic dialogue is one example of how
we are engaging the Correa administration on economic issues. In
addition, we are exploring an Open Skies civil aviation agreement,
are prepared to provide technical assistance for banking reform,
want to strengthen Ecuador's sanitary and phytosanitary regime, and
are implementing a USAID trade and competitiveness project.
Anti-corruption efforts offer another area of significant potential
cooperation.

Difficult Investment Climate
--------------


11. (SBU) A series of investment disputes with U.S. companies
predate the Correa administration. The three high profile cases
are:

-- Occidental Petroleum: assets seized in May 2005 for alleged
contract violations; Correa government is participating in the
arbitral process after initially hesitating;

-- Chevron: legal cases alleging environmental damage by Texaco,
now part of Chevron; Correa spoke on behalf of those suing Chevron;
we privately reminded the GOE of the importance of allowing the
judicial process to move forward in an independent and
non-politicized way; and

-- Machala Power: Machala Power is prepared to double its
electricity generating capacity if its payment problems are
resolved; the GOE asserts it wants to settle the arrears, but has
taken no concrete steps.

Ecuador-Colombia Relations Sensitive
--------------


12. (SBU) President Correa recently unveiled his government's Plan
Ecuador, designed to coordinate GOE development activities and
attract international support to counter alleged spillover effects
in Ecuador of Colombia's internal conflict. Ongoing USG support is
still welcome and may not be directly affected by the Plan. Our
support incorporates development assistance to improve the quality
of life and spur licit economic growth; counter-narcotics aid to
curb smuggling of precursor chemicals, cocaine, and heroin; and
military-to-military assistance and cooperation to strengthen
Ecuador's ability to secure its northern border and control its
territorial waters. Aerial eradication of coca plants by Colombia
within 10 km of the Ecuadorian border remains an irritant in
Ecuador-Colombia relations. The two countries have formed a
bilateral commission of experts to investigate possible health
effects on Ecuadorian border residents.

Drug Trafficking and USG Assistance
--------------


13. (SBU) Ecuador is a major narcotics transit country. While there
is no evidence that illicit crops are cultivated to any significant
extent, a recent raid of three laboratories could indicate an
alarming shift in the production of cocaine to Ecuador. We had
already noted a significant rise in transit of drugs from Colombia
through Ecuador to Ecuadorian-flagged vessels to move multi-ton
cocaine loads. Ecuadorian-flagged vessels seized with drugs aboard
outnumbered Colombian-flagged vessels for the first time in 2005 and
the amount of cocaine seized on the Ecuadorian vessels was over four
times the amount seized on Colombian vessels.


14. (SBU) Since 2001, the Department of State has allocated about
$77 million to help Ecuador combat drug trafficking. Additionally,
the Drug Enforcement Agency provides nearly $1 million annually for
Ecuadorian counter-narcotics law enforcement. USG-supported
projects have constructed police bases and checkpoints to expand
police presence, especially in border areas. In addition, the USG
is funding drug abuse prevention, the construction of port
inspection facilities; technical inspection equipment from canines
to digital x-rays and ion scanners; vehicles; communications; field
equipment and operational support. The Ecuadorian military also
received $6.2 million in counter-narcotics funding from SOUTHCOM

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over the past two years for radio purchases and infrastructure
projects in the northern border. About $1 million per year in USG
funding has been used to train police and judicial officers in the
investigation and prosecution of cases under Ecuador's new Code of
Criminal Procedures. The Correa government has expressed support
for on-going CN cooperation and has been true to that word thus
far.

Manta FOL Important Counter-Drug Tool
--------------


15. (SBU) Despite its success, the U.S. military presence at the
Forward Operating Location within an Ecuadorian airbase at Manta is
controversial here based on sovereignty concerns, and President
Correa campaigned promising he would not renew the FOL agreement
when it expires in 2009. Critics decry not only "foreign troops on
national soil," but also that it was a bad deal for Ecuador (we pay
no rent),and risks drawing Ecuador into Colombia's internal
conflict. We have designed and begun a coordinated public relations
campaign to make the case for the benefits the FOL brings to
Ecuador, while expressing USG appreciation for Ecuador's continued
collaboration in the shared fight against transnational crime and
narco-trafficking.

American Citizen and Immigration Issues
--------------


16. (SBU) Ecuadorians look to the U.S. as a destination for leisure
and business travel, work and immigration, both legal and illegal.
The U.S. Consulate in Guayaquil issued 7476 immigrant visas in 2006,
an increase of 33 percent over the previous year. Non-immigrant
visas were issued in Quito and Guayaquil to 56,506 of 86,767
Ecuadorians who sought permission to travel to the United States.
Approximately 20,000 American citizens, a significant percentage of
Ecuadorian descent, live as full-time residents in Ecuador.
Estimates of the number of Ecuadorians resident in the United States
vary from 375,000 to a high of 1.2 million. One credible study
estimates that 3.5 percent of Ecuador's total population lives in
the U.S., while neighboring Peru and Colombia both are estimated at
one percent. Anecdotal evidence from our consulates reveals
Ecuadorian concentrations in the New York metropolitan area,
metropolitan Washington D.C., Miami, Chicago, Los Angeles and North
Carolina.

USAID's Declining Budget
--------------


17. (SBU) USAID has four foreign assistance objectives in Ecuador:
to increase support for the democratic system, prevent/reduce the
impact of the narco-economy by improving the quality of life along
Ecuador's borders, conserve biodiversity, and increase economic
opportunities for the poor. USAID's Foreign Assistance levels were
$35.1 million for 2005 and $21.6 million for 2006. The budget
request for 2007 is $20.186 million and is slated to decline further
in 2008, to just $13 million.

USDA Food Aid
--------------


18. (U) Since 2000, the Agricultural Affairs Office in Quito has
negotiated seven PL-480, Title I and 416(b) Government-to-Government
agreements with Ecuador, five of which were grants under the Food
For Progress Act. Including fiscal year 2006, USDA has provided
Ecuador with food aid worth approximately $59 million to support
agricultural development and emergency relief activities. Through
seven different agreements celebrated between U.S. Government and
the Government of Ecuador, USDA has delivered 223,000 metric-tons of
wheat, 30,000 metric-tons of soybean meal, and 5,000 metric-tons of
soybean oil to be monetized in Ecuador. In the period 2000-2006,
the USDA/PL-480 program also has financed 154 agricultural
development, micro-credit and infrastructure projects in Ecuador.
Other USDA-funded activities focus on supporting Ecuador's trade
capacity through strengthening its sanitary and phytosanitary (SPS)
and Food Safety systems, giving access to agricultural training and
research, encouraging conservation of the biodiversity, as well as
providing rural micro-credit and agricultural extension and
infrastructure. Emergency relief and feeding programs have also
represented an important part of USDA's food aid to Ecuador.

Peace Corps Still Going Strong
--------------


19. (U) Since 1962, 5,532 Peace Corps Volunteers have worked in
Ecuador at the grassroots level, assisting Ecuadorian communities
with various development needs. Volunteers work in four different
programs: Habitat Conservation, Rural Public Health, Sustainable
Agriculture, and Youth & Families. 152 Volunteers currently serve
in Ecuador. In 2006, 859 community members and business owners
learned new management techniques such as improved book-keeping,

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inventory control, product innovation, feasibility studies,
marketing, and basic financial management that allows them to
monitor and improve productivity of their businesses. Also in 2006,
5,129 male youth and 4,437 female youth were trained in HIV/AIDS
prevention education and awareness through our Youth and Families
and Public Health programs.

JEWELL