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). QUITO 00000978 002 OF 004 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 QUITO 00000978 003 OF 004 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, QUITO 00000978 004 OF 004 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