CHAVEZ VISIT TO ECUADOR: WILL ACTIONS FOLLOW?

C O N F I D E N T I A L QUITO 001035 SIPDIS DEPT FOR WHA/EPSC FAITH CORNEILLE E.O. 12958: DECL: 11/06/2018 TAGS: ENRG EFIN PGOV PREL ECON EC SUBJECT: CHAVEZ VISIT TO ECUADOR: WILL ACTIONS FOLLOW? Classified By: DCM Andrew Chritton, Reasons 1.4(b) and (d) ¶1. (C) Summary: On October 28, Venezuelan President Chavez met with President Correa in the town of Puyo in eastern Ecuador to strengthen relations and sign ten bilateral agreements on topics ranging from energy to electronic currency. As usual, it remains unclear how much of the rhetoric will be implemented. End Summary. ¶2. (U) The Ecuadorian Foreign Minister and Ministers of Government, Economy, and Petroleum and Mining also attended the meeting. The two sides signed strategic accords on food sovereignty, economic sovereignty, energy sovereignty, infrastructure, and sovereignty of knowledge (likely referring to traditional knowledge). Among the planned joint projects are a web of agro-ecology schools, a Government and Planning School of the South, a program for small and medium enterprises, and an iron and steel factory to be built in the province of Guayas. According to press reports, no financing or timeframes were mentioned for the projects. "BITTERSWEET" PROGRESS ON PETROLEUM PROJECTS -------------- ¶3. (SBU) Both presidents expressed desire to cut production in OPEC to raise oil prices. Chavez and Correa analyzed progress on energy cooperation, which Correa characterized as positive but "bittersweet," due to failures and delays on several joint projects. Nevertheless, a joint Ecuadorian-Venezuelan company is still expected to begin exploration in Ecuador's mature Sacha field on time in January 2009, said Petroecuador's president Luis Jaramillo. Another joint project for gas in the gulf of Guayaquil is reportedly still on track for April 2009 feasibility studies. Chavez suggested that Venezuela could send natural gas to Ecuador if Ecuador does not have sufficient reserves, which Correa hailed as a way to save money on energy. (Note: Extensive studies have not been completed on the current crude-for-derivatives exchanges between Ecuador and Venezuela, and analysts are skeptical that they are financially beneficial for Ecuador.) ¶4. (SBU) The two discussed the "Refinery of the Pacific," a joint project for a $6 billion refinery to be built on Ecuador's coast and funded by Venezuela. Since the refinery agreement was signed in August 2007, Venezuela has yet to commit any money to the project. Indeed, Chavez recently announced he would be postponing a similar project in Nicaragua until 2018. In this meeting Chavez made no mention of postponing the project, and Petroecuador's Jaramillo commented that the project was on track and basic infrastructure should be installed in December. However, it is unlikely that construction on the Refinery of the Pacific will begin any time soon, given the lack of concrete financing and decreasing oil prices which will put pressure on the two governments. In addition, the project faces opposition from the local community. AN ELECTRONIC CURRENCY -------------- ¶5. (SBU) The two presidents expressed preoccupation with the world financial crisis and sought new mechanisms for regional commercial compensation and capital flow. Ecuador's Coordinating Minister for Economic Policy, Pedro Paez, proposed the creation of a financial compensation fund that would utilize an electronic currency for regional transactions. This would allow countries to account for transactions electronically and use their Central Banks to pay traders in their own currency, thus allowing them to maintain their reserves. He also commented that the system would help avoid devaluations in the region. Chavez pushed for the money to be a regional currency, which would limit dependence on the dollar. If a regional electronic currency is implemented, some analysts speculate that this could satisfy Correa's rhetoric about moving away from the dollar, while keeping the general population happy by maintaining dollarization. STRONG RHETORIC -------------- ¶6. (C) Chavez took the opportunity to blame capitalism for the current world financial crisis. He also praised "21st century socialism" as a cure for the world's problems. Correa was more moderate, noting that the world crisis gave Ecuador the opportunity to strengthen itself and become less dependent on the international system. NOT ALL LOVE - VENEZUELAN PRIVATE SECTOR OWES $120M -------------- -------------- ¶7. (SBU) Correa raised the debts Venezuelan importers owe Ecuadorian merchants, totaling more than $120 million since January 2008. Approximately 29 businesses are waiting for payment. Carolos Ribadeneira, President of the Venezuelan-Ecuadorian Chamber of Commerce, explained that currency controls and the difficulty of processing transactions through the Venezuelan Commission for the Administration of Foreign Exchange are mostly to blame. According to Ribadeneira, the problem was discussed in the last Chavez-Correa meeting and Chavez promised to address it, but it is still outstanding. COMMENT -------------- ¶8. (C) Correa and Chavez stated that they now plan to meet every two months to work on joint issues. GOE concern about how it can meet popular expectations (including the promises in the new constitution) at a time of world financial crisis may explain its renewed emphasis on bilateral cooperation with Venezuela (the media had been giving increasingly less coverage of the cooperative projects). However, we expect a wide gap to remain between agreements signed and projects implemented. In spite of the numerous accords signed that week, no money was promised to back up any of the projects. HODGES