SCENESETTER FOR DAS CHRIS MCMULLEN, DAA TULLY

UNCLAS QUITO 001081 SENSITIVE SIPDIS FOR WHA DAS CHRIS MCMULLEN FROM THE AMBASSADOR E.O. 12958: N/A TAGS: PREL ECON EAID MASS MOPS SNAR PTER OVIP EC SUBJECT: SCENESETTER FOR DAS CHRIS MCMULLEN, DAA TULLY CORNICK AND DELEGATION ¶1. (SBU) Embassy warmly welcomes DAS McMullen, Deputy Assistant Administrator Tully, and the U.S. delegation of the Bilateral Dialogue on November 24. Your visit comes at a time of opportunities, risks, and changes as Ecuador prepares for national and local elections in 2009 following approval of a new constitution. While we do not agree with the Correa government on every issue, Ecuador has deep ties to the U.S., and we share many interests and have enjoyed strong cooperation on development and counter-narcotics programs. Bilateral Dialogue -------------- ¶2. (SBU) The launch of the Bilateral Dialogue represents an opportunity to establish a mechanism for regular, institutionalized discussions between our governments. To start, we are largely focusing on areas of existing cooperation, but we expect that as the Dialogue takes root we can explore new areas of cooperation. This meeting may help identify some of those areas. In the November meeting we hope to advance some issues, such as access for U.S. beef, and will remind Ecuador of the importance of fair treatment of U.S. investors. Another benefit of the Dialogue is that many Ecuadorians, even within the Foreign Ministry, do not have a full appreciation of the extent of USG programs in Ecuador. The Dialogue offers a framework that captures much of our cooperation and is therefore a useful tool to demonstrate to Ecuadorian officials and the public the breadth and success of our cooperative efforts. Moving the Dialogue forward to its current point has been a slow process: the Deputy Secretary originally proposed the idea of an Economic Dialogue to President Correa in May 2007. Foreign Ministry officials, in embracing the idea, recommended expanding the scope to include multiple "pillars" (development, trade and investment, cooperation, and migration) that reflected our broader bilateral relationship. Domestic Political Developments -------------- ¶3. (SBU) Ecuador has historically been a fragile democracy caught in cycles of political instability, most recently reflecting popular disillusionment with traditional power structures and weak institutions. Inaugurated in January 2007, Rafael Correa won the presidential election by successfully presenting himself as the "change" candidate. He is the first president since democracy returned in 1979 to enjoy sustained popularity in all regions of the country and among a broad array of class and demographic groups. ¶4. (SBU) A core element of Correa's political program was convoking a Constituent Assembly to draft a new constitution, Ecuador's 20th. Nearly 64% of voters approved the constitution in a September 28 referendum. Its impact will depend in large part on new legislation, presidential priorities, and judicial interpretation. ¶5. (SBU) The new constitution's advocates argue that it substantially expands the rights accorded all Ecuadorians and that these rights will be guaranteed by a strengthened Constitutional Court. It is the first constitutional text to guarantee the "right" of nature to be protected and restored. Other "rights" enshrined in the constitution include employment with fair wages, social security (expanded to housewives),housing, health care, diverse communication sources, free education (expanded to include university education),political rights, civil rights, the right to migrate, special protections for vulnerable groups, and collective rights for the indigenous and other minorities. Critics claim that the government does not have sufficient resources to follow through on these promises without bankrupting the state. ¶6. (SBU) The new constitution increases the branches of government from four to five. In addition to the familiar executive, legislature, and judiciary, Ecuador had an electoral branch and now adds a Transparency and Social Control branch. Proponents believe the new branch of government will ensure greater citizen involvement in government decision-making. They defend the balance of power between the president and the National Assembly, pointing out that the Assembly will gain the right to impeach cabinet ministers. Critics express concern that the constitution will allow President Correa and his allies to expand their control over all branches of government and thereby end any checks and balances. ¶7. (SBU) Ecuador is now in a period of transition while institutions are established in accordance with the new constitution. The temporary Constituent Assembly reconvened in October to appoint three interim bodies: a legislative commission, an electoral council, and an electoral disputes tribunal. All but one of the former Supreme Court justices selected by lottery for what is now a smaller and less powerful National Court refused to serve, which leaves the court vacant for the time being. General elections will be held during the first half of 2009. Economic Outlook and Policies -------------- ¶8. (SBU) Ecuador's economic performance has been solid since it adopted the dollar as its currency in 2000, following a major banking crisis and recession in 1999. Growth has been supported by the stability brought by dollarization, high oil prices, strong domestic consumer demand, increased non-traditional exports, and growing remittances. Per capita income increased from $1,296 in 2000 to $3,366 in 2007, and the poverty rate fell from 51% in 2000 to 38% in 2006. Economic growth declined in 2007 to 2.5%, due in part to declining oil production, but also uncertainty about the direction of economic policy under the Correa Administration. Looking forward, the economy could be vulnerable if petroleum prices remain at or below current prices for an extended period, although in the short-term the economy will be buffered by the current budget surplus and the government's cash reserves, plus sizable international reserves. Remittances have begun to drop because of the global economic slowdown, and some exports, such as flowers, may drop. ¶9. (SBU) President Correa entered office looking to make a number of changes to the economic system in Ecuador and address a number of unmet social needs. His government has increased income transfers to the poor and increased spending on health education, and basic infrastructure, although given weak government institutions it has been slow in implementing some of these programs. The overall direction of economic policy under the Correa Administration is difficult to define, in part because there are often differences between Correa's public discourse -- which can be populist -- and his policy decisions -- which are often more pragmatic. The Correa Administration is strengthening government regulation over certain sectors and increasing the government's revenue from sectors such as petroleum and mining, but the government appears intent on maintaining an important role for the private sector even in these strategic sectors. On taking office, the Correa Administration suggested it might not pay some international debt but made timely payments through October 2008. In November, it announced it was delaying an interest payment pending additional studies of an allegations that the debt may have been tainted with irregularities. ¶10. (SBU) The new constitution envisions a strong role for government in the economy, although a number of important provisions, such as identifying strategic sectors and including a social dimension in the definition of property, have parallels in the previous constitution. The constitution gives higher priority to state development of strategic sectors but also allows for private investment in those sectors. The constitution establishes that the state will regulate and if necessary intervene in the market, and gives the administration the authority to set monetary policy (which previously was the purview of the Central Bank). Several regulatory agencies, including the Central Bank, are no longer autonomous. Many of the economic provisions in the new constitution will have to be further clarified by implementing legislation, which the government is just beginning to present to the interim legislative body. Economic Ties with the U.S. -------------- ¶11. (SBU) The United States is Ecuador's most important trading partner, accounting for 48% of its exports and 25% of its imports. The Andean Trade Preferences Act (ATPA),which Congress extended until December 2009, has helped promote a number of new, labor-intensive export industries in Ecuador, such as flowers and processed vegetables. The Government of Ecuador estimates that ATPA supports 350,000 jobs in Ecuador. U.S. companies and individuals have invested in a wide range of Ecuadorian industries. Investors in regulated sectors such as petroleum and electricity have a number of investment disputes, while those in more lightly regulated sectors have had relatively few disputes. The United States and Ecuador have a bilateral investment treaty, and several U.S. investors have filed for international arbitration under the treaty. The GOE has complied with arbitration rulings. Ecuador Foreign Policy -------------- ¶12. (SBU) President Correa has sought to establish or strengthen relations with a wide variety of countries, such as China, Iran, Spain, Russia and Chile. His goal is to strengthen South American institutions, such as the Union of South American Nations (UNASUR) and the Community of Andean Nations (CAN),and to expand Ecuador's political and commercial partners. Correa has explicitly expressed a desire to reduce dependence on the United States. ¶13. (SBU) President Correa remains unwilling at this point to reestablish diplomatic relations with Colombia, except on his own terms, despite ongoing mediation efforts by the Organization of American States. The latest exchange of harsh words beginning on October 27 between Correa and Uribe has once again frozen the process. Correa believes that Uribe lied to him concerning the Colombia incursion into Ecuador on March 1, and his pride and focus on national sovereignty have thus far impeded the kind of detente that Chavez and Uribe achieved. Despite the break in relations, commercial ties remain strong and consular operations continue in both countries. Northern Border -------------- ¶14. (SBU) Ecuador shares a 450-mile porous border with Colombia. USG efforts in the area aim to prevent spillover of drug cultivation and trafficking and illegal armed groups into Ecuador. They include 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 to strengthen Ecuador's ability to secure its northern border and control its territorial waters. The U.S. also supports programs to assist the estimated 180,000 refugees in the northern provinces of Ecuador who have fled Colombia due to violence or threat of violence. ¶15. (SBU) The Ecuadorian Military's Fourth Joint Task Force (formerly Fourth Army Division) has engaged the FARC in a series of operations along the border since last November and has notably increased its presence with additional personnel and assets. These operations demonstrate resolve and coordination and commitment of assets by the Ecuadorian military to control its border. The United States has supported these Ecuadorian military efforts. The Ecuadorian government's policy has been to refrain from labeling the FARC as terrorists and to maintain a neutral position on Colombia's internal conflict to avoid becoming a target of FARC attacks. Counter-Narcotics Cooperation -------------- ¶16. (SBU) Ecuadorian leaders have identified narcotics traffickers and other criminal organizations as threats to national sovereignty, and are focusing the police, military, judiciary and others on disrupting and dismantling these organizations. Since 2001, the Embassy's Narcotics Affairs Section (NAS) has provided almost $94 million to enhance the capacity of the anti-narcotics police throughout Ecuador, assist the military in providing security for citizens and protecting Ecuador's sovereignty on the northern and maritime borders, and improve the criminal justice system. The Military Group has also provided an additional $18 million to the Ecuadorian Military to enhance its operational capacity in the northern border region. There have been recent cuts in NAS funding, down to just over $7 million in 2008 from nearly $20 million in 2004. Cooperation, however, remains strong under the Correa administration, with an increased level of programs and activities and many successes in interdictions. ¶17. (SBU) The Manta Forward Operating Location (FOL) is an important asset in our regional counter-narcotics efforts, providing extensive surveillance coverage of the eastern Pacific ocean. Embassy efforts over the past two years to educate the Ecuadorian public about the FOL and its benefits have reduced misperceptions and negative views, especially in Manta itself, but were complicated by the March 1 Colombian incursion into Ecuador. On July 29, the GOE sent a diplomatic note notifying the U.S. that it would not extend the FOL agreement when it expired on November 11, 2009. The United States is now planning its withdrawal from the facility. Development Programs -------------- ¶18. (U) The U.S. Government has supported Ecuador's development since 1942, working especially through USAID in education, health and family planning, environment, agriculture, micro-enterprise, and economic growth. USAID's 2008 funding was $18 million, and $23 million in 2007. Current programs focus on cooperation with national and local governments to improve stability and livelihoods, democratic governance, environmental management, and economic growth. ¶19. (U) USAID's Peace and Security program along the northern and southern borders aims to increase employment and income, strengthen local governments, and improve the production and marketing of local business clusters. By September 2007, 489,000 inhabitants of the southern border and 500,000 inhabitants of the northern border benefited from new bridges, water and sewage systems, garbage recycling, irrigation and roads. Incomes for most participating farmers have more than doubled, and approximately 11,000 new jobs have been created. ¶20. (U) USAID's broader poverty reduction program promotes trade and competitiveness, and encourages civil society and the private sector to participate in economic reforms. USAID created the Committee for Territorial Economic Development to give small and regional enterprises, joined in a &network of networks8 a voice in national policies. The policy work is linked to support to small enterprises to improve their quality and access to credit and new markets. ¶21. (U) Under democracy and governance, USAID has supported 56 local governments to implement participatory planning processes and improve their municipal management practices. More than 10,000 persons from vulnerable groups have had access to legal defense services and legal assistance in nine cities; and the application of the criminal justice system in Cuenca has been improved. More than 10,000 volunteers have actively participated in the oversight of local and national elections. ¶22. (U) Ecuador is one of the most biologically diverse countries in the world, so USAID's environmental programs focus on management of the National System of Protected Areas, indigenous territories, watersheds, and coastal lowlands and mangroves. The program seeks to create economic benefits for communities in and around protected areas, providing the means and motivation for better conservation. ¶23. (U) In addition, USAID has programs in the following areas: combating Trafficking in Persons; promoting the participation of persons with disabilities in economic activities and democratic processes; supporting Centers of Excellence for Teacher Training; and assisting in disaster preparedness and response. ¶24. (U) Commodity sales under USDA's PL-480 Program generated financial resources dedicated to the development of Ecuador's agricultural sector. Since 2000, PL-480 has financed more the 190 projects, with more than 170,000 beneficiaries and $30 million in programmed funds. Projects cover a wide range of agricultural activities, including small business development, microcredit, irrigation, academic research, and farmer training. Existing funds will be fully spent by 2009. HODGES