ECONOMIC IMPACT OF RAINS AND FLOODING TOPS $125 MILLION

UNCLAS QUITO 000225

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR MEWENS

E.O. 12958: N/A
TAGS: ECON EAGR EFIN EAID ELTN SENV SOCI EC
SUBJECT: ECONOMIC IMPACT OF RAINS AND FLOODING TOPS $125 MILLION

REF: A) QUITO 160 B) QUITO 210


1. (U) Summary: Following a month of heavy rains in
Ecuador, agricultural losses due to extensive flooding now total
nearly $91 million. Repairing roads will likely cost more than $35
million. The Ecuadorian and U.S. weather services estimate the
rains will continue through at least mid-March, which could add to
the losses. End summary.


2. (U) Rain fell nearly continuously throughout February in much of
Ecuador, causing extensive coastal flooding and landslides in the
Sierra, particularly in the southern highlands (reftel A).
President Correa has declared a state of disaster in ten of
Ecuador's 22 provinces (approximately 25% of the country),and the
government is reviewing major infrastructure damage in at least
fifteen provinces. The rice crop has been particularly affected,
with 28,000 hectares lost. The Ministry of Transport and Public
Works estimates that 1700 kilometers of roads have been damaged and
six bridges have been destroyed, while clean-up efforts to move
mudslides and sewage overflow have been difficult due to continuing
rain.

AGRICULTURE TAKES HITS ON THE COAST, ALSO IN SIERRA


3. (U) The Ministry of Agriculture estimates that over 100,000
hectares of crops throughout Ecuador have been damaged or lost by
the flooding, including rice, corn, bananas/plantain, coffee, sugar
cane, soy and cacao along the coast. Almost 69,000 hectares of
shrimp and tilapia farms are a total loss. In the highlands, beans,
potatoes, tomatoes and peppers have been lost. So far there is no
shortfall of rice, and prices have remained stable. The Ministry
has said that most crops affected by the floods are for export and
will not affect prices in the Ecuadorian market. Still, the
Ministry's Planning Director has warned that if the rain continues
through March and another 10-15 thousand hectares are lost, it could
cause a rice shortage, thereby affecting prices. During the last
week of February Agriculture Minister Walter Poveda announced
contingency plans to import 40,000 tons of rice, possibly from the
United States.


4. (U) The Government of Ecuador has announced it will channel $38
million in funds through the Ministry to aid to small farmers (those
cultivating less than 30 hectares),who have been hit the hardest.



5. (U) The USG has provided nearly $800 thousand of confirmed and
pending USG disaster assistance, principally for the flooding, but
also for a volcanic eruption (the Tungurahua volcano has been active
since late December). Press coverage has been positive, and
informal requests for help from working level contacts have been
numerous.

CONCERN OVER AGRICULTURAL LOANS


6. (U) In early March the press reported that bank loans to the
agricultural sector are worth over $600 million. Banks are nervous
based on their experience in 1998, when crops ruined by El Nino
eventually caused default on agricultural loans, contributing to the
banking crisis of 1999. The Ministry of Agriculture is working with
government-owned National Development Bank (Banco Nacional de
Fomento) and the National Financial Corporation (Corporacion
Financiera Nacional) to restructure loans to small producers,
issuing credits at 5-7% interest based on a formula that reflects
losses due to the flooding.

ROAD INFRASTRUCTURE DAMAGE DIFFICULT TO ESTIMATE


7. (U) Already dealing with road damage due to eruptions of the
Tungurahua volcano, the Ministry of Transport's Office of Highway
Maintenance has inventoried damage to 43 highways (1700 km),
particularly in rural areas, due either to flooding or, at higher
elevations, to mudslides. At least six bridges have been lost and
the Ministry is currently making efforts to replace them with
pre-fabricated steel panel bridges.


8. (U) The Ministry estimates it will need approximately $35
million in coming weeks to continue with clean up efforts of
collapsed roads and hillsides, sewer repair and the dredging of
ditches. The Ministry has expressed frustration at not being able
to begin many repair efforts due to high water levels.


9. (U) In addition to the damaged roads, one landslide broke
Petroecuador's primary petroleum pipeline (reftel B),but was
quickly repaired.

AN "ATYPICAL" LA NINA


10. (U) Carlos Lugo, Director of Ecuador's national weather
service, INAMHI (Instituto Nacional de Meterologia en Hydrologia),
calls Ecuador's current weather patterns "an atypical" La Nina,
meaning that while La Nina (which happens when sea surface
temperatures are lower than normal) has been active in the eastern
Pacific since last fall, the current ferocity of continuous rain and
cold temperatures is unlike what has been previously witnessed.


11. (U) In addition, the U.S. National Oceanic and Atmospheric
Administration (NOAA) has told post that in recent weeks (February
15 to March 1),ocean surface temperatures have been anomalously
HIGH between the coast of Ecuador and the Galapagos Islands,
creating unstable conditions that will likely result in heavy rains
through at least mid-March. NOAA expects these warm temperatures to
continue for the near future.

COMMENT


12. (SBU) The final cost of damage will depend on how long current
weather patterns persist. While rains abated in the last week of
February, they have returned with a vengeance on the coast, with
damaging floods in the southern coastal towns of Huaquillas and
Machala, and the first street flooding of the year in Guayaquil. If
rains continue as forecasted, Ecuador is quite likely to need
further assistance as flooding continues and public health
implications become more serious.


13. (SBU) The agricultural losses and repair costs -- which may
grow above current estimates -- are significant for an economy that
was already growing slowly and has a number of other pressing
investment needs. We anticipate that the price of agricultural
products -- rice, in particular -- may rise by the end of March.
Post will continue to monitor the impact of the flooding on trade,
employment and overall growth.

BROWN