ECUADOR FISCAL TRANSPARENCY REPORT 2008

UNCLAS QUITO 000232

SIPDIS

SIPDIS

STATE FOR EEB/IFD/OMA ANDREW SNOW AND RICHARD FIGUEROA
STATE FOR WHA/EPSC PETER MAIER
TREASURY FOR MEWENS


E.O. 12958: N/A
TAGS: EAID EFIN ECON PREL EC
SUBJECT: ECUADOR FISCAL TRANSPARENCY REPORT 2008

REF: State 16737


1. The Government of Ecuador is recipient of U.S. assistance monies
under the FY2008 Foreign Operations Appropriations Act. The
following is a narrative on fiscal transparency in Ecuador, as
requested in reftel.

The Government of Ecuador publishes budget data, which is reasonably
transparent and reliable, as required by a 2002 law on fiscal
responsibility and transparency. After the annual budget is
approved by the Congress, the Administration has considerable
discretional authority over actual expenditures. In recent years,
tax revenues and petroleum income have exceeded that projected in
the budget, as have expenditures. The Government of Ecuador
publishes both the approved budget and actual revenues and
expenditures.

The Ministry of Economy and Finances (MEF) publishes budget data on
a regular basis on the internet. Revenues and expenditures are
included in the publicly-available information, although data are
often aggregated at a fairly broad level. Data at the sub-account
and line item level are not published as regularly, but can be
obtained upon request. Off budget items, including the petroleum
reserve funds, are reportedly separately. Given these limitations
to the published data, a non-governmental organization also
publishes monthly reports to clarify budget numbers.

The Correa Administration has submitted legislation to the
Constituent Assembly to bring the petroleum reserve funds on budget,
reduce earmarking, and establish a unified account for the federal
budget. The Administration is also seeking to bring under the
budget a subsidy program for gasoline and other petroleum
derivatives, which has been funded indirectly through the parastatal
petroleum company. These changes should simplify the currently
complex budgetary process and facilitate increased transparency.

Currently, Ecuador does not have a system to monitor the use of
government monies once the Ministry of Economy and Finance transfers
the funds to other ministries and agencies. There is considerable
discretion in the intergovernmental transfer process, and the
state-owned sector is large and poorly regulated. The changes being
developed by the Correa Administration could facilitate the
oversight that the Ministry of Economy and Finance has over the
end-use of government funds.

In 2002-2007, USAID provided the Ministry of Economy and Finance
technical assistance to enhance fiscal transparency and improve
reporting of fiscal revenues and expenditures. The Ministry of
Economy and Finance is implementing a new information system program
provided by the World Bank, which should improve financial
management effectiveness and transparency and contribute to better
government financial reporting. Because of complications from the
implementation of the new system, fiscal data was not available on
the internet from November 2007 to February 2008, but the Ministry
has offered to provide the data by other means.

In 2003, Ecuador volunteered for the IMF to report on the country's
compliance with standards and codes covering fiscal transparency.
Ecuador does not currently have a borrowing program with the IMF,
but does participate in periodic IMF reviews.

JEWELL