ECUADOR ECON WEEKLY: ECUADOR-IRAN TRADE OFFICES;

C O N F I D E N T I A L QUITO 000691

SIPDIS

TREASURY FOR MEWENS

E.O. 12958: DECL: 07/29/2018
TAGS: EPET ETRD EAGR ECON EC
SUBJECT: ECUADOR ECON WEEKLY: ECUADOR-IRAN TRADE OFFICES;
PETROLEUM NEWS; MORE TARIFF CUTS

Classified By: Classified by Acting DCM Nan Fife for reasons 1.4 (b & d
)


1. (U) The following is a weekly economic update for Ecuador
that reports notable developments that are not reported by
individual cables.

Ecuador-Iran Trade Offices
--------------


2. (SBU) Ecuador is planning to open a trade office in
Tehran, while Iran is opening one in Quito. On July 19, in
his weekly presidential radio address, President Correa said
that Ecuador would plan to open an embassy in Iran within a
year. He commented on the enormous commercial gains from
exchange and cooperation with Iran. He noted that Iran wants
to invest in Ecuador, particularly in its new refinery that
is to be built in Manabi. Reflecting efforts to prepare for
the opening of its trade office in Iran, the Ecuadorian
Foreign Ministry hosted a seminar on trade opportunities
between Ecuador and Iran July 8 and 9. According to press
reports, the Ecuadorian Vice Minister for Trade and the head
of the Iranian trade office in Quito gave presentations. The
press reported that the conference identified Iran as
competitive in technology and services, while possible
Ecuadorian exports to Iran included bananas, shrimp, fish
products, flowers, cacao, chewing gum, and exotic fruits
(note: the first five products are Ecuador,s leading
non-petroleum exports to all markets). In 2007, per the
Central Bank website, Ecuador imported $16.1 million from
Iran, 64% for limestone and 35% for vaccines.


3. (SBU) Comment: Ecuador is looking to expand the range of
its markets, and is seeking additional market opportunities
in Latin America, Europe, and Asia. However, opening a trade
office in Iran will likely have a marginal impact on trade
between the two countries, since the principal export for
both countries is petroleum. No data is available on
Ecuadorian exports to Iran.

Petroleum News
--------------


4. (U) Following the seizure of assets of the Isaias Brothers
(reftel),the GOE took control of 12% of the Palo Azul and
Block 18 petroleum fields which the Isaias Brothers own. The
fields are operated by the state-owned Brazilian company
Petrobras (in conjunction with others).


5. (SBU) Petrobras and Perenco (France) have not yet reached
agreement with the GOE on contract renegotiations, and
Minister of Petroleum and Mines Galo Chiriboga may still
terminate their contracts. According to Chiriboga, the GOE
has already reached agreement with all the other foreign
petroleum foreign companies regarding contract renegotiations
except for Petrobras, Perenco, and City Oriente (US). City
Oriente,s contract is in the process of termination.


6. (C) Data from the Central bank shows that June is the
first month since January 2008 that the International
Monetary Reserves for Free Availability (RILD in Spanish) has
not grown. According to estimates by economic consultant
Ramiro Galarza, the RILD should grow by at least $300 million
per month given high petroleum prices. According to Fernando
Santos, petroleum consultant, some international petroleum
companies with participation contracts decided to stop paying
the controversial 50% windfall tax required by Ecuador,s
hydrocarbons law to force a decision from the GOE. Santos
told us that at least one company that had initiated an
arbitration process against the government because of the
hydrocarbons law did not pay the windfall tax in June. The
last time a company took this stance, the public persecutor
accused the management of the company of appropriation of
public funds and ordered their arrest. (Comment: There is
still no reaction from the GOE; however, this could make oil
contract negotiations more contentious.)

Tariff Reductions on Imported Agricultural Inputs
-------------- --------------


7. (U) On July 17, the public Council on Foreign Trade and
Investment (COMEXI) and representatives of the private sector
reached agreement on eliminating tariffs on 312 agricultural
inputs (mainly fertilizers) to strengthen the agricultural

sector. This decision was made based on high agricultural
input prices that have been exacerbating inflation. The move
is expected to benefit the agricultural sector. This is the
fifth time during the Correa administration that the GOE has
reduced tariffs on imported agricultural inputs and other
products. According to the Coordinating Minister of Economic
Policy, Pedro Paez, all of these reforms will cost the GOE
$93 million in lost tariff revenue.
CDA Griffiths