Mixed Ecuadoran reactions to USG concerns over planned deals

C O N F I D E N T I A L QUITO 000875 SENSITIVE SIPDIS NOFORN E.O. 12958: DECL: 2034/10/08 TAGS: ECON EFIN EC IR PREL MNUC PARM KNNP SUBJECT: Mixed Ecuadoran reactions to USG concerns over planned deals with Iran's Export Developmen... id: 229033 date: 10/8/2009 22:56 refid: 09QUITO875 origin: Embassy Quito classification: CONFIDENTIAL//NOFORN destination: 09QUITO863|09QUITO869|09STATE98748 header: VZCZCXYZ0001 OO RUEHWEB DE RUEHQT #0875/01 2812256 ZNY CCCCC ZZH O R 082256Z OCT 09 FM AMEMBASSY QUITO TO RUEHC/SECSTATE WASHDC IMMEDIATE 0173 INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC RUEAIIA/CIA WASHINGTON DC RUEATRS/DEPT OF TREASURY WASHINGTON DC RUEHBO/AMEMBASSY BOGOTA RUEHBR/AMEMBASSY BRASILIA 0034 RUEHCV/AMEMBASSY CARACAS 0054 RUEHGL/AMCONSUL GUAYAQUIL RUEHLP/AMEMBASSY LA PAZ NOV LIMA 0060 -------------- header ends -------------- C O N F I D E N T I A L QUITO 000875 SENSITIVE SIPDIS NOFORN E.O. 12958: DECL: 2034/10/08 TAGS: ECON EFIN EC IR PREL MNUC PARM KNNP SUBJECT: Mixed Ecuadoran reactions to USG concerns over planned deals with Iran's Export Development Bank REF: STATE 98748; JOHNSTON/LANDBERG EMAIL 10/01/09; QUITO 863 QUITO 869 CLASSIFIED BY: Heather M. Hodges, Ambassador, U.S. Department of State, EXEC; REASON: 1.4(B),(D) -------------- Summary -------------- ¶1. (C) Embassy delivered Ref A demarche on Ecuador's dealings with the Export Development Bank of Iran (EDBI),a USG-designated entity, to the Central Bank (CBE),Ministry of Foreign Affairs (MFA),Superintendent of Banks, and Financial Intelligence Unit. The CBE's General Manager expressed concern over the possible repercussions of doing business with EDBI, and asked to continue discussions directly with the U.S. Treasury. The MFA's Multilateral Affairs Director General repeated the traditional GoE line that Ecuador respects UNSC resolutions with regards to nuclear disarmament and non-proliferation, but rejects "the extraterritorial application of another states' laws to Ecuador" and intends to "strengthen its purely civilian relations with Iran." End Summary. ¶2. (C) Econoffs delivered Ref A demarche in coordination with Treasury and State's September 29 demarche in Washington to Ecuador's Ambassador to the U.S., Luis Gallegos. Following Gallegos' warning that if Post did not communicate the demarche �0A;correctly it could precipitate a negative reaction from the GOE and mean the end of the U.S.-Ecuador bilateral dialogue (Ref B), Econoffs took great care to highlight that the U.S. is not threatening the GoE, but rather providing information and looking for Ecuadoran support. The demarche was taken seriously by Embassy's interlocutors working in the financial sector, but less so by the MFA's lead on Iran issues. (Comment: it is unclear whether GoE officials who understand that the risks outweigh the benefits will be able to influence internal deliberations on this highly political topic.) -------------- -------------- In the Hot Seat: CBE Worried About Exposure to Iran -------------- -------------- ¶3. (C) During a late evening meeting September 29, CBE General Manager Karina Saenz (STRICTLY PROTECT) expressed serious concern about the Central Bank's exposure under E.O. 13382 after hearing Econoffs' explanations of the possible repercussions of doing business with EDBI, a USG-designated entity. She said the CBE is in effect serving as the GoE's financial agent in the arrangement where EDBI will provide an approximately US$150 million credit to Ecuador. She said the CBE itself would not benefit financially from this deal, and noted wryly that even Venezuela's Central Bank is extremely careful about doing business directly with Iran. ¶4. (C) Saenz understood immediately that the CBE's involvement in this arrangement risks its operations in U.S. markets, would impact its relationships with international financial institutions, and could undermine the integrity of Ecuador's financial system, potentially affecting foreign private financial institutions' decisions to operate here. Further complicating the situation, she noted, is that the CBE maintains its international reserve holdings in U.S. banks and owns U.S. licensed Pacific National Bank in Florida via its ownership of its parent company, Ecuador's Banco Pacifico. This relationship makes the CBE directly responsible to U.S. bank regulators, she commented. ¶5. (C) Saenz promised to raise the issue with the CBE's Board of Directors. She also asked for additional information and for the Embassy's help in arranging direct contact with Treasury officials. (Embassy helped arrange an October 3 bilateral with Treasury officials on the margins of the IMF/World Bank meetings in Istanbul.) She recommended the Embassy address the issue with Coordinating Minister for Economic Policy Diego Borja, since "Ecuador's dealings with EDBI are more geopolitical than financial." She couched the EDBI issue in terms of "President Correa's effort to diversify GoE foreign relations," which includes strengthening ties with countries like Iran, Russia, and China. EconCouns explained that the Embassy was first delivering USG concerns to sub-ministerial officials who have the technical background to understand the ramifications of E.O. 13382 and who can explain them to higher-level decision makers. -------------- -- MFA: "We Are Strengthening Relations with Iran" -------------- -- ¶6. (C) The reaction of MFA Multilateral Affairs Director General Lourdes Puma was markedly different, albeit expected and entirely consistent with Puma's past responses to Iran demarches (see Refs C and D). In an emotional response, Puma, recently nominated as Ecuador's Ambassador to Malaysia, stated that Ecuador fully intended to strengthen relations with Iran, but that these relations were of a purely civilian nature. She insisted that the GoE fully adheres to UNSC resolutions and completely supports global non-proliferation and universal disarmament efforts. ¶7. (C) Puma added that Ecuador would never collaborate with any Iranian effort to circumvent UNSC resolutions with the goal of developing WMDs (even though "Ecuador did not vote for the resolutions"). However, she argued that Ecuador does not accept the argument that Iran was a "terrorist country." She also stated that Ecuador possessed no proof that EDBI was in any way involved with WMDs. She said that UNSC resolutions were clear that the GoE could not provide assistance to Iranian entities. However, she argued that the arrangement with EDBI did not violate these resolutions, because EDBI was helping Ecuador, not the other way around. The EDBI credit is purely commercial and "we will only take their money to fund projects" in Ecuador. ¶8. (C) Puma said Ecuador does not accept other states' interference in Ecuador's sovereign decisions to develop peaceful, commercial relationships with whichever other countries it so chooses. She also said the GoE rejects the "extraterritorial application" of another country's laws in Ecuador. At the end of the conversation, Puma emphasized that this was not a personal issue between Ecuador and the U.S. and that countries can have different "visions of the world" and that "maintaining dialogue is what is important." She highlighted Ecuador's commitment to supporting efforts to end terrorism, noting that a GoE priority is to pass counter-terrorism finance legislation. -------------- Financial Regulators Duck Responsibility -------------- ¶9. (C) Embassy also delivered a stripped down version of Ref A points (excising sensitive details of EDBI's activities) on October 5 to Banking Superintendent Gloria Sabando and the new head of Ecuador's Financial Intelligence Unit, Victor Hugo Briones. Both Sabando and Briones were quick to point out that the CBE was the entity that is managing financial dealings with EDBI. Each clearly understood the implications of Ecuador doing business with a U.S.-designated entity, but both clarified that their institutions had no exposure to EBDI and no policy role on the issue of EDBI's entry into Ecuador. While both had heard that the GoE was discussing the terms of a line of credit with EDBI, neither was aware of its interest in opening a branch in Ecuador. Briones repeatedly emphasized his non-involvement, but noted that EDBI was offering the money at an attractive interest rate (near zero),and GoE officials would thus have to weigh whether the benefits they get from Iran outweigh what they could potentially lose from the U.S. -------------- Comment -------------- ¶10. (C) Even though this issue was not within their direct purview, Embassy raised it with financial regulators (FIU and Superintendent) because they are in close contact with the GoE's key legal and regulatory entities. The idea is to get Ecuadoran officials thinking about what the country is risking for the sake of a $150 million loan and better relations with a distant country with which it has little in common and almost no chance of building a significant commercial relationship. We are still seeking a meeting with the Ministry of Finance, after which we will assess whether it makes sense to raise to a higher level and/or pursue direct communication with Washington agencies (via DVC or a high-level Treasury visit). The Finance Ministry straddles both the financial and political spheres, so its reaction should be useful to understanding whether financial or political considerations will win out within the GoE. HODGES =======================CABLE ENDS============================