VZCZCXYZ0000
OO RUEHWEB

DE RUEHQT #0111 0161254
ZNR UUUUU ZZH
O 161254Z JAN 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6085
INFO RUEHBO/AMEMBASSY BOGOTA 6328
RUEHCV/AMEMBASSY CARACAS 2277
RUEHLP/AMEMBASSY LA PAZ JAN LIMA 1290
RUEHGL/AMCONSUL GUAYAQUIL 1697

UNCLAS QUITO 000111 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/AND AND EB/OMA 
TREASURY FOR STEPHEN GOOCH 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EC
SUBJECT:  Few New Details in Debt Commission Report 
 
Ref.  06 Quito 2998 
 
¶1.  (SBU) Summary.   At a press conference to issue a report on 
Ecuador's external debt, a member of the presidential debt audit 
commission insinuated that some of the debt was "illegal and 
illegitimate."  The report itself is critical of external debt, 
arguing that debt has hindered rather than helped Ecuador's 
development.  However, it does not identify any particular debt 
issuance as illegitimate or specifically mandate any radical 
actions.   End summary. 
 
¶2.  (U) On December 10, the Debt Commission appointed by President 
Palacio issued its report on external debt (reftel).   At the press 
conference, Leonardo Vicuana (who has been named by President-elect 
Correa to head the Ecuadorian Development Bank) said that "our 
investigation insinuates the illegality as well as illegitimacy of 
these processes of indebtedness.  This merits going on to the next 
step, which is the auditing of these cases, which was not our 
objective." 
 
¶3.  (SBU) However, the report itself does not make any judgment on 
the legitimacy of Ecuador's debt.  It is highly critical of the role 
and impact of Ecuador's foreign debt, with a long litany of 
complaints.  Among them:  Ecuador has paid out more in debt 
servicing than it has borrowed; most recent debt was incurred to 
service older debt; little debt has been targeted for social 
problems, and much of that has been poorly used; social indicators 
have not improved; the state assumed private-sector debt; debt 
servicing is a heavy burden on the budget; and there is a negative 
correlation between borrowing and economic growth and investment. 
Conveniently, it ignores the deep discounting of debt that has 
occurred at various times over the past two decades associated with 
renegotiation of various commitments. 
 
¶4.  (SBU) The Commission's summary of recommendations starts by 
calling for the institutionalization of the investigation, treatment 
and control of foreign debt.  It then veers off of its mandate and 
calls for the creation of a regional currency managed by a South 
American Central Bank but in the interim recommends the continued 
use of the U.S. dollar, along with the Euro, in Ecuador.  It then 
goes further astray by calling for the organization of a new state 
entity whose "functions interact and are responsible for national 
administration," and then endorses President-elect Correa's call for 
a National Constituent Assembly. 
 
¶5.   (SBU) Comment.  In December Economy Minister-designate 
suggested that the Correa administration might look to the report 
for guidance on determining whether some external debt is 
illegitimate.  The report, drafted in part by Correa's colleagues, 
reaffirms Correa's negative view on debt, but otherwise we suspect 
it will be a non-factor in shaping Correa's debt policy.  The 
published report summary identifies no actionable information.  The 
issuance of the report, even with Vicuana's relatively provocative 
comment, received only moderate press coverage, and we suspect there 
won't be much continued interest.  The report itself is a rather 
dull iteration of complaints, and the recommendations are either 
self-evident or irrelevant to the question of debt. 
 
Jewell