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DE RUEHQT #0978/01 1202036
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R 302036Z APR 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 6898
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS

UNCLAS SECTION 01 OF 04 QUITO 000978 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
FROM THE AMBASSADOR TO D 
 
E.O. 12958: N/A 
TAGS: OVIP PREL PGOV ECON EAID WHA EC
 
SUBJECT: EMBASSY QUITO WELCOMES D VISIT 
 
¶1.  (SBU) Summary:  Please accept my warmest welcome of your 
upcoming return to Ecuador.  With Ecuador's government having 
recently passed the 100-day mark, your visit comes at a time of 
opportunity to advance mutual interests, and also to review some 
concerns about the direction the government is taking.  I believe 
Ecuador is poised at a watershed moment, eager for systemic change 
but not yet certain of what path it will follow.  Your exchanges 
with the new Ecuadorian leadership will improve understanding and 
signal USG interest in this key member of the troubled Andean Ridge 
community.  Your public appearances will highlight a positive story 
of how USG assistance is helping poor Ecuadorians and promoting 
shared interests.  I am convinced that respectful bilateral dialogue 
focused on areas of convergence, as embodied by your visit, will 
maximize the odds of Ecuador finding a positive path towards reform 
and avoiding the ills that have beset some of its neighbors. 
 
¶2.  (SBU) I look forward to the chance to discuss these issues with 
you in person upon your arrival, but in the meantime hope the 
following information on the current situation and challenges in 
Ecuador, and how we are making a difference here, will be of 
interest to you.  End summary. 
 
Fragile Democracy Struggling to Change 
-------------------------------------- 
 
¶3.  (SBU) While Ecuador has modernized considerably since your 
posting here in the 1970's, its historical pattern of chaotic 
central government remains unchanged.  Returning to civilian rule in 
1979, Ecuador's democracy is fragile and caught in a cycle of 
political instability reflecting popular disillusionment with the 
central government.  (Municipal governance, in contrast, is more 
stable and increasingly delivers for its citizens.)  Rafael Correa 
became Ecuador's eighth president in ten years when he was 
inaugurated on January 15.  As you know, political fragmentation is 
endemic in Ecuador, a diverse country with three distinct 
geographical regions and crisscrossing ethnic and class divisions. 
Given this situation, our top democracy goal in Ecuador is to 
promote and support democratic stability here. 
 
¶4.  (SBU) Correa won the election by successfully presenting himself 
as the "change" candidate to a population frustrated by the unstable 
and disappointing governments of recent years.  He ran on a platform 
promising systemic reform of the political and economic systems, and 
staked his presidency on the success of an unbounded national 
constituent assembly to rewrite the constitution and reform the 
state.  His is not a class or ethnic-based majority; he enjoys broad 
popularity among all demographic groups and regions.  Small pockets 
of entrenched elites, especially in Guayaquil, are currently 
virtually the only elements not openly supportive or at least 
cautiously hopeful about the Correa government. 
 
¶5.  (SBU) Voters overwhelmingly (by 82.1 per cent) backed Correa's 
Assembly proposal by approving a referendum on April 15; elections 
for the Assembly will take place September 30.  The relentless push 
for the Assembly in the run-up to the referendum took a further toll 
on democratic institutions that had already been discredited. 
Electoral authorities sacked 57 opposition members of Congress for 
attempting to block the Assembly.  When the Constitutional Tribunal 
ruled on April 23 to reinstate the 57, the replacement Congress 
voted to dissolve the Tribunal.  All these moves, from all sides, 
are of similarly murky legality and no fully creditable institution 
is in place to sort out the situation. 
 
The Economic Agenda 
------------------- 
 
¶6.  (SBU) The economy has performed well since the 1999/2000 
economic and banking crisis, thanks to the stability provided by 
dollarization and the fiscal windfall due to high oil prices. 
Non-traditional exports and growing remittances have also helped. 
With solid growth and low inflation, real incomes have risen and 
poverty has fallen since 2000. 
 
¶7.  (SBU) Correa's economic agenda combines strongly held 
ideological views, partially moderated by pragmatism, with increased 
government spending to support education, health care, small 
businesses, and infrastructure.  In spite of his rhetoric during his 
campaign and the first month of his presidency, Correa (thus far) 
has not defaulted on debt, nor increased state control over the 
banking and energy sectors, as some have feared. 
 
¶8.  (SBU) Correa's expansionary spending programs are designed to 
address pressing needs and generate political support for his 
government and the constituent assembly.  If oil prices remain high, 
the GOE can maintain current spending for 12-18 months by drawing 
upon oil reserve funds.  In 2008, though, the government could face 
fiscal pressures unless it taps new financing (e.g., borrowing from 
Venezuela, the Banco del Sur or other development banks, or 
curtailing expensive energy subsidies). 
 
QUITO 00000978  002 OF 004 
 
 
 
Trade and Economic Engagement 
----------------------------- 
 
¶9.  (SBU) The GOE is pressing for at least a five-year extension of 
the Andean Trade Preferences Act (ATPA), and most Ecuadorians assume 
that it will be extended before it expires in June.  Correa said 
that he would not accept a bilateral FTA as it was being negotiated, 
but some GOE officials have inquired about alternatives.  We 
explained that we do not have any "FTA-lite" models.  However, in 
response to their inquiries about engaging on trade matters, we are 
developing a proposal for a broad economic dialogue that would be 
chaired by the State Department. 
 
¶10.  (SBU) Establishing an economic dialogue is one example of how 
we are engaging the Correa administration on economic issues.  In 
addition, we are exploring an Open Skies civil aviation agreement, 
are prepared to provide technical assistance for banking reform, 
want to strengthen Ecuador's sanitary and phytosanitary regime, and 
are implementing a USAID trade and competitiveness project. 
Anti-corruption efforts offer another area of significant potential 
cooperation. 
 
Difficult Investment Climate 
---------------------------- 
 
¶11.  (SBU) A series of investment disputes with U.S. companies 
predate the Correa administration.  The three high profile cases 
are: 
 
-- Occidental Petroleum: assets seized in May 2005 for alleged 
contract violations; Correa government is participating in the 
arbitral process after initially hesitating; 
 
-- Chevron:  legal cases alleging environmental damage by Texaco, 
now part of Chevron; Correa spoke on behalf of those suing Chevron; 
we privately reminded the GOE of the importance of allowing the 
judicial process to move forward in an independent and 
non-politicized way; and 
 
-- Machala Power:  Machala Power is prepared to double its 
electricity generating capacity if its payment problems are 
resolved; the GOE asserts it wants to settle the arrears, but has 
taken no concrete steps. 
 
Ecuador-Colombia Relations Sensitive 
------------------------------------ 
 
¶12. (SBU) President Correa recently unveiled his government's Plan 
Ecuador, designed to coordinate GOE development activities and 
attract international support to counter alleged spillover effects 
in Ecuador of Colombia's internal conflict.  Ongoing USG support is 
still welcome and may not be directly affected by the Plan.  Our 
support incorporates development assistance to improve the quality 
of life and spur licit economic growth; counter-narcotics aid to 
curb smuggling of precursor chemicals, cocaine, and heroin; and 
military-to-military assistance and cooperation to strengthen 
Ecuador's ability to secure its northern border and control its 
territorial waters.  Aerial eradication of coca plants by Colombia 
within 10 km of the Ecuadorian border remains an irritant in 
Ecuador-Colombia relations.  The two countries have formed a 
bilateral commission of experts to investigate possible health 
effects on Ecuadorian border residents. 
 
Drug Trafficking and USG Assistance 
----------------------------------- 
 
¶13. (SBU) Ecuador is a major narcotics transit country.  While there 
is no evidence that illicit crops are cultivated to any significant 
extent, a recent raid of three laboratories  could indicate an 
alarming shift in the production of cocaine to Ecuador.  We had 
already noted a significant rise in transit of drugs from Colombia 
through Ecuador to Ecuadorian-flagged vessels to move multi-ton 
cocaine loads.  Ecuadorian-flagged vessels seized with drugs aboard 
outnumbered Colombian-flagged vessels for the first time in 2005 and 
the amount of cocaine seized on the Ecuadorian vessels was over four 
times the amount seized on Colombian vessels. 
 
¶14. (SBU) Since 2001, the Department of State has allocated about 
$77 million to help Ecuador combat drug trafficking.  Additionally, 
the Drug Enforcement Agency provides nearly $1 million annually for 
Ecuadorian counter-narcotics law enforcement.  USG-supported 
projects have constructed police bases and checkpoints to expand 
police presence, especially in border areas.  In addition, the USG 
is funding drug abuse prevention, the construction of port 
inspection facilities; technical inspection equipment from canines 
to digital x-rays and ion scanners; vehicles; communications; field 
equipment and operational support.  The Ecuadorian military also 
received $6.2 million in counter-narcotics funding from SOUTHCOM 
 
QUITO 00000978  003 OF 004 
 
 
over the past two years for radio purchases and infrastructure 
projects in the northern border.  About $1 million per year in USG 
funding has been used to train police and judicial officers in the 
investigation and prosecution of cases under Ecuador's new Code of 
Criminal Procedures.  The Correa government has expressed support 
for on-going CN cooperation and has been true to that word thus 
far. 
 
Manta FOL Important Counter-Drug Tool 
------------------------------------- 
 
¶15. (SBU) Despite its success, the U.S. military presence at the 
Forward Operating Location within an Ecuadorian airbase at Manta is 
controversial here based on sovereignty concerns, and President 
Correa campaigned promising he would not renew the FOL agreement 
when it expires in 2009.  Critics decry not only "foreign troops on 
national soil," but also that it was a bad deal for Ecuador (we pay 
no rent), and risks drawing Ecuador into Colombia's internal 
conflict.  We have designed and begun a coordinated public relations 
campaign to make the case for the benefits the FOL brings to 
Ecuador, while expressing USG appreciation for Ecuador's continued 
collaboration in the shared fight against transnational crime and 
narco-trafficking. 
 
American Citizen and Immigration Issues 
--------------------------------------- 
 
¶16. (SBU) Ecuadorians look to the U.S. as a destination for leisure 
and business travel, work and immigration, both legal and illegal. 
The U.S. Consulate in Guayaquil issued 7476 immigrant visas in 2006, 
an increase of 33 percent over the previous year.  Non-immigrant 
visas were issued in Quito and Guayaquil to 56,506 of 86,767 
Ecuadorians who sought permission to travel to the United States. 
Approximately 20,000 American citizens, a significant percentage of 
Ecuadorian descent, live as full-time residents in Ecuador. 
Estimates of the number of Ecuadorians resident in the United States 
vary from 375,000 to a high of 1.2 million.  One credible study 
estimates that 3.5 percent of Ecuador's total population lives in 
the U.S., while neighboring Peru and Colombia both are estimated at 
one percent.  Anecdotal evidence from our consulates reveals 
Ecuadorian concentrations in the New York metropolitan area, 
metropolitan Washington D.C., Miami, Chicago, Los Angeles and North 
Carolina. 
 
USAID's Declining Budget 
------------------------ 
 
¶17. (SBU) USAID has four foreign assistance objectives in Ecuador: 
to increase support for the democratic system, prevent/reduce the 
impact of the narco-economy by improving the quality of life along 
Ecuador's borders, conserve biodiversity, and increase economic 
opportunities for the poor.  USAID's Foreign Assistance levels were 
$35.1 million for 2005 and $21.6 million for 2006.  The budget 
request for 2007 is $20.186 million and is slated to decline further 
in 2008, to just $13 million. 
 
USDA Food Aid 
------------- 
 
¶18. (U) Since 2000, the Agricultural Affairs Office in Quito has 
negotiated seven PL-480, Title I and 416(b) Government-to-Government 
agreements with Ecuador, five of which were grants under the Food 
For Progress Act.  Including fiscal year 2006, USDA has provided 
Ecuador with food aid worth approximately $59 million to support 
agricultural development and emergency relief activities.  Through 
seven different agreements celebrated between U.S. Government and 
the Government of Ecuador, USDA has delivered 223,000 metric-tons of 
wheat, 30,000 metric-tons of soybean meal, and 5,000 metric-tons of 
soybean oil to be monetized in Ecuador.  In the period 2000-2006, 
the USDA/PL-480 program also has financed 154 agricultural 
development, micro-credit and infrastructure projects in Ecuador. 
Other USDA-funded activities focus on supporting Ecuador's trade 
capacity through strengthening its sanitary and phytosanitary (SPS) 
and Food Safety systems, giving access to agricultural training and 
research, encouraging conservation of the biodiversity, as well as 
providing rural micro-credit and agricultural extension and 
infrastructure.  Emergency relief and feeding programs have also 
represented an important part of USDA's food aid to Ecuador. 
 
Peace Corps Still Going Strong 
------------------------------ 
 
¶19. (U) Since 1962, 5,532 Peace Corps Volunteers have worked in 
Ecuador at the grassroots level, assisting Ecuadorian communities 
with various development needs. Volunteers work in four different 
programs:  Habitat Conservation, Rural Public Health, Sustainable 
Agriculture, and Youth & Families.  152 Volunteers currently serve 
in Ecuador.  In 2006, 859 community members and business owners 
learned new management techniques such as improved book-keeping, 
 
QUITO 00000978  004 OF 004 
 
 
inventory control, product innovation, feasibility studies, 
marketing, and basic financial management that allows them to 
monitor and improve productivity of their businesses.  Also in 2006, 
5,129 male youth and 4,437 female youth were trained in HIV/AIDS 
prevention education and awareness through our Youth and Families 
and Public Health programs. 
 
JEWELL