VZCZCXYZ0018
OO RUEHWEB

DE RUEHQT #1889 2321522
ZNR UUUUU ZZH
O 201522Z AUG 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7582
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6825
RUEHCV/AMEMBASSY CARACAS PRIORITY 2635
RUEHLP/AMEMBASSY LA PAZ AUG 0677
RUEHPE/AMEMBASSY LIMA PRIORITY 1849
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2680
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 001889 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR MMALLOY AND MEWENS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ENRG EC
SUBJECT: ECUADOR ECON WEEKLY:  ALBA AND MERCOSUR, BOND PAYMENT, 
ELECTRICITY SUBSIDIES, 2008 BUDGET. 
 
REFTEL: QUITO 1047 
 
¶1.  (U) The following is a weekly economic update that reports 
notable developments that are not reported by individual cables. 
 
Ecuador Won't Join ALBA, Mercosur 
--------------------------------- 
 
¶2.  (SBU) During his visit to Ecuador August 9, Venezuelan President 
Chavez extended another invitation for Ecuador to join ALBA, his 
Bolivarian Alternative for the Americas (President Correa previously 
declined to join the regional integration group, reftel).  Correa 
replied that Ecuador would join ALBA when Venezuela returned to the 
Andean Community (CAN), implying that he prefers to focus on 
regional integration through the CAN.  In an August 16 visit to 
Ecuador, President of Uruguay (and current President of Mercosur) 
Vazquez told Correa that Mercosur members would welcome Ecuador into 
the group "with open arms."  Correa declared that he wanted to focus 
on the CAN, and later merge both the CAN and Mercosur into UNASUR, 
the Union of South American Nations (a yet-to-be launched regional 
integration group, which plans to establish its secretariat in 
Ecuador). 
 
Ecuador Pays Interest on Global 2030 Bonds 
------------------------------------------ 
 
¶3.  (U) The Ministry of Economy paid $135 million in interest on its 
Global 2030 bonds on time on August 15.  This is the second and last 
interest payment for the year.  The $2.7 billion bonds have an 
annual interest rate of 10%.  In contrast to the widespread media 
and investor focus on the February payment, the first major debt 
payment due under the Correa administration, this payment was made 
with little fanfare. 
 
Lower Electricity Rates For Low-Usage Consumers 
--------------------------------------------- -- 
 
¶4.  (U) The GOE implemented a plan to subsidize low-usage 
electricity consumers with lower electricity rates. Consumers from 
the coast and the Amazon region with an electricity usage of up to 
130 kilowatt hours (kwh)/month, and consumers from the Sierra region 
with usage of up to 110 kwh/month are entitled to a 50 percent price 
reduction (a price of 4c/kwh versus the usual 8c/kwh).  According to 
the GOE, the subsidy will benefit approximately 1.8 million 
subscribers in the country, and will have an estimated annual cost 
of $56 million.  No details were provided on how the benefit will be 
financed. 
 
2008 Budget 
----------- 
 
¶5.  (U) The Ministry of Economy unveiled some of the parameters of 
the preliminary 2008 budget that it will present to Congress 
September 1.  The notional budget would be $10.5 billion, surpassing 
2007's $9.8 billion budget, although it could change before it is 
submitted.  The Ministry assumes the price of oil will remain at 
$35/barrel (any revenue over the budget price goes to a petroleum 
reserve fund), oil production will increase due to increased 
investment, and oil exports will reach 185 million barrels (an 
increase of 2 million barrels over 2007).  It also projects that 
debt service (interest and amortization) will fall to $1.9 billion 
(from $2.8 billion in 2007), as Finance Minister Ortiz plans to 
substitute short-term domestic Treasury certificates with long-term 
internal debt bonds.  The GOE plans to issue bonds for $480 million 
in October 2007. 
 
BROWN