VZCZCXYZ0008
OO RUEHWEB

DE RUEHQT #2292 2831346
ZNR UUUUU ZZH
O 101346Z OCT 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7872
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6954
RUEHCV/AMEMBASSY CARACAS PRIORITY 2706
RUEHLP/AMEMBASSY LA PAZ OCT 0745
RUEHPE/AMEMBASSY LIMA PRIORITY 1985
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2904
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 002292 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR MMALLOY AND MEWENS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EC
SUBJECT: ECUADOR ECON WEEKLY: Falling FDI, More Costly Flour 
Subsidy, Crack-down on Fuel Contraband 
 
REF: A: 06 QUITO 1722 
 
 B: QUITO 2114 
 C: QUITO 1842 
 
¶1.  (U) The following is a weekly economic update for Ecuador that 
reports notable developments that are not reported by individual 
cables. 
 
Decrease in Foreign Direct Investment 
------------------------------------- 
 
¶2. (U) According to recently published data from the Central Bank, 
foreign direct investment (FDI) in Ecuador in 2006 was the smallest 
in the last five years.  FDI was USD 783 million in 2002 but fell 
65% to USD 271 million in 2006.  According to the Central Bank data, 
over the past two years foreign investment in mining and petroleum 
has stagnated.  Economic analysts blame the departure of US firm 
Occidental Petroleum in 2006 and delays in renegotiating oil 
contracts following the 2006 revenue sharing requirement (ref a) for 
the decline in petroleum investment. 
Larger Flour Subsidies through December 
--------------------------------------- 
¶3. (U) The GOE agreed to continue subsidizing flour until December 
2007 to avoid an increase in bread prices.  Given higher world 
prices for wheat, the production cost for a 50 kilogram sack of 
flour has increased to $36 from $27 when the GOE first established 
its subsidy program (ref b).  The GOE and millers met to renegotiate 
flour subsidies October 2.  Millers agreed to sell to the GOE at $32 
per 50 kilogram sack (below market prices); the GOE will sell sacks 
to bakers at $22 (an increase in the per sack subsidy from $3.50 in 
September to $10).  Gonzalo Correa of the Ecuadorian Millers 
Association expects another upward adjustment in prices in December 
if international wheat prices continue rising as expected. 
Meanwhile, the local media have reported that some small bakers 
cannot meet the terms to purchase subsidized flour and are buying 
flour at the full market price. 
Fuel Smugglers Arrested Under New Law 
------------------------------------- 
 
¶4. (SBU) After seven months of investigation, the National Police 
Investigation Unit for Energy Crimes arrested a fuel smuggling gang 
October 2 under Ecuador's new Energy Sovereignty Law (ref c).  The 
20 arrested smugglers will be the first to be tried under this law. 
According to Minister of Petroleum and Mines Galo Chiriboga, 
employees from state oil company Petroecuador could be implicated. 
(Comment:  Fuel smuggling is highly profitable since heavily 
subsidized fuel in Ecuador is much cheaper than in Peru or Colombia. 
 Flour producers have suggested flour subsidies may eventually 
create the same problem in their sector.) 
JEWELL