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FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9578
INFO RUEHBO/AMEMBASSY BOGOTA 7813
RUEHBR/AMEMBASSY BRASILIA 4008
RUEHCV/AMEMBASSY CARACAS 3244
RUEHLP/AMEMBASSY LA PAZ NOV LIMA 2875
RUEHGL/AMCONSUL GUAYAQUIL 3887
RHMFISS/HQ USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RHMFISS/CDR USSOUTHCOM MIAMI FL

UNCLAS QUITO 001043 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL MASS MOPS SNAR PTER EAID MARR OVIP EC CO
SUBJECT: SCENESETTER FOR CODEL MCGOVERN 
 
¶1.  (SBU) Embassy warmly welcomes CODEL McGovern to Ecuador 
on November 8-13.  Your visit comes at a time of 
opportunities, risks, and changes as Ecuador prepares for 
national and local elections in 2009 following approval of a 
new constitution.  While we do not agree with the Correa 
government on every issue, we share many interests and have 
enjoyed strong cooperation on development and 
counter-narcotics programs.  Our objective is to continue a 
productive U.S. partnership with Ecuador. 
 
Domestic Political Developments 
------------------------------- 
 
¶2.  (SBU) Ecuador has been a fragile democracy caught in 
cycles of political instability, reflecting popular 
disillusionment with traditional power structures and weak 
institutions.  Inaugurated in January 2007, Rafael Correa won 
the presidential election by successfully presenting himself 
as the "change" candidate.  He is the first president since 
the 1979 return to democracy to enjoy sustained popularity in 
all regions of the country and among a broad array of class 
and demographic groups. 
 
¶3.  (SBU) A core element of Correa's political program was 
convoking a Constituent Assembly to draft a new constitution, 
Ecuador's 20th.  Nearly 64% of voters approved the 
constitution in a September 28 referendum.  Proponents 
believe it will give citizens a real voice in government 
decisions and expand guarantees of rights.  Critics claim 
that it will centralize power in the Executive and 
drastically increase government spending. 
 
¶4.  (SBU) Ecuador is now in a period of transition while 
institutions are established in accordance with the new 
constitution.  The Constituent Assembly reconvened in October 
to appoint three interim bodies:  a legislative commission, 
an electoral council, and an electoral disputes tribunal. 
All but one of the former Supreme Court justices selected by 
lottery for what is now a smaller and less powerful National 
Court refused to serve, which leaves the court vacant for the 
time being.  General elections will be held during the first 
half of 2009. 
 
Economic Outlook and Policies 
----------------------------- 
 
¶5.  (SBU) Ecuador's economic performance has been solid since 
it adopted the dollar as its currency in 2000, following a 
major banking crisis and recession in 1999.  Growth has been 
supported by the stability brought by dollarization, high oil 
prices, strong domestic consumer demand, increased 
non-traditional exports, and growing remittances.  Per capita 
income increased from $1,296 in 2000 to $3,366 in 2007, and 
the poverty rate fell 51% in 2000 to 38% in 2006.  Economic 
growth declined in 2007 to 2.5%, due in part to declining oil 
production, but also uncertainty about the direction of 
economic policy under the Correa Administration.  Looking 
forward, the economy could be vulnerable if petroleum prices 
remain at or below current prices for an extended period, 
although in the short-term the economy will be buffered by 
the current budget surplus and the government's cash 
reserves, plus sizable international reserves. 
 
¶6.  (SBU) President Correa entered office looking to make a 
number of changes to the economic system in Ecuador and 
address a number of unmet social needs.  His government has 
increased income transfers to the poor and increased spending 
on health education, and basic infrastructure, although given 
weak government institutions it has been slow in implementing 
some of these programs.  The overall direction of economic 
policy under the Correa Administration is difficult to 
define, in part because there are often differences between 
Correa's public discourse - which can be populist - and his 
policy decisions - which are often more pragmatic.  The 
Correa Administration is strengthening government regulation 
over certain sectors and increasing the government's revenue 
from sectors such as petroleum and mining, but the government 
appears intent on maintaining an important role for the 
private sector even in these strategic sectors. 
 
¶7.  (SBU) The new constitution envisions a strong role for 
the state in the economy, although a number of important 
provisions, such as identifying strategic sectors and 
including a social dimension to the definition of property, 
have parallels in the previous constitution.  Many of the 
economic provisions in the new constitution will have to be 
further clarified by implementing legislation, which the 
government is just beginning to present to the interim 
legislative body. 
 
Economic Ties with the U.S. 
--------------------------- 
 
¶8.  (SBU) The United States is Ecuador's most important 
trading partner, accounting for 48% of its exports and 25% of 
its imports.  The Andean Trade Preferences Act (ATPA), which 
Congress extended until December 2009, has helped promote a 
number of new, labor-intensive export industries Ecuador, 
such as flowers and processed vegetables.  The Government of 
Ecuador estimates that ATPA supports 350,000 jobs in Ecuador. 
 U.S. companies and individuals have invested in a wide range 
of Ecuadorian industries.  Investors in regulated sectors 
such as petroleum and electricity have a number of investment 
disputes, while those in more lightly regulated sectors have 
had relatively few disputes.  The United States and Ecuador 
have a bilateral investment treaty, and several U.S. 
investors have filed for international arbitration under the 
treaty. 
 
Ecuador Foreign Policy 
---------------------- 
 
¶9.  (SBU) President Correa has sought to establish or 
strengthen relations with a wide variety of countries, such 
as China, Iran, Spain, Russia and Chile.  His goal is to 
strengthen South American institutions, such as the Union of 
South American Nations (UNASUR) and the Community of Andean 
Nations (CAN), and to expand Ecuador's political and 
commercial partners.  He has explicitly expressed a desire to 
reduce dependence on the United States. 
 
¶10.  (SBU) President Correa remains unwilling at this point 
to reestablish diplomatic relations with Colombia, except on 
his own terms, despite ongoing mediation efforts by the 
Organization of American States.  The latest exchange of 
harsh words beginning on October 27 between Correa and Uribe 
has once again frozen the process.  Correa believes that 
Uribe lied to him concerning the Colombia incursion into 
Ecuador, and his pride and focus on national sovereignty have 
thus far impeded the kind of reconciliation that Chavez and 
Uribe achieved.  Despite the break in relations, commercial 
ties remain strong and consular operations continue in both 
countries. 
 
Northern Border 
--------------- 
 
¶11.  (SBU) Ecuador shares a 450-mile porous border with 
Colombia.  USG efforts in the area aim to prevent spillover 
of drug cultivation and trafficking and illegal armed group 
activity into Ecuador.  They include 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 to strengthen Ecuador's ability to secure its 
Northern Border and control its territorial waters. 
 
¶12.  (U) The UN High Commissioner for Refugees (UNHCR) 
estimates there are at least 180,000 persons of concern in 
the northern provinces of Ecuador who have fled Colombia due 
to violence or threat of violence.  In FY 2008 and 2009, the 
State Department provided funding for refugees in Ecuador to 
UNHCR, the International Organization for Migration (IOM), 
the World Food Program, the International Committee of the 
Red Cross, and the American Red Cross.  UNHCR carries out 
direct assistance projects to foster development, while IOM 
focuses on emergency assistance and local capacity building. 
 
¶13.  (SBU) The Ecuadorian Military's Fourth Joint Task Force 
(formerly Fourth Army Division) has engaged the FARC in a 
series of operations along the border since last November and 
has notably increased its presence with additional personnel 
and assets.  These operations demonstrate resolve and 
coordination and commitment of assets by the Ecuadorian 
military to control its border.  The Fourth Joint Task Force 
has taken the lead in efforts to control the Northern Border 
area and to remove incursions of armed insurgents within its 
territory by increasing the intensity of operations.  The 
United States has supported these Ecuadorian military 
efforts.  The Ecuadorian government's policy has been to 
refrain from labeling the FARC as terrorists and to maintain 
a neutral position on Colombia's internal conflict to avoid 
becoming a target of FARC attacks. 
 
Counter-Narcotics Cooperation 
----------------------------- 
 
¶14.  (SBU) Ecuadorian leaders have identified narcotics 
traffickers and other criminal organizations as threats to 
national sovereignty, and are focusing the police, military, 
judiciary and others on disrupting and dismantling these 
organizations.  Since 2001, the Embassy's Narcotics Affairs 
Section (NAS) has provided almost $94 million to enhance the 
capacity of the anti-narcotics police throughout Ecuador, 
assist the military in providing security for citizens and 
protecting Ecuador's sovereignty on the northern and maritime 
borders, and improve the criminal justice system.  The 
Military Group has also provided an additional $18 million to 
the Ecuadorian Military to enhance its operational capacity 
in the northern border region.  There have been recent cuts 
in NAS funding, down to just over $7 million in 2008 from 
nearly $20 million in 2004.  Cooperation, however, remains 
strong under the Correa administration, with an increased 
level of programs and activities and many successes in 
interdictions. 
 
¶15.  (SBU) The Manta Forward Operating Location (FOL) is an 
important asset in our regional counter-narcotics efforts. 
Embassy efforts over the past two years to educate the 
Ecuadorian public about the FOL and its benefits have reduced 
misperceptions and negative views, especially in Manta 
itself, but were complicated by the March 1 Colombian 
incursion into Ecuador.  On July 29, the GOE sent a 
diplomatic note notifying the U.S. that it will not extend 
the agreement when it expires on November 11, 2009.  The 
United States is now planning its withdrawal from the 
facility. 
 
Development Programs 
-------------------- 
 
¶16.  (U) The U.S. Government has supported Ecuador's 
development since 1942, working especially through USAID in 
education, health and family planning, environment, 
agriculture, micro-enterprise, and economic growth.  USAID's 
2008 funding was $18 million, and $23 million in 2007. 
Current programs focus on cooperation with national and local 
governments to improve stability and livelihoods, democratic 
governance, environmental management, and economic growth. 
 
¶17.  (U) USAID's Peace and Security program along the 
northern and southern borders aims to increase employment and 
income, strengthen local governments, and improve the 
production and marketing of local business clusters.  By 
September 2007, 489,000 inhabitants of the southern border 
and 500,000 inhabitants of the northern border benefited from 
new bridges, water and sewage systems, garbage recycling, 
irrigation and roads.  Incomes for most participating farmers 
have more than doubled, and approximately 11,000 new jobs 
have been created. 
 
¶18.  (U) USAID's broader poverty reduction program promotes 
trade and competitiveness, and encourages civil society and 
the private sector to participate in economic reforms.  USAID 
created the Committee for Territorial Economic Development to 
give small and regional enterprises, joined in a &network of 
networks8 a voice in national policies.  The policy work is 
linked to support to small enterprises to improve their 
quality and access to credit and new markets. 
 
¶19.  (U) Under democracy and governance, USAID has supported 
56 local governments to implement participatory planning 
processes and improve their municipal management practices. 
More than 10,000 persons from vulnerable groups have had 
access to defense services and legal assistance in nine 
cities; and the application of the criminal justice system in 
Cuenca has been improved.  More than 10,000 volunteers have 
actively participated in the oversight of local and national 
elections. 
 
¶20.  (U) Ecuador is one of the most biologically diverse 
countries in the world, so USAID's environmental programs 
focus on management of the National System of Protected 
Areas, indigenous territories, watersheds, and coastal 
lowlands and mangroves.  The program seeks to create economic 
benefits for communities in and around protected areas, 
providing the means and motivation for better conservation. 
 
¶21.  (U) In addition, USAID has programs in the following 
areas: combating Trafficking in Persons; promoting the 
participation of persons with disabilities in economic 
activities and democratic processes; supporting Centers of 
Excellence for Teacher Training; and assisting in disaster 
preparedness and response. 
HODGES