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OO RUEHWEB

DE RUEHQT #1081/01 3241904
ZNR UUUUU ZZH
O 191904Z NOV 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9657
INFO RUEHBO/AMEMBASSY BOGOTA 7844
RUEHCV/AMEMBASSY CARACAS 3275
RUEHLP/AMEMBASSY LA PAZ NOV LIMA 2906
RUEHGL/AMCONSUL GUAYAQUIL 3924

UNCLAS QUITO 001081 
 
SENSITIVE 
SIPDIS 
 
FOR WHA DAS CHRIS MCMULLEN FROM THE AMBASSADOR 
 
E.O. 12958: N/A 
TAGS: PREL ECON EAID MASS MOPS SNAR PTER OVIP EC
SUBJECT: SCENESETTER FOR DAS CHRIS MCMULLEN, DAA TULLY 
CORNICK AND DELEGATION 
 
¶1.  (SBU) Embassy warmly welcomes DAS McMullen, Deputy 
Assistant Administrator Tully, and the U.S. delegation of the 
Bilateral Dialogue on November 24.  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, Ecuador has deep ties to the U.S., 
and we share many interests and have enjoyed strong 
cooperation on development and counter-narcotics programs. 
 
Bilateral Dialogue 
------------------ 
 
¶2.  (SBU) The launch of the Bilateral Dialogue represents an 
opportunity to establish a mechanism for regular, 
institutionalized discussions between our governments.  To 
start, we are largely focusing on areas of existing 
cooperation, but we expect that as the Dialogue takes root we 
can explore new areas of cooperation.  This meeting may help 
identify some of those areas.  In the November meeting we 
hope to advance some issues, such as access for U.S. beef, 
and will remind Ecuador of the importance of fair treatment 
of U.S. investors.  Another benefit of the Dialogue is that 
many Ecuadorians, even within the Foreign Ministry, do not 
have a full appreciation of the extent of USG programs in 
Ecuador.  The Dialogue offers a framework that captures much 
of our cooperation and is therefore a useful tool to 
demonstrate to Ecuadorian officials and the public the 
breadth and success of our cooperative efforts.  Moving the 
Dialogue forward to its current point has been a slow 
process:  the Deputy Secretary originally proposed the idea 
of an Economic Dialogue to President Correa in May 2007. 
Foreign Ministry officials, in embracing the idea, 
recommended expanding the scope to include multiple "pillars" 
(development, trade and investment, cooperation, and 
migration) that reflected our broader bilateral relationship. 
 
 
Domestic Political Developments 
------------------------------- 
 
¶3.  (SBU) Ecuador has historically been a fragile democracy 
caught in cycles of political instability, most recently 
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 democracy returned in 1979 to 
enjoy sustained popularity in all regions of the country and 
among a broad array of class and demographic groups. 
 
¶4.  (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.  Its impact will 
depend in large part on new legislation, presidential 
priorities, and judicial interpretation. 
 
¶5.  (SBU) The new constitution's advocates argue that it 
substantially expands the rights accorded all Ecuadorians and 
that these rights will be guaranteed by a strengthened 
Constitutional Court.  It is the first constitutional text to 
guarantee the "right" of nature to be protected and restored. 
 Other "rights" enshrined in the constitution include 
employment with fair wages, social security (expanded to 
housewives), housing, health care, diverse communication 
sources, free education (expanded to include university 
education), political rights, civil rights, the right to 
migrate, special protections for vulnerable groups, and 
collective rights for the indigenous and other minorities. 
Critics claim that the government does not have sufficient 
resources to follow through on these promises without 
bankrupting the state. 
 
¶6.  (SBU) The new constitution increases the branches of 
government from four to five.  In addition to the familiar 
executive, legislature, and judiciary, Ecuador had an 
electoral branch and now adds a Transparency and Social 
Control branch.  Proponents believe the new branch of 
government will ensure greater citizen involvement in 
government decision-making.  They defend the balance of power 
between the president and the National Assembly, pointing out 
that the Assembly will gain the right to impeach cabinet 
ministers.  Critics express concern that the constitution 
will allow President Correa and his allies to expand their 
 
control over all branches of government and thereby end any 
checks and balances. 
 
¶7.  (SBU) Ecuador is now in a period of transition while 
institutions are established in accordance with the new 
constitution.  The temporary 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 
----------------------------- 
 
¶8.  (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 from 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.  Remittances have begun to drop because of the 
global economic slowdown, and some exports, such as flowers, 
may drop. 
 
¶9.  (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.  On taking 
office, the Correa Administration suggested it might not pay 
some international debt but made timely payments through 
October 2008.  In November, it announced it was delaying an 
interest payment pending additional studies of an allegations 
that the debt may have been tainted with irregularities. 
 
¶10.  (SBU) The new constitution envisions a strong role for 
government in the economy, although a number of important 
provisions, such as identifying strategic sectors and 
including a social dimension in the definition of property, 
have parallels in the previous constitution.  The 
constitution gives higher priority to state development of 
strategic sectors but also allows for private investment in 
those sectors.  The constitution establishes that the state 
will regulate and if necessary intervene in the market, and 
gives the administration the authority to set monetary policy 
(which previously was the purview of the Central Bank). 
Several regulatory agencies, including the Central Bank, are 
no longer autonomous.  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. 
--------------------------- 
 
¶11.  (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 in 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.  The GOE has complied with arbitration rulings. 
 
Ecuador Foreign Policy 
---------------------- 
 
¶12.  (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.  Correa has explicitly expressed a 
desire to reduce dependence on the United States. 
 
¶13.  (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 on March 1, and his pride and focus on national 
sovereignty have thus far impeded the kind of detente that 
Chavez and Uribe achieved.  Despite the break in relations, 
commercial ties remain strong and consular operations 
continue in both countries. 
 
Northern Border 
--------------- 
 
¶14.  (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 groups 
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.  The U.S. 
also supports programs to assist the estimated 180,000 
refugees in the northern provinces of Ecuador who have fled 
Colombia due to violence or threat of violence. 
 
¶15.  (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 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 
----------------------------- 
 
¶16.  (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. 
 
 
¶17.  (SBU) The Manta Forward Operating Location (FOL) is an 
important asset in our regional counter-narcotics efforts, 
providing extensive surveillance coverage of the eastern 
Pacific ocean.  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 would not extend 
the FOL agreement when it expired on November 11, 2009.  The 
United States is now planning its withdrawal from the 
facility. 
 
Development Programs 
-------------------- 
 
¶18.  (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. 
 
¶19.  (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. 
 
¶20.  (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. 
 
¶21.  (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 legal 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. 
 
¶22.  (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. 
 
¶23.  (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. 
 
¶24.  (U) Commodity sales under USDA's PL-480 Program 
generated financial resources dedicated to the development of 
Ecuador's agricultural sector.  Since 2000, PL-480 has 
financed more the 190 projects, with more than 170,000 
beneficiaries and $30 million in programmed funds.  Projects 
cover a wide range of agricultural activities, including 
small business development, microcredit, irrigation, academic 
research, and farmer training.  Existing funds will be fully 
spent by 2009. 
HODGES