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FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0732
INFO RUEHBO/AMEMBASSY BOGOTA 8300
RUEHBR/AMEMBASSY BRASILIA 4242
RUEHCV/AMEMBASSY CARACAS 3668
RUEHLP/AMEMBASSY LA PAZ AUG LIMA 3350
RUEHGL/AMCONSUL GUAYAQUIL 4541

UNCLAS QUITO 000707 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL MASS MOPS SNAR PTER EAID MARR OVIP EC CO
SUBJECT: SCENESETTER FOR INAUGURATION DELEGATION 
 
¶1. (SBU) Embassy Quito warmly welcomes the delegation headed 
by Senator Bob Graham for the inauguration of President 
Correa on August 10, held on the 200th anniversary of 
Ecuador's first call for independence.  While we do not agree 
with the Correa government on every issue, we have enjoyed 
strong cooperation in some areas and seek to continue a 
productive partnership. 
 
¶2. (SBU) The "Grito de Independencia" on August 10, 1809, was 
not the date that Ecuador actually gained independence. 
Although a group of Quito citizens overthrew the president of 
the Royal Audience of Quito (a Spanish colonial 
administrative unit) on that date and established an 
autonomous government, Spanish troops reasserted control a 
few months later and killed those involved in the rebellion. 
Ecuador won its independence from Spain as part of "Gran 
Colombia" in 1822, and then became the Republic of Ecuador in 
1830 when it split from Gran Colombia. 
 
¶3. (SBU) The inauguration will take place in the National 
Assembly building's main meeting room.  Just to be aware, at 
the front of that room is a modern mural by a famous 
Ecuadorian painter, Mario Oswaldo Guayasamin, called "Ecuador 
Frustration and Hope."  This mural, which seeks to capture 
the protagonists of Ecuadorian history, includes an anti-U.S. 
piece that has a Darth Vader-like black figure with CIA 
written underneath.  When former Secretary of State George 
Schulz visited the Assembly in 1988, he expressed 
considerable displeasure at the depiction.  Because of that 
incident, many Ecuadorians believe high-level U.S. officials 
are reluctant to attend events in the Assembly.  While this 
is not true, you may have some media interest in visible 
reactions to the offensive mural. 
 
¶4. (SBU) The presidents of Argentina, Bolivia, Brazil, Chile, 
Cuba, Dominican Republic, El Salvador, Guyana, Honduras 
(Zelaya), Paraguay, Peru, Nicaragua, Saharawi Arab Democratic 
Republic (which which we do not have diplomatic relations), 
Suriname, and Venezuela will attend the ceremony.  Prince 
Felipe of Asturias of Spain; the prime ministers of Antigua 
and Barbuda, Saint Vincent and the Grenadines; and the vice 
presidents of Algeria, Guatemala and Uruguay, as well as 17 
foreign ministers, will also attend.  Representatives from 
international organizations will include the Organization of 
American States (Insulza and his deputy) and the Andean 
Development Corporation (Enrique Garcia).  We understand that 
Iran may be represented by its Commerce Minister. 
 
U.S. Activities Related to the Bicentennial 
------------------------------------------- 
 
¶5. (SBU) The Embassy has identified two emblematic documents 
in a local archive that will be restored with Embassy funding 
as part of the USG contribution to the bicentennial 
celebrations: a handwritten copy of the Ecuadorian national 
anthem from the 1860s, and one of the earliest maps of 
Ecuador produced by renowned Ecuadorian scholar and scientist 
Pedro Vicente Maldonado in 1750.  In June 2009, the Embassy 
sponsored the visit of a jazz quartet from New York for a 
series of concerts in three cities, which was also linked to 
the cultural celebrations for the bicentennial.  In February 
2009, the Embassy and the Municipality of Quito jointly 
re-dedicated the Plaza Abraham Lincoln directly in front of 
the Ambassador's residence.  During the public ceremony on 
Lincoln's birthday, the Ambassador's remarks linked the 
bicentennial of Lincoln's birth to the Ecuadorian 
bicentennial in 2009. 
 
Domestic Political Developments 
------------------------------- 
 
¶6.  (SBU) Ecuador has been a fragile democracy caught in 
cycles of political instability, reflecting popular 
disillusionment with traditional power structures and weak 
institutions. Rafael Correa was elected to his first term in 
2006 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. 
 
¶7.  (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, 2008 referendum.  Proponents 
believe it will give the citizens a real voice in government 
decisions and expand guarantees of rights.  Critics fear that 
it will centralize power in the Executive and result in 
drastically increased government spending. 
 
¶8.  (SBU) Elections were held in April 2009, two years into 
Correa's term, as required under the new constitution. 
Correa was re-elected in the first round, taking 52 percent 
of the vote, compared to 28 percent for former president 
Lucio Gutierrez, his nearest rival.  Correa's Proud and 
Sovereign Fatherland (PAIS) movement also won the largest 
legislative block in the new National Assembly, although not 
a majority.  PAIS did not fare as well in local elections, 
winning only 72 of 221 mayoral offices and eight of 23 
prefect positions. 
 
Economic Outlook and Policies 
----------------------------- 
 
¶9.  (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 from abroad. 
 Per capita income increased from $1,296 in 2000 to $3,670 in 
2008, and the poverty rate fell from 51% in 2000 to 42.6% in 
¶2007.  Real economic growth declined in 2007 to 2.5% (after a 
six-year average of 5.18%), due in part to declining oil 
production, but also uncertainty about the direction of 
economic policy under the Correa Administration. 
 
¶10. (SBU) Growth has been modest in 2008 (5.3%) and early 
¶2009.  By the end of 2008, the global financial crisis and 
economic downturn led to falling remittances and oil revenues 
for Ecuador.  In January 2009, claiming a balance of payments 
crisis, the government invoked the WTO balance of payments 
safeguard provision to increase tariffs beyond WTO bindings 
and impose quotas on consumer goods.  The government also 
announced that it was cutting or restricting public sector 
spending, and was reducing subsidies in a number of areas. 
 
¶11.  (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. 
 
¶12.  (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. 
 
Economic Ties with the U.S. 
--------------------------- 
 
¶13.  (SBU) The United States is Ecuador's most important 
trading partner, accounting for 37% ($409 million) of its 
exports and 26% ($286 million)of its imports in 2008.  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 with the 
World Bank's International Center for the Settlement of 
Investment Disputes (ICSID) under the treaty.  On July 12, 
2009 President Correa issued a decree in which Ecuador 
formally withdrew from ICSID. This decision does not affect 
arbitration cases that ICSID already has under consideration. 
 
Ecuador Foreign Policy 
---------------------- 
 
¶14.  (SBU) President Correa controls Ecuador's foreign policy 
decision-making.  His main foreign policy strategies are to 
establish and maintain constructive relations with a wide 
variety of countries and to promote Latin American 
integration.  His goal is to strengthen South American 
institutions and expand the number of Ecuador's political and 
commercial partners (which also reduces its dependence on the 
United States), while protecting the country's national 
sovereignty. 
 
¶15.  (SBU) The regional organizations where Ecuador is most 
active are the nascent Union of South American Nations 
(UNASUR) and the Venezuelan-led Bolivarian Alternative for 
the Americas (ALBA).  Ecuador will assume the presidency of 
UNASUR the morning of the same day of Correa's inauguration, 
August 10.  There has been friction between Ecuador and other 
members of the Andean Community (CAN), but it remains a 
member of that grouping.  Ecuador also supports the Bank of 
the South and the new council of South American defense 
ministers.  In addition, it participates in Rio Group 
meetings. 
 
¶16.  (SBU) In the region, the Correa administration enjoys 
good relations with Brazil, Peru, Argentina and Chile, in 
addition to Venezuela and Cuba.  Correa has made a number of 
visits to Europe, particularly Spain and Italy (which have 
large numbers of Ecuadorian immigrants), Belgium (where he 
once studied and the birthplace of his wife), and France.  In 
addition, President Correa has demonstrated an interest in 
strengthening bilateral relations with China, Iran, and 
Russia.  He traveled to China in November 2007 and Iran in 
December 2008, and plans to visit Russia in October 2009. 
 
¶17.  (SBU) President Correa remains unwilling at this point 
to reestablish diplomatic relations with Colombia, despite 
ongoing mediation efforts by the Organization of American 
States.  The GOE set five conditions that Colombia must meet 
before resuming diplomatic relations, including ending what 
it considers a Colombian information campaign against Ecuador 
and handing over the information found on the computers at 
the site of the attack on March 1, 2008.  Also, since July 
13, Ecuador has applied a foreign exchange safeguard measure 
to Colombian imports, as a measure to "protect Ecuadorian 
products from Colombia's currency devaluation."  Despite the 
break in relations and Ecuador's protectionist measures, 
commercial ties remain strong and consular operations 
continue in both countries. 
 
U.S.- Ecuador Relations 
----------------------- 
 
¶18.  (SBU) The U.S. is cooperating with Ecuador in a number 
of areas where we share interests, including poverty 
reduction, counter-narcotics, and environmental protection. 
The low point of our relationship under the Correa 
administration was in February, when Correa expelled two U.S. 
diplomats following the suspension of assistance to two 
specialized police units as a result of disagreement over 
implementation of long-standing procedures under which the 
two countries jointly vet personnel to ensure their integrity 
before sensitive information is shared with them.  The U.S. 
and Ecuador are currently moving ahead to conclude agreements 
to formalize and re-initiate some areas of cooperation with 
the Ecuadorian police. 
 
¶19.  (SBU) The U.S. launched a Bilateral Dialogue with 
Ecuador in November 2008 during which we discussed 
cooperation in human development and poverty reduction, 
economic development, commerce and investment, and migratory 
issues.  When Foreign Minister Fander Falconi met with the 
Secretary of State on June 12 in Washington, the two agreed 
to continue the Dialogue.  Preparations have begun for the 
second plenary session, likely to occur in late October.  The 
GOE recently proposed adding a security pillar to the 
Dialogue agenda.  Our objectives for the Dialogue include 
emphasizing publicly and privately the breadth of our 
cooperation, advancing current areas and exploring new areas 
of cooperation.  We do not consider it a negotiating forum. 
 
Security 
-------- 
 
¶20.  (SBU) Ecuador's greatest security challenge remains the 
presence of Colombian illegal armed groups, principally 
elements of the Revolutionary Armed Forces of Colombia 
(FARC), in its northern border region.  The FARC is believed 
to use Ecuadorian territory for rest, recuperation, resupply, 
and training.  The Correa Administration, while maintaining 
the country's traditional neutrality with respect to the 
Colombian conflict, has opposed armed encroachments across 
its borders.  While there have been some notable successes in 
this effort, insufficient resources and the challenging 
border region terrain have made it difficult to thwart 
cross-border incursions. 
 
¶21.  (U) 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. 
 
Refugee Issues 
-------------- 
 
¶22.  (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 2009, the State 
Department provided over $1 million in funding for refugees 
in Ecuador to UNHCR, and another $1.5 million to the 
International Organization for Migration (IOM), the World 
Food Program, and a handful of NGOs.  UNHCR carries out 
direct assistance projects to foster development, while IOM 
focuses on emergency assistance and local capacity building. 
Since April 2009, the GOE has been implementing its Enhanced 
Registration Program, a process by which it hopes to register 
50,000 Colombian refugees by the end of 2009. 
 
¶23.  (SBU) The GOE's June 20, 2008 announcement that it would 
drop the tourist visa requirement for all nationalities has 
encouraged an inflow of migrants, adding to the current 
presence of small immigrant populations from countries such 
as China, Cuba, Afghanistan, Pakistan, and Iran.  The new 90 
day visa waiver has also created numerous humanitarian 
problems, including an increase in human smuggling, 
counterfeiting of travel documents, forced labor and 
corruption.  DHS has already documented an increase of 
migrants wishing to use Ecuador as a stopping point on the 
way to the United States. 
 
Counter-Narcotics Cooperation and Military Support 
--------------------------------------------- ----- 
 
¶24.  (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 has provided almost $94 million of State Department 
funds 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 $20 million to the Ecuadorian military to enhance 
its operational capacity in the northern border region. 
 
¶25.  (SBU) The Manta Forward Operating Location (FOL) was an 
important asset in our regional counter-narcotics efforts. 
President Correa campaigned on a platform that the FOL 
violated Ecuador's sovereignty.  On July 29, 2008, the GOE 
sent a diplomatic note notifying the U.S. that it would not 
extend the agreement when it expired on November 11, 2009. 
The United States flew the last counter-narcotics flight on 
July 17, 2009 and will turn over the facility on September 
18, 2009. 
 
Development Programs 
-------------------- 
 
¶26.  (U) The U.S. 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 2009 funding 
is $26 million.  Current programs focus on cooperation with 
national and local governments to improve stability and 
livelihoods, democratic governance, economic growth and 
environmental management. 
 
¶27. (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.  In FY 2008, USAID 
financed the construction of 39 infrastructure projects 
including roads, bridges, irrigation canals, and water and 
sanitation systems, benefiting 36,364 people along the 
northern border.  USAID also created 2,754 new full-time 
equivalent, legitimate jobs in the northern border region; 
farmers' income increased on average 22 percent, from $983 to 
$1,200; and 2,000 new hectares of legal crops were planted. 
 
¶28.  (U) USAID's broader poverty reduction program promotes 
trade and competitiveness and private sector competitiveness. 
USAID created new supply and value-chains where small 
producers and businesses have now become specialized 
suppliers for larger firms with local and international 
markets.  In FY 2008, USAID invested $704,279 and the 
Ecuadorian private sector contributed $784,564 to create 10 
value chain activities.  These clusters are in 
agro-industrial export sectors such as dairy products, hearts 
of palm, Panama hats, and jewelry.  As a result of this 
effort, revenues increased for 1,865 small and medium firms. 
 
¶29.  (U) Under democracy and governance, USAID has supported 
56 local governments to implement participatory planning 
processes and improve their municipal management practices. 
More than 1,000 citizens and local officials in 16 cities 
received training in areas such as financial management, 
citizen participation, and budgeting.  One result of this 
assistance was that in just three months the municipalities 
reduced delinquent taxes by 4 percent and in two 
municipalities a two-month "lightning plan" helped 
municipalities recover approximately 10 percent of back 
taxes. 
 
¶30.  (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. 
 
HODGES