VZCZCXYZ0011
RR RUEHWEB

DE RUEHQT #1068/01 3021416
ZNR UUUUU ZZH
R 291415Z OCT 09
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 0269
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHCV/AMEMBASSY CARACAS 0089
RUEHGL/AMCONSUL GUAYAQUIL
RUEHLP/AMEMBASSY LA PAZ OCT LIMA 0103
RUEHQT/AMEMBASSY QUITO

UNCLAS QUITO 001068 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EFIN EC
SUBJECT: ECUADOR ECONOMIC NEWS 
 
REF: QUITO 1026; QUITO 893 
 
¶1.  (U) The following is a periodic economic update for Ecuador 
that reports notable developments that are not reported by 
individual cables.  This document is sensitive but unclassified. 
It should not be disseminated outside of USG channels and should 
not be posted on the internet. 
 
 
 
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Highlights 
 
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- GoE Announced Stimulus Package to Combat Crisis and Unemployment 
 
- Four Productive Sectors Will Receive GOE's Support 
 
- Unemployment Rises in the Third Quarter of 2009 
 
- GoE Withdraws Public Sector Deposits from Private Banks 
 
- Decree Published on Compulsory Licensing Patented Medicines 
 
 
 
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GoE Announced Stimulus Package to Combat Crisis and Unemployment 
 
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¶1. (U) On October 20, President Correa announced his intention to 
spend US$2.276 billion on social and development projects aimed at 
stimulating the economy and reducing unemployment.  Funding would 
come from international reserves previously invested abroad 
(US$1.782 billion), and cash balances held by the Central Bank 
(CBE) (US$494 million).  On October 16, Ecuador's international 
reserves stood at US$4.8 billion. 
 
 
 
¶2. (U) As part of the GoE's stimulus package, it plans to inject 
US$ 600 million into the construction sector, one of the most 
dynamic sectors of the economy.  In addition, state-owned banks 
Banco del Pacifico and Banco de la Vivienda will each receive US$ 
200 million for granting mortgage loans at a subsidized interest 
rate of 5% for a 12-year term.  The GOE will also invest US$200 
million to grant US$5,000 bonds to middle income families who 
acquire a house with a value at or below US$60,000. 
 
 
 
¶3. (U) The GOE also plans to transfer US$465 million to three 
public financial institutions (Banco Ecuatoriano de Desarrollo, 
Corporacion Financiera Nacional, and Banco Nacional de Fomento) to 
fund public works projects, refinance non-performing loans of 
companies in several productive sectors, and promote microfinance 
initiatives.  Finally, Central Bank cash balances will be used to 
finance investment projects including construction of hydroelectric 
energy plants (such as Sopladora or Mazar), rural electrification 
projects, the construction of Millennium Schools (in support of 
reaching UN Millennium Goals), flood prevention projects, and the 
development of artisanal fishing ports. 
 
 
 
¶4. (U) President Correa claimed that international reserves used 
for domestic investment will be repaid to the CBE, but that funds 
used from the CBE's cash balances will not be recovered.  Although 
several economic analysts consider the injection of more resources 
into the economy as positive, they are skeptical that it will 
result in an increase in employment because the GOE's overall 
economic policies continue to deter private investment and the 
public sector is not an efficient alternative. 
 
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Four Productive Sectors Will Receive GOE's Support 
 
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¶5. (U) Following Correa's October 20 announcement of a stimulus 
package, Coordinating Minister for Production Nathalie Cely 
identified four economic sectors that will receive additional 
support from the GOE because they have been severely affected by 
the economic downturn: flowers, shrimp, fisheries and commerce. 
Minister Cely also announced a new program, Believe Ecuador (Cree 
Ecuador), which promotes mergers and acquisitions for companies 
with management/debt problems.  For companies facing liquidity or 
financial debt problems, refinancing facilities will be granted by 
the National Financial Corporation (CFN) and the National 
Development Bank (BNF), utilizing Ecuador's international reserves. 
 
 
 
¶6. (U) Minister Cely also announced measures to promote consumption 
within middle income segments of the population, including a credit 
for refurbishment and purchase of houseware products and furniture. 
For private sector employees the credit will be up to US$20,000 
repayable over 36 months.  Public employees will be eligible to 
receive a credit of up to three times their salary to be repaid 
over two years for the same purpose.  Separately, a microcredit 
will be available to all Ecuadorians purchasing domestic tourism 
packages valued at up to US$2,000.  All these credits will be 
granted at a subsidized interest rate of 5%.  The GoE also plans to 
reimburse 5% of the Value Added Tax for purchases of food, 
clothing, hotels, restaurants, and housewares.  Finally, Cely said 
the GoE would review import safeguards on consumer products that 
have caused the highest price increases or the greatest reduction 
in volume purchased. 
 
 
 
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Unemployment Rises in the Third Quarter of 2009 
 
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¶7. (U) The Ecuadorian Institute for Statistics and Census (INEC) 
reported that the unemployment rate rose to 9.1% in the third 
quarter of 2009, up 0.8% from the previous quarter, as Ecuador's 
economy shrank for the third straight quarter (Ref A). 
Underemployment reached 51.7 per cent in the third quarter 2009, 
increasing slightly from the 51.6% recorded the prior quarter. 
 
The unemployment rate is higher in Guayaquil (13%) than in Quito 
(6.1%).  Guayaquil's local economy has been more heavily affected 
by the economic downturn due to its greater reliance on external 
sector activities, whereas the GoE has increased public sector 
employment, especially in the capital. 
 
 
 
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GoE Withdraws Public Sector Deposits from Private Banks 
 
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¶8. (U) On September 24, the Central Bank of Ecuador (CBE) issued a 
regulation that requires that non-financial public entities must 
only invest their resources in the CBE or public sector financial 
institutions.  According to the CBE's President, Carlos Vallejo, 
this regulation aims to adjust the management of public sector 
resources to Ecuador's current Constitution, which states that 
"public resources must be managed by the public financial 
institutions, in accordance with the law."  The GoE had previously 
 
agreed with private banks not to withdraw public sectors resources 
from banks as one of the measures to mitigate the impact of the 
economic crisis. 
 
 
 
¶9. (U) This policy implies that public sector investments totaling 
about US$600 million will be withdrawn from private banks and 
transferred to the accounts that these entities maintain at the 
CBE.  This policy, which excludes Social Security Institute (IESS) 
investments of about US$600 million in the private banking sector, 
will not reduce liquidity overall in the banking sector, because 
the CBE will re-invest the public sector funds back into the banks 
through the National Financial Corporation. 
 
 
 
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Decree Published on Compulsory Licensing Patented Medicines 
 
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¶10. (U) On October 26, the GoE published an anticipated 
presidential decree (Ref B) on compulsory licensing of patented 
pharmaceutical products that identifies the Intellectual Property 
Institute (IEPI) as the authority in charge of the process, 
including determinations of the length of the license and 
remuneration of the patent holder.  Regarding remuneration, the 
decree is silent on whether or not the GoE will negotiate with 
patent holders.  IEPI is supposed to work with the Ministry of 
Health in evaluating requests for compulsory licensing, which will 
be considered on a case-by-case basis.  The decree does not apply 
to cosmetic and aesthetic medicines, but only to those medicines 
used to treat illnesses that affect the Ecuadorian population and 
are considered priorities for the public health.  The decree covers 
both national production and importation under compulsory 
licensing. 
HODGES