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TO RUEHC/SECSTATE WASHDC IMMEDIATE 0173
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
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C O N F I D E N T I A L QUITO 000875 
 
SENSITIVE 
SIPDIS 
NOFORN 
 
E.O. 12958: DECL: 2034/10/08 
TAGS: ECON EFIN EC IR PREL MNUC PARM KNNP
SUBJECT: Mixed Ecuadoran reactions to USG concerns over planned deals 
with Iran's Export Developmen...




id: 229033
date: 10/8/2009 22:56
refid: 09QUITO875
origin: Embassy Quito
classification: CONFIDENTIAL//NOFORN
destination: 09QUITO863|09QUITO869|09STATE98748
header:
VZCZCXYZ0001
OO RUEHWEB

DE RUEHQT #0875/01 2812256
ZNY CCCCC ZZH
O R 082256Z OCT 09
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0173
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHBR/AMEMBASSY BRASILIA 0034
RUEHCV/AMEMBASSY CARACAS 0054
RUEHGL/AMCONSUL GUAYAQUIL
RUEHLP/AMEMBASSY LA PAZ NOV LIMA 0060


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C O N F I D E N T I A L QUITO 000875 
 
SENSITIVE 
SIPDIS 
NOFORN 
 
E.O. 12958: DECL: 2034/10/08 
TAGS: ECON EFIN EC IR PREL MNUC PARM KNNP
SUBJECT: Mixed Ecuadoran reactions to USG concerns over planned deals 
with Iran's Export Development Bank 
 
REF: STATE 98748; JOHNSTON/LANDBERG EMAIL 10/01/09; QUITO 863 
QUITO 869 
 
CLASSIFIED BY: Heather M. Hodges, Ambassador, U.S. Department of 
State, EXEC; REASON: 1.4(B), (D) 
 
------- 
 
Summary 
 
------- 
 
 
 
¶1. (C) Embassy delivered Ref A demarche on Ecuador's dealings with 
the Export Development Bank of Iran (EDBI), a USG-designated 
entity, to the Central Bank (CBE), Ministry of Foreign Affairs 
(MFA), Superintendent of Banks, and Financial Intelligence Unit. 
The CBE's General Manager expressed concern over the possible 
repercussions of doing business with EDBI, and asked to continue 
discussions directly with the U.S. Treasury.  The MFA's 
Multilateral Affairs Director General repeated the traditional GoE 
line that Ecuador respects UNSC resolutions with regards to nuclear 
disarmament and non-proliferation, but rejects "the 
extraterritorial application of another states' laws to Ecuador" 
and intends to "strengthen its purely civilian relations with 
Iran."  End Summary. 
 
 
 
¶2. (C) Econoffs delivered Ref A demarche in coordination with 
Treasury and State's September 29 demarche in Washington to 
Ecuador's Ambassador to the U.S., Luis Gallegos.  Following 
Gallegos' warning that if Post did not communicate the demarche 
correctly it could precipitate a negative reaction from the GOE and 
mean the end of the U.S.-Ecuador bilateral dialogue (Ref B), 
Econoffs took great care to highlight that the U.S. is not 
threatening the GoE, but rather providing information and looking 
for Ecuadoran support.  The demarche was taken seriously by 
Embassy's interlocutors working in the financial sector, but less 
so by the MFA's lead on Iran issues.  (Comment: it is unclear 
whether GoE officials who understand that the risks outweigh the 
benefits will be able to influence internal deliberations on this 
highly political topic.) 
 
 
 
--------------------------------------------- ------ 
 
In the Hot Seat: CBE Worried About Exposure to Iran 
 
--------------------------------------------- ------ 
 
 
 
¶3. (C) During a late evening meeting September 29, CBE General 
Manager Karina Saenz (STRICTLY PROTECT) expressed serious concern 
about the Central Bank's exposure under E.O. 13382 after hearing 
Econoffs' explanations of the possible repercussions of doing 
business with EDBI, a USG-designated entity.  She said the CBE is 
in effect serving as the GoE's financial agent in the arrangement 
where EDBI will provide an approximately US$150 million credit to 
Ecuador.  She said the CBE itself would not benefit financially 
from this deal, and noted wryly that even Venezuela's Central Bank 
is extremely careful about doing business directly with Iran. 
 
 
 
¶4. (C) Saenz understood immediately that the CBE's involvement in 
this arrangement risks its operations in U.S. markets, would impact 
its relationships with international financial institutions, and 
could undermine the integrity of Ecuador's financial system, 
potentially affecting foreign private financial institutions' 
decisions to operate here.  Further complicating the situation, she 
noted, is that the CBE maintains its international reserve holdings 
in U.S. banks and owns U.S. licensed Pacific National Bank in 
Florida via its ownership of its parent company, Ecuador's Banco 
 
 
Pacifico.  This relationship makes the CBE directly responsible to 
U.S. bank regulators, she commented. 
 
 
 
¶5. (C) Saenz promised to raise the issue with the CBE's Board of 
Directors.  She also asked for additional information and for the 
Embassy's help in arranging direct contact with Treasury officials. 
(Embassy helped arrange an October 3 bilateral with Treasury 
officials on the margins of the IMF/World Bank meetings in 
Istanbul.)  She recommended the Embassy address the issue with 
Coordinating Minister for Economic Policy Diego Borja, since 
"Ecuador's dealings with EDBI are more geopolitical than 
financial."  She couched the EDBI issue in terms of "President 
Correa's effort to diversify GoE foreign relations," which includes 
strengthening ties with countries like Iran, Russia, and China. 
EconCouns explained that the Embassy was first delivering USG 
concerns to sub-ministerial officials who have the technical 
background to understand the ramifications of E.O. 13382 and who 
can explain them to higher-level decision makers. 
 
 
 
--------------------------------------------- -- 
 
MFA: "We Are Strengthening Relations with Iran" 
 
--------------------------------------------- -- 
 
 
 
¶6. (C) The reaction of MFA Multilateral Affairs Director General 
Lourdes Puma was markedly different, albeit expected and entirely 
consistent with Puma's past responses to Iran demarches (see Refs C 
and D).  In an emotional response, Puma, recently nominated as 
Ecuador's Ambassador to Malaysia, stated that Ecuador fully 
intended to strengthen relations with Iran, but that these 
relations were of a purely civilian nature.  She insisted that the 
GoE fully adheres to UNSC resolutions and completely supports 
global non-proliferation and universal disarmament efforts. 
 
 
 
¶7. (C) Puma added that Ecuador would never collaborate with any 
Iranian effort to circumvent UNSC resolutions with the goal of 
developing WMDs (even though "Ecuador did not vote for the 
resolutions").  However, she argued that Ecuador does not accept 
the argument that Iran was a "terrorist country."  She also stated 
that Ecuador possessed no proof that EDBI was in any way involved 
with WMDs.  She said that UNSC resolutions were clear that the GoE 
could not provide assistance to Iranian entities.  However, she 
argued that the arrangement with EDBI did not violate these 
resolutions, because EDBI was helping Ecuador, not the other way 
around.  The EDBI credit is purely commercial and "we will only 
take their money to fund projects" in Ecuador. 
 
 
 
¶8. (C) Puma said Ecuador does not accept other states' interference 
in Ecuador's sovereign decisions to develop peaceful, commercial 
relationships with whichever other countries it so chooses.  She 
also said the GoE rejects the "extraterritorial application" of 
another country's laws in Ecuador.  At the end of the conversation, 
Puma emphasized that this was not a personal issue between Ecuador 
and the U.S. and that countries can have different "visions of the 
world" and that "maintaining dialogue is what is important."  She 
highlighted Ecuador's commitment to supporting efforts to end 
terrorism, noting that a GoE priority is to pass counter-terrorism 
finance legislation. 
 
 
 
---------------------------------------- 
 
Financial Regulators Duck Responsibility 
 
 
---------------------------------------- 
 
 
 
¶9. (C) Embassy also delivered a stripped down version of Ref A 
points (excising sensitive details of EDBI's activities) on October 
5 to Banking Superintendent Gloria Sabando and the new head of 
Ecuador's Financial Intelligence Unit, Victor Hugo Briones.  Both 
Sabando and Briones were quick to point out that the CBE was the 
entity that is managing financial dealings with EDBI.  Each clearly 
understood the implications of Ecuador doing business with a 
U.S.-designated entity, but both clarified that their institutions 
had no exposure to EBDI and no policy role on the issue of EDBI's 
entry into Ecuador.  While both had heard that the GoE was 
discussing the terms of a line of credit with EDBI, neither was 
aware of its interest in opening a branch in Ecuador.  Briones 
repeatedly emphasized his non-involvement, but noted that EDBI was 
offering the money at an attractive interest rate (near zero), and 
GoE officials would thus have to weigh whether the benefits they 
get from Iran outweigh what they could potentially lose from the 
U.S. 
 
 
 
------- 
 
Comment 
 
------- 
 
 
 
¶10. (C) Even though this issue was not within their direct purview, 
Embassy raised it with financial regulators (FIU and 
Superintendent) because they are in close contact with the GoE's 
key legal and regulatory entities.  The idea is to get Ecuadoran 
officials thinking about what the country is risking for the sake 
of a $150 million loan and better relations with a distant country 
with which it has little in common and almost no chance of building 
a significant commercial relationship.  We are still seeking a 
meeting with the Ministry of Finance, after which we will assess 
whether it makes sense to raise to a higher level and/or pursue 
direct communication with Washington agencies (via DVC or a 
high-level Treasury visit).  The Finance Ministry straddles both 
the financial and political spheres, so its reaction should be 
useful to understanding whether financial or political 
considerations will win out within the GoE. 
HODGES 

=======================CABLE ENDS============================