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Cablegate: Bank Holiday Rumors Provoke Nervousness and Presidential

VZCZCXYZ0014
OO RUEHWEB

DE RUEHQT #0622 0742215
ZNR UUUUU ZZH
O 152215Z MAR 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6567
INFO RUEHBO/AMEMBASSY BOGOTA 6528
RUEHCV/AMEMBASSY CARACAS 2444
RUEHLP/AMEMBASSY LA PAZ MAR LIMA 1506
RUEHGL/AMCONSUL GUAYAQUIL 2060

UNCLAS QUITO 000622

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR WHA/AND AND EB/OMA
TREASURY FOR STEPHEN GOOCH

E.O. 12958: N/A
TAGS: EFIN ECON PGOV EC
SUBJECT: Bank Holiday Rumors Provoke Nervousness and Presidential
Rebuttal

Ref: A) Quito 587, B) Quito 556, C) Quito 554

1. (SBU) Summary. An unfounded rumor that banks would be closed
for a "bank holiday" circulated around Ecuador on March 13 and 14.
According to banking contacts, many nervous clients called the banks
to ask about the rumor, but actual withdrawals were minimal and not
threatening to the banks. President Correa made a special evening
televised address to dismiss the rumor and assert that it was being
spread by the political opposition. Banking operations were
reportedly normal the morning of March 15. End summary.

2. (SBU) Consulate Guayaquil first heard of rumors on Tuesday,
March 13 from a range of contacts in Guayaquil that there would be a
"bank holiday" in Ecuador. Since many Ecuadorians had lost money
during a "bank holiday" provoked by the 1999 banking crisis, these
contacts had withdrawn funds from their banks. Subsequent
conversations with Quito-based banks also support the view that the
rumors about a bank holiday originated in Guayaquil.

3. (SBU) On Wednesday, March 14 the rumor had become more
widespread. Most of the banks we contacted confirmed that they had
received numerous calls from clients who were nervous about rumors
of a bank holiday or changes in banking regulations. The banks said
that they told their customers that Ecuadorian law prohibits any
government official from declaring a bank holiday.

4. (SBU) The banks we contacted reported that on Wednesday there
had been some withdrawals, but the magnitude of the withdrawals was
small and did not put any pressure on their banks. One contact said
that interbank clearing data from Wednesday evening did not show any
danger signals for the system as a whole or any individual banks,
and that sector-wide liquidity was three times that which is
"necessary." As of Thursday morning, one contact said that his bank
was not seeing any signs of nervousness; this was reaffirmed by
contacts at the banking association.

5. (U) The rumors did take on sufficient force, however, that
President Correa made a public statement on March 14 denying that
there would be a bank holiday. Correa also asserted that the rumors
had been started by the political opposition, namely members of
congress whose political rights were stripped by the Supreme
Electoral Tribunal (reftels) and fanned through the use of anonymous
call centers. Correa also said that the economy is in "excellent
health," and the most prosperous part of the economy is the banking
sector which enjoyed record profits. Minister of Economy Ricardo
Patino also issued a statement on March 14 that there would not be a
bank holiday and appeared on morning TV programs on March 15
reiterating the same message.

Comment
-------

6. (SBU) We believe that the rumors were unfounded. It is possible
that the rumors were promulgated by some group that is opposed to
the Correa administration, but we do not know if there are any
grounds for Correa's assertion that the defrocked members of
congress are behind them.

7. (SBU) While the broad banking system is sound, particularly the
larger banks which have ample liquid off-shore assets, the rumors
spread rapidly through a populace ready to believe there could be a
banking crisis. Not only did Ecuador suffer a recent banking
crisis, but in the last two months there has been nervousness about
the direction of Correa's economic policies. There was a notable
drop in demand deposits in the second half of February, although
deposits largely recovered in March. Even so, four smaller banks
have suffered a more pronounced fall in demand deposits - between 12
to 20 percent, according to data through March 2 (before the rumors
spread) - and these banks would be particularly vulnerable to
additional nervousness. We believe the banking system is
sufficiently strong that it will survive the closure of one or two
small banks, but if several small banks failed simultaneously it
could put pressure on the larger, healthier banks.

7. (SBU) That so many people were spooked by an unfounded rumor
will hopefully alert the Correa administration to the importance of
public confidence in the banking sector and temper the government's
inclination to impose stricter controls over the banks.

Jewell

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