Cablegate: Video of Economy Minister Patino Implies Market
DE RUEHQT #1182/01 1422112
ZNY CCCCC ZZH
O 222112Z MAY 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7064
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6679
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 0739
RUEHCV/AMEMBASSY CARACAS PRIORITY 2563
RUEHLP/AMEMBASSY LA PAZ MAY 0606
RUEHPE/AMEMBASSY LIMA PRIORITY 1677
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2358
C O N F I D E N T I A L QUITO 001182
DEPT OF COMMERCE WASHDC
TREASURY FOR SGOOCH
E.O. 12958: DECL: 05/21/2017
TAGS: EFIN ECON PGOV PREL PINR EC
SUBJECT: VIDEO OF ECONOMY MINISTER PATINO IMPLIES MARKET
MANIPULATION -- OR DOES IT?
Classified By: Ambassador Linda Jewell for Reasons 1.4(b) and (d)
1. (U) Summary. Recently released excerpts of a video of a
February meeting between Economy Minister Patino and former
Economy Minister Rodas imply (but do not confirm) that if
Patino frightened the international bond market, Rodas could
have earned $50 million. Patino and Rodas separately
asserted that the released portions of the video were taken
out of context. End summary.
2. (U) Quinto Pazmino, a fired political advisor to Economy
Minister Ricardo Patino, provided a television station an
excerpt of a video recording of a February 8 meeting between
Patino and former Minister of Economy Armando Rodas and two
U.S.-based financial advisors. The video first aired on May
21. The quality of the audio is poor, but a transcript
produced by the media reads as follows (informal embassy
Patino: But this signifies that you charge a bonus (prima)
of $150 million or more; you could charge a bonus of $250
million or so.
Rodas: We could earn $50 million.
Patino: $50 million. For this I would have to announce
...eh... put fear into the market, if not, no. If I say:
"I'll pay you tomorrow," you couldn't do it, or that is, the
only way that you could earn ...
Patino: If you want to win over the market (ganar el
mercado), you have to want that I scare it...
Patino and Rodas Respond in the Media
-- -- -- -- -- -- -- -- -- -- -- -- --
3. (U) Both Patino and Rodas, in separate media statements,
asserted that the aired portion of the video was taken out of
context. Rodas called for the release of the rest of the
video. President Correa on May 21 publicly reaffirmed his
confidence in Patino, and asserted that the video had been
4. (U) Patino, who was in Paraguay for a Banco del Sur
meeting, focused his response on Pazmino's credibility,
arguing that he was fired for corruption.
5. (U) Rodas asserted that he facilitated a meeting between
Patino and the financial advisors, who developed a
"transparent" proposal that could have saved Ecuador $150
million (he did not elaborate on the proposal). Rodas also
argued that the advisors did not hold Ecuador debt (and
therefore would not have profited from market manipulation),
but instead would have made money from commissions from
brokering a deal. Rodas said Patino told them he would study
the proposal, but they never received a response. The
interviewer asked Rodas the implication of the released
conversation about scaring the market, but Rodas replied by
emphasizing that the intent of his proposal was to save
Ecuador money on the bond market.
6. (U) Pazmino, in his own media appearance, said that he
was not present at the meeting between Patino and Rodas, and
did not know if the discussion between them involved legal or
illegal activities. Most of his media appearance was devoted
to arguing that he had been wrongfully dismissed.
Patino Authorized the Video Recording
-- -- -- -- -- -- -- -- -- -- -- -- --
7. (U) The meeting between Patino and Rodas took place in a
hotel rather than Patino's office. Patino said that he
authorized the video recording to "discover how some
international financial entities act in an unethical manner
with the bonds.8 Rodas said that he did not know the
meeting was being recorded. Pazmino said that he obtained a
copy of the video since the persons who recorded the video
approached him to obtain payment. Those persons provided him
with a copy of the video, and he urged Patino to pay.
According to Pazmino, Patino never paid for the videos.
Congress Requests an Explanation
-- -- -- -- -- -- -- -- -- -- --
8. (U) On May 22, Ramses Torres, head of the Congressional
Oversight Committee, called for Patino to appear before
Congress to explain the meeting he had with Rodas.
Background ) Mixed Signals on Debt, Timely Payment
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
9. (U) In the month before the February 8 Patino-Rodas
meeting took place, Patino had spooked the commercial bond
market by suggesting that Ecuador might default or force a
debt restructuring, and then suggesting that it might
continue to service its debt. On February 15, a few days
after the meeting, Ecuador made a surprising on-time $135
million interest payment. On February 12 Vice Minister of
Finance Fausto Ortiz told the media that Ecuador would make
the payment, but would take advantage of a clause that would
allow Ecuador to make the payment up to 30 days late.
However, on February 14, the Ministry of Economy authorized
the payment, which was made on time.
10. (C) Ortiz told EconCouns on February 14 that Ecuador was
making the payment on time because "we have the cash" and
because delaying the payment would require Ecuador to make
costly penalty payments. He did not specify where the cash
came from or why he was reversing a position that he had
announced a couple days before. However, shortly after
making the February 15 payment, Ecuador received a $250
million disbursement from the Andean Development Fund (CAF),
which may have given the government the flexibility to make
11. (U) Since the February payment, rumors have circulated
in Ecuador and in the foreign financial press that the
government manipulated the market through its statements and
subsequent timely payment in order to benefit Venezuelan
banks, which held a large exposure in insurance instruments
against an Ecuador default. A congressional deputy, Gloria
Gallardo called for Patino to testify as part of a
congressional inquiry and impeachment process. However,
Gallardo was removed from Congress among 56 other deputies
for unrelated reasons before initiating the inquiry.
-- -- --
12. (C) The implication from the released portion of the
tape is that if Patino spooked the market, Rodas and or the
accompanying advisors could have made up to $50 million.
Those excerpts reinforce a view that was already circulating
in Ecuador that the government deliberately manipulated the
bond market with its contradictory statements and actions.
Up to now, our view has been that the government's
contradictory actions and comments were most likely due to
its failure to have a credible plan in place to restructure
Ecuador's debt, compounded by the government's inexperience
and incomplete understanding of the consequences of default.
13. (C) At this time we do not have a clear indication of
what actually transpired at the meeting, given Patino's and
Rodas's statements that those comments were taken out of
context. However, this is the first time that there has been
a wide-spread story suggesting corruption or malfeasance at
the top level of the Correa administration, which has defined
itself as opposing the corrupt practices of prior
governments. The government now faces a major challenge to
its credibility which could have far-reaching implications.