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Cablegate: Ecuador Econ Weekly: Goe-Usaid Economic Strategy; Petrobras

VZCZCXYZ0003
OO RUEHWEB

DE RUEHQT #0345 1071122
ZNR UUUUU ZZH
O 161122Z APR 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8728
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 7504
RUEHCV/AMEMBASSY CARACAS PRIORITY 2982
RUEHLP/AMEMBASSY LA PAZ APR 1009
RUEHPE/AMEMBASSY LIMA PRIORITY 2550
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 3492
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 000345

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR MEWENS

E.O. 12958: N/A
TAGS: ECON EAID ETRD EPET EINV EAGR EC
SUBJECT: ECUADOR ECON WEEKLY: GOE-USAID ECONOMIC STRATEGY; PETROBRAS
FIGHTS CADUCITY; 1ST QTR PERFORMANCE; FLOOD AID

REF A: QUITO 164
REF B: QUITO 225

1. (U) The following is a weekly economic update for Ecuador that
reports notable developments that are not reported by individual
cables.

Correa Approves USAID economic growth strategy
--------------------------------------------- -

2. (SBU) President Correa has agreed to support a sectoral
investment promotion strategy developed by USAID contractors. AID
worked with staff of the Ministry of Production to produce the
strategy, and presented it formally to Correa and to Coordinating
Minister for Production, Susana Cabeza de Vaca, on April 2. Correa
said he would support seven of ten sectors identified as most
promising in terms of employment generation, foreign exchange, and
value added (including flowers, tourism, wood, and processed fish).
The strategy's goal is to help the GOE develop an agenda for
promoting national and foreign investment in Ecuador. Correa
reportedly said "this project will set my administration's policy
for industry development." Cabeza de Vaca and her staff held a
two-hour follow up meeting with AID this week to discuss moving
forward on details and implementation.

Petrobras Caducity Threat Update
--------------------------------

3. (U) On March 31, Petroecuador notified Petrobras that it would
initiate a previously-threatened caducity process (reftel) to cancel
the contract for its main oilfield (Block 18) if the company did not
respond to charges of contract violations within ten days.
Petrobras says it provided all requested documents on April 10,
despite press reports to the contrary.

4. (SBU) Petrobras also denies press reports that it has initiated
arbitration against the GOE. The company wants to continue
negotiations to renew its production-sharing contract, which
produces around 35,000 barrels per day. (Over the weekend, Correa
suspended contract negotiations; more details septel.)

2008 First Quarter Economic Performance
---------------------------------------

5. (U) The Chamber of Industries of Pichincha reports that
unemployment increased significantly from January to February 2008,
from 6.67% to 7.37% (official data exist only for December 2007, and
was 6.1%). Inflation is also worsening, with an annualized rate of
6.5% (compared to the GOE's 2008 goal of 3.7%). The Central Bank
continued to lower the interest rate ceilings for all lending
sectors. Some analysts fear this will lead to a credit contraction,
but others claim lower rates will stimulate the economy.

6. (U) Overall exports rose by 6.7% in February 2008 compared to
December 2007. Petroleum exports rose by 18.9% for the same period,
which reflects a slight recovery in output in both public and
private oil fields. Tuna and mining exports registered gains of
53.4% and 29% respectively. Exports to the U.S. such as cacao and
shrimp, however, declined for the same period.

GOE Provides $14.3 million in Agriculture Relief
--------------------------------------------- ---

8. (U) On April 3, Minister of Agriculture Walter Poveda announced
GOE plans to import and distribute free of charge $14.3 million in
agricultural products such as fertilizer and seeds to small farmers
affected by continuing flooding and heavy rains. Comment: This is
one of several modest steps to provide relief for the economic and
agricultural losses due to the flooding. (The GOE has speculated
about providing debt relief to small farmers (ref b), reportedly in
the amount of $150 million, but has not yet implemented a program.)
The fields are still under water, and the full extent of the damage
is not yet known. With the current focus on emergency relief, it
does not yet appear that the GOE has a comprehensive plan to deal
with recovery. End comment.

JEWELL

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