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Cablegate: Correa Adopts Usaid-Designed Program to Promote Ecuador's

VZCZCXYZ0005
PP RUEHWEB

DE RUEHQT #0442/01 1371949
ZNR UUUUU ZZH
P 161949Z MAY 08
FM AMEMBASSY QUITO
TO SECSTATE WASHDC PRIORITY 8853

UNCLAS QUITO 000442

SENSITIVE
SIPDIS


FOR WHA/AND JANINE KEIL;
USTR BENNETT HARMAN;
LAC/AA JOSE CARDENAS; LAC/SA JEFF BAKKEN;
EGAT/EG MARY OTT; EGAT/EG DAVID JESSE;
LAC/RSD KERRY BYRNES

E.O. 12958: N/A
TAGS: ECON EAID EINV PREL EC
SUBJECT: CORREA ADOPTS USAID-DESIGNED PROGRAM TO PROMOTE ECUADOR'S
COMPETITIVENESS AND INVESTMENT

1. (SBU) Summary: At the close of a two hour meeting with President
Rafael Correa on May 9, Correa adopted USAID's proposed production
and investment promotion program. The program is market-driven,
private sector oriented, and designed to improve Ecuador's
competitiveness in world markets. At the end of the meeting,
Production Minister Susana Cabeza de Vaca thanked USAID and told
Correa that they could not have developed this strategy without
USAID's help. Correa also then thanked USAID and asked for our
continued support for this effort. Embassy welcomes this
development as an indication of Correa's willingness to support
pragmatic, market-based initiatives as well as his continued
receptivity to U.S. development assistance. Limited USAID funds may
constrain our future ability to participate as fully as Correa and
his team may want. The next day Correa, in his national, weekly
radio address, reconfirmed his adoption of this program. (END
SUMMARY)

2. (SBU) Present at the meeting on May 9 were USAID Mission
Director Alexandria Panehal, three USAID contractors, the
Coordinating Minister of Production, Susana Cabeza de Vaca, the
President's Chief of Staff and Communication Director, Vinicio
Alvarado, the Planning Secretary (Coordinating Minister rank) Fander
Falconi, and Ministry of Production staff. Both Alvarado and
Falconi are perceived as part of Correa's inner circle. Susana
Cabeza de Vaca was Correa's first supervisor at the University San
Francisco of Quito and the two enjoy a long-standing and good
personal and professional relationship.

3. (SBU) The May 9 meeting was held in Correa's private, more
informal office and the limited number of invitees facilitated an
animated discussion. Correa at first seemed tired --not surprising,
since he had been flying all the previous night. But once he downed
a cup of coffee, he perked up and was fully engaged in all aspects
of the discussion. Correa asked pointed questions, clearly
understood the approach and its economic, organizational, and
political implications. The USAID-funded consultants, who briefed
Correa on the initial design of this program in April, clearly
commanded Correa's respect and confidence. The meeting was
periodically punctuated by good natured ribbing between Correa, the
consultants, and Susana Cabeza de Vaca.

4.(SBU) There were five components to the USAID presentation: the
methodology used to select key sectors to promote exports and
investment; the top 10 productive sectors and Ecuador's
competitiveness relative to other countries; a new organizational
structure to implement this program; a proposed budget; and a
communication strategy to market the program to domestic audiences.

5. (SBU) Correa accepted the methodology that underlies the
analysis. He initially took exception when the USAID consultants
told him that indicators from the conservative think tank, Heritage
Foundation, were used as part of their analysis. But the
consultants calmed Correa's criticisms by pointing out that the
Heritage indicators actually ranked Ecuador higher than some of its
competitors.

6. (SBU) Correa also approved the 10 productive sectors proposed by
USAID. They are: flowers, tourism, processed fruits and
vegetables, transport and logistics, consulting and engineering
services, biofuels, fish products, forestry, wood products, and
aquaculture.

7. (SBU) For each of these sectors, the USAID consultants
highlighted Ecuador's relative competitive ranking against its
primary competitors, such as Mexico, Peru, Colombia, Canada, and
Brazil. Factors such as external image, existing trade relations,
macro and micro-economic policies, and the cost of doing business
determined each country's ranking. The analysis included a
prioritized list of policy reforms and infrastructure improvements
that the GOE should adopt in the short term in order to improve its
competitiveness. For example, to develop the wood products sector,
the consultants told Correa that Ecuador was at a serious
competitive disadvantage by not participating in permanent trade
agreements with key trading partners, such as the US, EU, and
regional partners, in contrast to Peru which has just approved an
FTA with US. Their analysis also identified specific countries where
Ecuador should market its exports. When discussing the
opportunities in the wood products sector, Correa and Alvarado were
both engaged in the discussion about the opportunities for exporting
to India and China and what opportunities existed for exporting
bamboo and cane. Similarly, when discussing biofuels, Correa and
Alvarado discussed the potential for alliances with Brazil.

8. (SBU) The third component was the internal organizational
structure. The 'Project Management Unit' would be housed in the

Ministry of Production. Key management staff include the Project
Management Unit Manager, nine sector specific managers, and two
cross-sectoral managers covering policy reform and infrastructure.
Correa approved the structure and the staffing pattern. He
emphasized the need to hire the project unit manager right away, to
delegate decision-making, and to measure and report on concrete
results.

9. (SBU) The fourth component was the budget. The consultants
estimated the GOE would need to fund the project management unit at
$2.3 million/year for at least three years and the investment
promotion unit, ProEcuador, at $1.7 million, for a total three-year
GOE investment of $12 million. No objections were raised.

10. (SBU) Finally, the fifth component was the communication
strategy. In presenting this component, the USAID consultants were
emphatic that Correa had to personally market this program, starting
with his own cabinet. The consultants also emphasized that Correa
needed to establish a partnership with the private sector or the
program would fail.

11. (SBU) On May 15 USAID consultants presented the program to the
GOE Productive Cabinet. 25 Ministers and Agency heads attended,
including the Ministers of Industry, Agriculture, Tourism, Energy,
and the Coordinating Minister for Social Development (that
supervises another five ministries). Ideology played no part in the
discussion. Rather, their discussion focused on practical issues
related to how to implement the program, additional ways to bring
the private sector into the process, and reporting on results. Given
the President's endorsement of the program, they are anxious for
their marching orders.

12. (SBU) In an ironic twist, both USAID-funded consultants happen
to be Venezuelans. One is a former McKenzie executive and the other
was the former Venezuelan Investment Attraction Agency Chief. Correa
was so impressed with the former McKenzie executive that he asked
him during the meeting to move to Ecuador as the new project
management unit manager. The consultant later told Panehal that
after the meeting Correa jokingly told him that he was tempted to
call Chavez and have the consultant deported, just so Correa would
have him to head his project management unit.

13. (SBU) At the conclusion of the meeting, Correa said he was happy
to finally have a productive sector strategy for the country. He
told Fander Falconi to make sure the program was included in the
National Development Plan.

14. (SBU) In his radio address on May 10, Correa spent several
minutes summarizing the results of our meeting with him, although he
did not mention USAID. He said 'We had another extremely important,
very, very good meeting.' He stated that the key elements of the
productive strategy are to diversify products, add value, open new
markets and maximize competitiveness. Correa then went on to
underscore his commitment to work with the private sector on this
initiative 'in an integrated effort of the public and private
sectors to transform the country.'

15. (SBU) Comment: The meeting offered an inside view into Correa's
very hands-on and engaged style of management, and an example of how
all policy decisions run through him personally. The USAID-designed
program that Correa adopted links sector specific invesments with
the need to finance complementary infrastructure and adopt
macro-economic policies that clarify, especially for the private
sector, Ecuador's economic direction. This program gives Correa
that road map. And Correa is clearly the one in the driver's seat.

JEWELL

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