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Cablegate: Ecuador Econ Weekly: New Oil Arbitration; Central Bank Gets

VZCZCXYZ0008
RR RUEHWEB

DE RUEHQT #0555/01 1721855
ZNR UUUUU ZZH
R 201855Z JUN 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 9047
INFO RUEHBO/AMEMBASSY BOGOTA 7620
RUEHCV/AMEMBASSY CARACAS 3081
RUEHLP/AMEMBASSY LA PAZ JUN LIMA 2667
RUEHBU/AMEMBASSY BUENOS AIRES 0769
RUEHGL/AMCONSUL GUAYAQUIL 3640
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS QUITO 000555

SENSITIVE
SIPDIS

TREASURY FOR MEWENS

E.O. 12958: N/A
TAGS: ECON EINV EPET EFIN EC
SUBJECT: ECUADOR ECON WEEKLY: NEW OIL ARBITRATION; CENTRAL BANK GETS
HELP; MINING UPDATE; ECONOMIC INDICATORS

REF: A: QUITO 505
B: QUITO 365

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

More on GOE Efforts to Review Macroeconomic Data
--------------------------------------------- ---

2. (U) The Central Bank of Ecuador (CB) invited three technicians
from the Economic Commission for Latin America and the Caribbean
(ECLAC) to review its economic indicators. The ECLAC team is
scheduled to arrive the last week of June.

3. (SBU) According to Embassy Buenos Aires, we understand that
Correa's Argentine economic advisor (which he announced in his
weekly radio address - ref a) is a colleague who studied with Correa
in the U.S. and who currently works in the Argentine Central Bank's
economic studies department. The Argentine colleague has not yet
decided whether he would take a leave of absence in order to advise
the GOE for a year or more.

4. (SBU) The Ministry of Finance requested that the International
Monetary Fund provide it assistance to improve its ability to review
macroeconomic data. A small assessment team was in Ecuador the week
of June 16, to lay the ground work for a larger team that would come
later.

5. (SBU) Mateo Villalba, advisor to the Under Secretary of
Macroeconomic Consistency in the Ministry of Finance, outlined for
econoffs the main concern with the Central Bank's GDP data. Without
going into much detail, he said that the methodology used by the
Central Bank results in very volatile petroleum production
calculations. In some years that exaggerates the upward trend in
growth, and other years it suppresses the overall growth rate. He
said that in 2007 the non-petroleum sectors grew at a good, steady
rate but that performance was pulled down by declining petroleum
production. He also mentioned problems with the Central Bank's
methodology to assess petroleum refining, which shows up lost value,
based on the difference between international prices for crude and
controlled domestic prices for refined products. Villalba said that
Central Bank's methodology for assessing the petroleum sectors needs
to be fixed, but allowed that that will take time and would not have
a large impact on the overall GDP growth rate.

Repsol Files for International Arbitration
------------------------------------------

6. (U) On June 9, the Spanish oil company Repsol filed for
arbitration at the World Bank's International Centre for the
Settlement of Investment Disputes (ICSID). Repsol is the partner of
U.S. oil company Murphy, which filed for arbitration in April. Like
the other foreign oil companies that have filed for arbitration,
Repsol's reason for filing was the law that requires that oil
companies provide the government with a share of "extraordinary
revenues" (first 50%, and subsequently raised to 99%). Federico
Cruz, Repsol's spokesman in Ecuador, said that the company would
prefer to reach a negotiated agreement with the GOE and stay in the
country.

7. (U) Ecuador has the second largest number of arbitration cases at
the ICSID, after Argentina.

Mining Developments
-------------------

8. (U) On June 9, the Ministry of Mines and Petroleum implemented
articles 2 and 6 of the mining mandate, which froze almost all
mining exploration in the country and revoked 1,138 mining
concessions (ref. B). Two million hectares are to be returned to
the state out of 4.5 million hectares that were covered by mining
concessions. According to the GOE, concessions that did not pay
for environmental permits and concessions that were up for approval
in April 2008 are being revoked. Ten companies will lose their
concessions: All Metals Mineria, Atlas Moly S.A., Eguiguren Aryans
Carlos Arturo, Dai Zhou Xiaohui, Compania Minera Mariana, Sierramin,
Channel Mining Resources, Elipe S.A. and Copper Santa Barbara and
EcuadorGold.

9. (U) In other mining news, Minister of Petroleum and Mines Galo
Chiriboga announced that the GOE's new draft mining law will be

ready for submission to the Constituent Assembly by June 27. On
June 6, Stephen J. Kay, President and CEO of International Minerals
Corp., told the New York Society of Securities Analysts metals and
mining conference that he thinks the market will be pleasantly
surprised with the new mining law. According to a study by the
Central University of Ecuador, Ecuador has mining potential of 94
million ounces of gold, which is equivalent to USD 84.4 billion at
current prices.

Remittances
-----------

10. (U) According to Central Bank data, remittances grew by 12.3% in
the first quarter of 2008 in comparison with the same quarter in
2007, totaling $759.3 million. (This was, however, a drop from
remittances in the fourth quarter of 2007, but it appears that
remittances typically weaken in the first quarter.) Much of
Ecuador's remittances come from the Euro zone, and the Euro has
strengthened against the dollar, which has helped to shore up
dollar-based remittances.

11. (U) Since 2006, remittances coming from the U.S., Spain and
Italy represent 95.4% of all remittances entering Ecuador. On
average the monthly amount of money sent per person is $516 from
Spain, $457 from Italy, and $299 from the US. Almost half of the
remittances go to the coastal region; 31.7% goes to the southern
part of Ecuador, and 22.8% goes to the highland region.

JEWELL

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