Cablegate: Scenesetter for Das Chris Mcmullen, Daa Tully


DE RUEHQT #1081/01 3241904
O 191904Z NOV 08




E.O. 12958: N/A

1. (SBU) Embassy warmly welcomes DAS McMullen, Deputy
Assistant Administrator Tully, and the U.S. delegation of the
Bilateral Dialogue on November 24. Your visit comes at a
time of opportunities, risks, and changes as Ecuador prepares
for national and local elections in 2009 following approval
of a new constitution. While we do not agree with the Correa
government on every issue, Ecuador has deep ties to the U.S.,
and we share many interests and have enjoyed strong
cooperation on development and counter-narcotics programs.

Bilateral Dialogue

2. (SBU) The launch of the Bilateral Dialogue represents an
opportunity to establish a mechanism for regular,
institutionalized discussions between our governments. To
start, we are largely focusing on areas of existing
cooperation, but we expect that as the Dialogue takes root we
can explore new areas of cooperation. This meeting may help
identify some of those areas. In the November meeting we
hope to advance some issues, such as access for U.S. beef,
and will remind Ecuador of the importance of fair treatment
of U.S. investors. Another benefit of the Dialogue is that
many Ecuadorians, even within the Foreign Ministry, do not
have a full appreciation of the extent of USG programs in
Ecuador. The Dialogue offers a framework that captures much
of our cooperation and is therefore a useful tool to
demonstrate to Ecuadorian officials and the public the
breadth and success of our cooperative efforts. Moving the
Dialogue forward to its current point has been a slow
process: the Deputy Secretary originally proposed the idea
of an Economic Dialogue to President Correa in May 2007.
Foreign Ministry officials, in embracing the idea,
recommended expanding the scope to include multiple "pillars"
(development, trade and investment, cooperation, and
migration) that reflected our broader bilateral relationship.

Domestic Political Developments

3. (SBU) Ecuador has historically been a fragile democracy
caught in cycles of political instability, most recently
reflecting popular disillusionment with traditional power
structures and weak institutions. Inaugurated in January
2007, Rafael Correa won the presidential election by
successfully presenting himself as the "change" candidate.
He is the first president since democracy returned in 1979 to
enjoy sustained popularity in all regions of the country and
among a broad array of class and demographic groups.

4. (SBU) A core element of Correa's political program was
convoking a Constituent Assembly to draft a new constitution,
Ecuador's 20th. Nearly 64% of voters approved the
constitution in a September 28 referendum. Its impact will
depend in large part on new legislation, presidential
priorities, and judicial interpretation.

5. (SBU) The new constitution's advocates argue that it
substantially expands the rights accorded all Ecuadorians and
that these rights will be guaranteed by a strengthened
Constitutional Court. It is the first constitutional text to
guarantee the "right" of nature to be protected and restored.
Other "rights" enshrined in the constitution include
employment with fair wages, social security (expanded to
housewives), housing, health care, diverse communication
sources, free education (expanded to include university
education), political rights, civil rights, the right to
migrate, special protections for vulnerable groups, and
collective rights for the indigenous and other minorities.
Critics claim that the government does not have sufficient
resources to follow through on these promises without
bankrupting the state.

6. (SBU) The new constitution increases the branches of
government from four to five. In addition to the familiar
executive, legislature, and judiciary, Ecuador had an
electoral branch and now adds a Transparency and Social
Control branch. Proponents believe the new branch of
government will ensure greater citizen involvement in
government decision-making. They defend the balance of power
between the president and the National Assembly, pointing out
that the Assembly will gain the right to impeach cabinet
ministers. Critics express concern that the constitution
will allow President Correa and his allies to expand their

control over all branches of government and thereby end any
checks and balances.

7. (SBU) Ecuador is now in a period of transition while
institutions are established in accordance with the new
constitution. The temporary Constituent Assembly reconvened
in October to appoint three interim bodies: a legislative
commission, an electoral council, and an electoral disputes
tribunal. All but one of the former Supreme Court justices
selected by lottery for what is now a smaller and less
powerful National Court refused to serve, which leaves the
court vacant for the time being. General elections will be
held during the first half of 2009.

Economic Outlook and Policies

8. (SBU) Ecuador's economic performance has been solid since
it adopted the dollar as its currency in 2000, following a
major banking crisis and recession in 1999. Growth has been
supported by the stability brought by dollarization, high oil
prices, strong domestic consumer demand, increased
non-traditional exports, and growing remittances. Per capita
income increased from $1,296 in 2000 to $3,366 in 2007, and
the poverty rate fell from 51% in 2000 to 38% in 2006.
Economic growth declined in 2007 to 2.5%, due in part to
declining oil production, but also uncertainty about the
direction of economic policy under the Correa Administration.
Looking forward, the economy could be vulnerable if
petroleum prices remain at or below current prices for an
extended period, although in the short-term the economy will
be buffered by the current budget surplus and the
government's cash reserves, plus sizable international
reserves. Remittances have begun to drop because of the
global economic slowdown, and some exports, such as flowers,
may drop.

9. (SBU) President Correa entered office looking to make a
number of changes to the economic system in Ecuador and
address a number of unmet social needs. His government has
increased income transfers to the poor and increased spending
on health education, and basic infrastructure, although given
weak government institutions it has been slow in implementing
some of these programs. The overall direction of economic
policy under the Correa Administration is difficult to
define, in part because there are often differences between
Correa's public discourse -- which can be populist -- and his
policy decisions -- which are often more pragmatic. The
Correa Administration is strengthening government regulation
over certain sectors and increasing the government's revenue
from sectors such as petroleum and mining, but the government
appears intent on maintaining an important role for the
private sector even in these strategic sectors. On taking
office, the Correa Administration suggested it might not pay
some international debt but made timely payments through
October 2008. In November, it announced it was delaying an
interest payment pending additional studies of an allegations
that the debt may have been tainted with irregularities.

10. (SBU) The new constitution envisions a strong role for
government in the economy, although a number of important
provisions, such as identifying strategic sectors and
including a social dimension in the definition of property,
have parallels in the previous constitution. The
constitution gives higher priority to state development of
strategic sectors but also allows for private investment in
those sectors. The constitution establishes that the state
will regulate and if necessary intervene in the market, and
gives the administration the authority to set monetary policy
(which previously was the purview of the Central Bank).
Several regulatory agencies, including the Central Bank, are
no longer autonomous. Many of the economic provisions in the
new constitution will have to be further clarified by
implementing legislation, which the government is just
beginning to present to the interim legislative body.

Economic Ties with the U.S.

11. (SBU) The United States is Ecuador's most important
trading partner, accounting for 48% of its exports and 25% of
its imports. The Andean Trade Preferences Act (ATPA), which
Congress extended until December 2009, has helped promote a
number of new, labor-intensive export industries in Ecuador,
such as flowers and processed vegetables. The Government of

Ecuador estimates that ATPA supports 350,000 jobs in Ecuador.
U.S. companies and individuals have invested in a wide range
of Ecuadorian industries. Investors in regulated sectors
such as petroleum and electricity have a number of investment
disputes, while those in more lightly regulated sectors have
had relatively few disputes. The United States and Ecuador
have a bilateral investment treaty, and several U.S.
investors have filed for international arbitration under the
treaty. The GOE has complied with arbitration rulings.

Ecuador Foreign Policy

12. (SBU) President Correa has sought to establish or
strengthen relations with a wide variety of countries, such
as China, Iran, Spain, Russia and Chile. His goal is to
strengthen South American institutions, such as the Union of
South American Nations (UNASUR) and the Community of Andean
Nations (CAN), and to expand Ecuador's political and
commercial partners. Correa has explicitly expressed a
desire to reduce dependence on the United States.

13. (SBU) President Correa remains unwilling at this point
to reestablish diplomatic relations with Colombia, except on
his own terms, despite ongoing mediation efforts by the
Organization of American States. The latest exchange of
harsh words beginning on October 27 between Correa and Uribe
has once again frozen the process. Correa believes that
Uribe lied to him concerning the Colombia incursion into
Ecuador on March 1, and his pride and focus on national
sovereignty have thus far impeded the kind of detente that
Chavez and Uribe achieved. Despite the break in relations,
commercial ties remain strong and consular operations
continue in both countries.

Northern Border

14. (SBU) Ecuador shares a 450-mile porous border with
Colombia. USG efforts in the area aim to prevent spillover
of drug cultivation and trafficking and illegal armed groups
into Ecuador. They include development assistance to improve
the quality of life and spur licit economic growth;
counter-narcotics aid to curb smuggling of precursor
chemicals, cocaine, and heroin; and military-to-military
assistance to strengthen Ecuador's ability to secure its
northern border and control its territorial waters. The U.S.
also supports programs to assist the estimated 180,000
refugees in the northern provinces of Ecuador who have fled
Colombia due to violence or threat of violence.

15. (SBU) The Ecuadorian Military's Fourth Joint Task Force
(formerly Fourth Army Division) has engaged the FARC in a
series of operations along the border since last November and
has notably increased its presence with additional personnel
and assets. These operations demonstrate resolve and
coordination and commitment of assets by the Ecuadorian
military to control its border. The United States has
supported these Ecuadorian military efforts. The Ecuadorian
government's policy has been to refrain from labeling the
FARC as terrorists and to maintain a neutral position on
Colombia's internal conflict to avoid becoming a target of
FARC attacks.

Counter-Narcotics Cooperation

16. (SBU) Ecuadorian leaders have identified narcotics
traffickers and other criminal organizations as threats to
national sovereignty, and are focusing the police, military,
judiciary and others on disrupting and dismantling these
organizations. Since 2001, the Embassy's Narcotics Affairs
Section (NAS) has provided almost $94 million to enhance the
capacity of the anti-narcotics police throughout Ecuador,
assist the military in providing security for citizens and
protecting Ecuador's sovereignty on the northern and maritime
borders, and improve the criminal justice system. The
Military Group has also provided an additional $18 million to
the Ecuadorian Military to enhance its operational capacity
in the northern border region. There have been recent cuts
in NAS funding, down to just over $7 million in 2008 from
nearly $20 million in 2004. Cooperation, however, remains
strong under the Correa administration, with an increased
level of programs and activities and many successes in

17. (SBU) The Manta Forward Operating Location (FOL) is an
important asset in our regional counter-narcotics efforts,
providing extensive surveillance coverage of the eastern
Pacific ocean. Embassy efforts over the past two years to
educate the Ecuadorian public about the FOL and its benefits
have reduced misperceptions and negative views, especially in
Manta itself, but were complicated by the March 1 Colombian
incursion into Ecuador. On July 29, the GOE sent a
diplomatic note notifying the U.S. that it would not extend
the FOL agreement when it expired on November 11, 2009. The
United States is now planning its withdrawal from the

Development Programs

18. (U) The U.S. Government has supported Ecuador's
development since 1942, working especially through USAID in
education, health and family planning, environment,
agriculture, micro-enterprise, and economic growth. USAID's
2008 funding was $18 million, and $23 million in 2007.
Current programs focus on cooperation with national and local
governments to improve stability and livelihoods, democratic
governance, environmental management, and economic growth.

19. (U) USAID's Peace and Security program along the
northern and southern borders aims to increase employment and
income, strengthen local governments, and improve the
production and marketing of local business clusters. By
September 2007, 489,000 inhabitants of the southern border
and 500,000 inhabitants of the northern border benefited from
new bridges, water and sewage systems, garbage recycling,
irrigation and roads. Incomes for most participating farmers
have more than doubled, and approximately 11,000 new jobs
have been created.

20. (U) USAID's broader poverty reduction program promotes
trade and competitiveness, and encourages civil society and
the private sector to participate in economic reforms. USAID
created the Committee for Territorial Economic Development to
give small and regional enterprises, joined in a &network of
networks8 a voice in national policies. The policy work is
linked to support to small enterprises to improve their
quality and access to credit and new markets.

21. (U) Under democracy and governance, USAID has supported
56 local governments to implement participatory planning
processes and improve their municipal management practices.
More than 10,000 persons from vulnerable groups have had
access to legal defense services and legal assistance in nine
cities; and the application of the criminal justice system in
Cuenca has been improved. More than 10,000 volunteers have
actively participated in the oversight of local and national

22. (U) Ecuador is one of the most biologically diverse
countries in the world, so USAID's environmental programs
focus on management of the National System of Protected
Areas, indigenous territories, watersheds, and coastal
lowlands and mangroves. The program seeks to create economic
benefits for communities in and around protected areas,
providing the means and motivation for better conservation.

23. (U) In addition, USAID has programs in the following
areas: combating Trafficking in Persons; promoting the
participation of persons with disabilities in economic
activities and democratic processes; supporting Centers of
Excellence for Teacher Training; and assisting in disaster
preparedness and response.

24. (U) Commodity sales under USDA's PL-480 Program
generated financial resources dedicated to the development of
Ecuador's agricultural sector. Since 2000, PL-480 has
financed more the 190 projects, with more than 170,000
beneficiaries and $30 million in programmed funds. Projects
cover a wide range of agricultural activities, including
small business development, microcredit, irrigation, academic
research, and farmer training. Existing funds will be fully
spent by 2009.

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