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Cablegate: Dropping Dollar Raises Prospects in Tulcan

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 QUITO 001322

SIPDIS

E.O. 12958: N/A
TAGS: PGOV SNAR PTER ECON ETRD EC CO
SUBJECT: DROPPING DOLLAR RAISES PROSPECTS IN TULCAN


1. SUMMARY: Tulcan, capital of Ecuador's Carchi province,
bestrides the Panamerican Highway four hours from Quito and
four miles from Colombia. Like frontier towns worldwide,
Carchi's capital enjoys its share of money changers, truck
stops, and customs checkpoints, most visitors clocking in for
hours, not days. Yet the nearby redoubt of Colombia's
illegal armed groups makes this border burg different from
most. Ecuadorian security forces are omnipresent, for one;
Embassy monies and expertise have stood up counter-narcotics
checkpoints along Carchi highways, and Tulcan hosts a large
and growing Army battalion responsible for border security in
the highlands. Local leaders claim the deployments have
spawned dropping crime rates, but overcoming Tulcan's
reputation and attracting tourism and investment remains
difficult. All agreed the municipal economy had rebounded
from the battering that 2001's dollarization had brought.
The dropping dollar, not fundamental improvements in the
business climate, underpinned Tulcan's gains, however. A
public health officials claimed Carchenses' physical
condition surpassed national norms, yet the provincial bishop
lamented residents' spiritual health. Last, attitudes
towards Colombians had improved, owing perhaps to an expected
refugee surge that never materialized. END SUMMARY.

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Location Good and Bad
---------------------

2. Shrouded often in mist and drizzle, Tulcan, population
52,000, is Ecuador's highest provincial capital (9700 feet).
Unlike frontier peers in neighboring Sucumbios and Esmeraldas
provinces, the city enjoys excellent road links to Ecuador's
most populous areas via its privileged location along the
Panamerican Highway 150 miles north of Quito. Agricultural
production thrives in surrounding Carchi province, owing to
ever-present rains and rich volcanic soils; its potatoes are
the nation's finest. Small land plots, high fertilizer
prices, and significant pesticide use make Carchi crops
expensive, however, especially compared to similar production
in neighboring Narino. Despite the aforementioned road net
and closeness to Quito, Tulcan has proven unable to attract
industry, instead living off border commerce and government
spending. As such, its economic health depends greatly on
notoriously volatile exchange rates.

3. Five miles north lies Ipiales, Colombia, in appearances a
slightly-bigger Tulcan brother. When the Colombian peso
strengthens, Ipiales-area consumers historically flock south
in search of bargains, benefiting Carchi merchants. When it
weakens, however, the flow reverses. Ecuador's repeated
devaluations in the 1990s proved a boon to Tulcan, and retail
businesses expanded to serve Colombian customers. The GoE
decision to ditch the sucre and dollarize the economy
therefore hit the city hard. Prices skyrocketed overnight,
Colombian border-crossers canceled travel, and Tulcan's
economy contracted. Embassy officers visiting in September
2002 saw shuttered shops and few shoppers, a general malaise
in the air.

-----------------------------------------
Economic Indicators Improving, Grudgingly
-----------------------------------------

4. Emboffs traveled to Tulcan May 30-June 2 to gauge the
province's economic pulse and security situation. Provincial
and municipal leaders described a region in recuperation,
albeit gradual. Mayor Pedro Velasco, a second-term United
Left (ID) politician, claimed consumption was rising and
businesses returning to Tulcan. Reasons were two: the
Colombian peso, trading at 2900 per dollar in 2003, had
strengthened 20 percent since. Colombian shoppers from
Ipiales and even Pasto were bringing business to
suddenly-cheaper Tulcan, and northern investors were plowing
money into Ecuador. The second was psychological; Carchenses
finally had accepted dollarization, and instead of pining for
a return to devaluations, had committed to compete.
Nevertheless, currency-neutral production costs, especially
in agriculture, remained lower in Narino than Carchi, and
Velasco worried a rising dollar could erase recent gains.
Further, too many city residents continued to depend on
contraband for their livelihoods; cracking down on illegal
border crossers spelled economic doom for Tulcan's
marginalized, however.

5. Second-term Prefect Rene Yandun (ID), a former Army
general, sounded even less sanguine over Carchi's chances.
Internal migration, mostly to Quito and Santo Domingo de los
Colorados, was robbing the province of its economic
wherewithal. Carchi's population, estimated at 200,000 in
1995, had dropped 25 percent in ten years, hollowing out its
workforce, especially in agriculture. Prosperity lay not in
working the land, however, but in attracting industry and
tourism. On the latter, Yandun argued that Carchi's
volcanoes, vistas, and indigenous culture were the equal of
any Ecuadorian province's. Yet rumors of widescale Colombian
narcoterrorist incursions poisoned the tourism environment;
such fear caused southbound travelers to bypass Tulcan for
Imbabura capital Ibarra, while Colombia-bound visitors
overnighted in Ipiales or Pasto.

6. April's administration change brought new governors to
the provinces; President Palacio's Carchi representative,
Bolivar Chamorro, was but one month in office upon meeting
with Poloff. The one-time educator displayed world-class
braggadocio in exclaiming that friction between the
governor's, prefect's, and mayor's offices had ended upon his
assumption of power. Such animosity had hampered economic
development in the province, Chamorro explained. The
governor touched on the same problems Yandun and Velasco had,
adding one of his own: Carchi's poor education system.
Primary and secondary school quality was horrific, and the
province lacked a full-time university. Attracting one was a
primary goal.

7. Public health issues are not a brake to provincial
economic development. Dr. Ruth Velasco, a 13-year Ministry
of Health official in Tulcan, claimed Carchenses' physical
condition exceeded national norms. Outbreaks of malaria and
dengue, constant worries along Ecuador's coast and in
lower-elevation parts of the sierra, were no worry in
9,700-ft Carchi. Nor was tuberculosis, troublesome in high
sierra indigenous communities. Velasco lauded MoH
initiatives to vaccinate the entire provincial population and
educate prospective mothers in effective prenatal care, which
had earned the ministry significant goodwill.

8. Carchi's preeminent Catholic priest questioned his
flock's spiritual health, however. Bishop Luis Sanchez, a
Loja native, had called Tulcan home for three years. Church
attendance by confirmed Catholics had averaged 12 percent
during his tenure, a disappointing figure. "Sects" saw
fertile ground in Carchi, Sanchez lamented, referring to
evangelical, Protestant groups such as the Seventh Day
Adventists and Mormons. In response, the twenty-odd parishes
within his diocese were expanding outreach activities,
although the challenge looked difficult. Roman Catholic
pastoral activities too were suffering. External funding --
mainly, a grant from the German church he had dedicated to
women's issues -- had evaporated, and the bishop had been
unable to identify alternatives. Sanchez hoped to continue
assisting Carchi's resident Colombian refugee population, but
natives' protests over expending limited funds on foreigners
limited his actions.

---------------------------
Carchi Growing More Secure?
---------------------------

9. Post's Narcotics Affairs Section (NAS) directs large
chunks of USG counter-narcotics (CN) assistance to Ecuador's
northern border. After reconnoitering the construction site
of a NAS-funded CN checkpoint along the Carchi-Imbabura
frontier, Emboffs met with Carchi CN police commander
Patricio Guerra and later visited his troops and facilities.
Guerra, a rising police star, revealed plans for a two-week,
round-the-clock CN operation targeting provincial highways.
As nationwide drug interdictions had dropped 60 percent from
year-earlier totals, he was pushing his men (and women) hard
for results. Guerra called cooperation with his Colombian
counterpart top-notch, but claimed Ecuadorian police-military
coordination was still lacking -- Carchi-based armed forces
still misunderstood their CN role, he lamented.

10. Numerous clandestine frontier crossings compromised
police efforts to disrupt southbound drug trafficking, Guerra
asserted. Traffickers even used trained, riderless mules and
horses to ferry product, limiting their legal exposure. That
said, days before his team had interdicted smugglers carrying
$15,000 in Colombian pesos (and during Emboffs visit, they
apprehended a trafficker concealing five kilos of coca base
beneath a crate of live chickens). To improve CN forces'
capabilities, Guerra presented Emboffs a reasonable,
well-thought-out assistance request; topping the list was a
heavy truck to allow squad-sized, far-ranging patrols.

11. The 39th Army battalion in Tulcan has responsibility for
patrolling the highlands stretch of the Colombian border.
NAS and the Embassy's MILGP donated five five-ton trucks and
12 Humvees to the 39th in 2004, increasing the unit's ability
to patrol frontier areas facing guerrilla and paramilitary
threats from Colombia. Battalion commander Colonel Ramon
Enriquez informed NAS director that he had 400 troops in the
field on a training exercise at the moment, and that
additional communications equipment was his greatest need.
The NAS Director inspected a USG-funded maintenance hangar
project on his base, and discussed methods to improve fuel
supply and inventory control.

12. Civic leaders also weighed in on security matters in
Tulcan and surrounding Carchi province. All agreed the
region, while not exactly Bern, was not Baghdad either --
sensationalist media outlets in Quito and Guayaquil needed to
get the facts right. Yet problems remained that threatened
the nascent economic recovery. Mayor Velasco, after noting
police would not crack down on "contrabandistas,"
acknowledged that drug traffickers often utilized the same
illegal border crossings. He refuted rumors claiming the
FARC utilized Tulcan for resupply and R&R, however, arguing
the Colombian rebels preferred smaller hamlets east and west.
Concurring with Colonel Guerra on police-military
coordination problems, Velasco asserted the armed forces,
greater funding and shinier toys had spawned police
jealousies.

13. Yandun praised a recent Ecuadorian military decision to
deploy 450 additional soldiers to the Tulcan battalion.
NAS-provided CN police support also earned his gratitude.
Carchi residents continued to feel threatened, however, by
the closeness of Colombian irregulars and "copycat"
Ecuadorian criminal gangs plaguing rural regions. Yandun
claimed that kidnapping rings' activities had forced large
landowners to flee, selling their properties at a loss and
driving down land prices. Bishop Sanchez agreed the
kidnappings were continuing, albeit at a lower rate than
three years before; he had demurred, however, when asked
recently to broker a ransom and release.

-----------------------
Colombians Still Coming
-----------------------

14. Gerardo Dorado runs the GoC's consulate in Tulcan.
While Plan Patriota had not spurred significant refugee
movements as many had expected, Colombians continued to head
south for economic reasons. Dorado claimed that Carchi
employers preferred harder-working, cheaper Narino laborers.
Most were illegal, however, and subject to exploitation.
Regularization duties therefore consumed much of his days.

15. Three years ago, Dorado's predecessor claimed Ecuadorian
border officials regularly mistreated southbound travelers at
the Rumichaca International Bridge. The situation had
improved somewhat, the Consul revealed, but GoE personnel
continued to hassle Colombians and not honor Andean freedom
of movement stipulations. His countryman also received
stiffer sentences for drug offenses than Ecuadorians -- some
250 inhabited the Tulcan prison, each serving minimum
eight-year terms.

--------
COMMENT:
--------

16. Our primary desire in visiting Tulcan lay in gauging the
security situation, measuring Carchi's economic recovery, and
ground-truthing the value of USG CN assistance. But we had
bigger-picture reasons as well. Claims that Ecuador has
adopted a more independent, less servile foreign policy
litter Quito airwaves and front pages. In his Cabinet
appointments, President Palacio named gringo-bashers and
sovereignty protectors, with Ecuador's "involvement" in Plan
Colombia proving a convenient target for their rantings. We
therefore endeavored to learn whether demands for a return to
isolationist old-think vis-a-vis Colombia had translated into
a troop pullback or more tepid force posture. Thankfully, it
has not; if anything, front-line Ecuadorian police and
military appear more energized than ever. If we had one
hundred Colonel Guerras, for example, we'd be writing a
requiem on the demise of Ecuador's drug problem. Sometime
USG-detractor Mayor Velasco put it best. "Sometimes good
does come from bad," he remarked, referring to greater Quito
attention to frontier problems, owing to worries of Colombian
spillover. Our intention is to ensure the Government of
Ecuador remains focused on its northern border. END COMMENT.

Kenney

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