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Cablegate: Palacio: I Need Your Help

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

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 001978

SIPDIS

E.O. 12958: DECL: 08/22/2010
TAGS: PREL ECON EFIN VE EC
SUBJECT: PALACIO: I NEED YOUR HELP

REF: QUITO 01181

Classified By: CDA JEFFERSON B...


id: 39001
date: 8/23/2005 0:26
refid: 05QUITO1978
origin: Embassy Quito
classification: CONFIDENTIAL
destination: 05QUITO1181
header:
This record is a partial extract of the original cable. The full text of the original cable is not available.


----------------- header ends ----------------

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 001978

SIPDIS

E.O. 12958: DECL: 08/22/2010
TAGS: PREL ECON EFIN VE EC
SUBJECT: PALACIO: I NEED YOUR HELP

REF: QUITO 01181

Classified By: CDA JEFFERSON BROWN, REASONS 1.4 (B,D)

1. (C) Summary: In a meeting with Charge on August 22,
President Palacio asked for U.S. assistance with the
international financial institutions to ensure that Ecuador
could meet its October financing requirements. He expressed
frustration with unrest in the oil patch and with the
intelligence the military had been providing, suggesting that
a great conspiracy, including his predecessor, was at work.
He also expressed exasperation with Ministers of Foreign
Affairs Parra, Economy (former) Correa, and Economy Barreiro,
suggesting that they had formed a "friends of Venezuela
society" which was limiting his options. He said he was
still awaiting technical details of Venezuela's newest
proposal, to lend Ecuador the oil it lacks to meet its export
commitments. End Summary.

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Widespread Conspiracy
---------------------

2. (C) Palacio called Charge and ADCM in on the morning of
August 22 to discuss the protests in the oil-producing
regions of Sucumbios and Orellana and their economic
implications. He began by expressing his frustration with
GOE military intelligence, which, he said, had initially
concluded that "the highly organized protests had appeared
out of nothing." He said the quality of the intelligence he
was getting since changing Ministers of Defense last week,
"had changed instantly" for the better. It was clear that
the protests were the result of a "widespread conspiracy,"
including former President of Ecuador Gutierrez. As a
result, his initiative to increase social spending was now
out of the question, "as the conspirators planned."

Fiscal Crunch Time Coming
-------------------------

3. (C) Ecuador would need the help of the U.S., Palacio
said. Ecuador had large debt payments due in October (more
than $200 million, see reftel). The losses in the protests
were estimated at more than $400 million. It was not clear
how Ecuador could meet all its obligations. What would be
the attitude of the international financial institutions
(IFIs)? Could the USG help? ADCM noted that the IFIs want
to help. Ecuador, however, would have to be willing to make
commitments to them regarding the fiscal policies to be
implemented. An IMF team arrived in Ecuador today and will
meet with Palacio on Thursday. He is keen to leave them with
a good impression and wanted to meet with them personally to
be sure they hear the right message.

Cuban Boondoggle
----------------

4. (C) Palacio explained a convoluted decision-making
process which resulted in four GOE delegates to the Cuban
medical school graduation over the weekend. He said that he
had initially decided on FM Parra and Minister of Health
Wellington Sandoval. However, in considering that decision,
he realized the two were both from the left side of his
cabinet. He decided to add Secretary of Production Joaquin
Zevallos to balance the delegation politically. He then
noted that the Vice President seemed to be sullen and feeling
left out, so he invited him to go, as well.

Venezuelan Solution
-------------------

5. (C) Finally, Palacio described the genesis of the Chavez
proposal to loan Ecuador the oil necessary to keep Ecuador's
oil exports at their pre-protest level. He expressed
exasperation with ministers "who seem to have formed a
Friends of Venezuela Club;" MFA Parra, former MinFin Correa,
and "maybe" MinFin Barreiro. He said Chavez had called on
Saturday to make the offer. "I could hardly reject it, as it
seems so generous." Shortly thereafter, Parra had called to
crow about the "great deal he had negotiated with Chavez."
He had said he had already called MinFin Barriero, who was
excited by the news. Palacio said he scolded Parra for
taking the news elsewhere before informing the president.
"Don't forget, I make the decisions," he told Parra. He
expressed confidence in the newly installed Petroecuador
president, and will listen carefully to his technical advice.
He was clearly aware of the political implications of
accepting the Chavez offer, and wanted us to know he was
factoring that into his deliberations. In the end, he said,
he would have to see the details of the Venezuela offer to
decide whether to accept it, or not.
Comment
-------

6. (C) This meeting confirmed previous conclusions about
Palacio: He is doing his best, with limited capability; to
deal with the very difficult hand he has been dealt. His
request for our help with the IFIs and its juxtaposition
against the Venezuelan offer is transparently designed to
convince us to raise Chavez's bet. That said, if we can get
a commitment by the GOE to pursue responsible fiscal policy,
IFI financing might be forthcoming again. Balanced against a
Chavez offer which is almost certainly not the
interest-free-loan-of-hundreds-of-millions-of -dollars it is
being portrayed as, we might just drag the GOE back into a
responsible economic policy. Even responsible policy will
not be enough if the GOE cannot find a way to dampen
expectations which have been fueled by its own irresponsible
talk and $60 oil.
BROWN

=======================CABLE ENDS============================

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