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Cablegate: Ecuador Econ Weekly: Interest Rates, Economic Growth,

VZCZCXYZ0015
OO RUEHWEB

DE RUEHQT #1768 2191801
ZNR UUUUU ZZH
O 071801Z AUG 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7501
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6787
RUEHCV/AMEMBASSY CARACAS PRIORITY 2623
RUEHLP/AMEMBASSY LA PAZ AUG 0667
RUEHPE/AMEMBASSY LIMA PRIORITY 1811
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2610
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 001768

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR MMALLOY AND MEWENS

E.O. 12958: N/A
TAGS: ECON EFIN EFIS SENV EC
SUBJECT: ECUADOR ECON WEEKLY: INTEREST RATES, ECONOMIC GROWTH,
SHARK FIN TRADE

REF. A: QUITO 1655

B: QUITO 1680

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

Central Bank Establishes Interim Interest Rates
--------------------------------------------- --

2. (U) The new banking law, which establishes new guidelines for
maximum lending rates (reftel a), entered into force on July 18.
Most banks were unwilling to approve new loans until the Central
Bank announced the new official interest rates. On August 2 the
Central Bank set transitional interest rates for August, until it
can develop a more definitive methodology. The interest rates vary
by sector, as established in the new law. The maximum rates are:
for commercial loans, 22.5 percent; consumption loans, 32.27
percent; housing loans, 17.23 percent; and micro credit, 41.86
percent. These interest rates include all lending costs, since per
the new law lenders are not permitted to charge any additional
credit costs such as commissions. As a result, the new nominal
maximum lending rates are higher than the previous maximum rate
established by the Central Bank, although the effective rates have
been reduced and are expected to go down further.

Lowered Economic Growth Forecast
--------------------------------

3. (U) The Central Bank of Ecuador reduced its growth rate
projection for 2007, after the first quarter of 2007 grew only 0.08
percent over the prior quarter. Petroleum production fell more than
4 percent (and fell a whopping 14.5% since the first quarter of
2006), industrial production was basically flat (plus 0.4 percent),
and other elements of the economy grew 2.3 percent.

4. (U) The new 2007 forecast anticipates that GDP will grow 3.4
percent this year, a significant drop from the previous forecast of
4.28 percent and, if realized, the lowest annual rate since 2001.
The Central Bank expects government spending to pull the economy
along, with strongest growth in construction and electricity
generation. Falling petroleum production will be a drag on growth,
agriculture and commerce are expected to grow at rates comparable to
2006, and manufacturing and banking are expected to slow down from
the previous year.

Shark Fin Trade Reportedly Increasing Following Decree
--------------------------------------------- ---------

5. (U) Two weeks after President Correa issued a decree legalizing
the sale of shark fins caught through incidental fishing (reftel b),
the press reports that the number of sharks caught has increased.
Fishermen are reportedly catching more shark and claiming they are
all caught "incidentally;" environmentalists claim that fisherman
are no longer afraid of the police. On August 1, the police, with
the assistance of environmental NGO Sea Shepherd, confiscated two
tons of shark fins taken from 365 sharks (the seizure was considered
to be the result of commercial rather than incidental fishing, due
to the large quantity) from three fishermen's houses in Manta. The
event created conflict between the fishermen and the police, with
one local calling for the revocation of Sea Shepherd's Country
Director (amCit) Sean O'Hearn's visa. Eventually the two tons of
shark fins were returned to the fishermen, and no penal action was
taken against them. (On August 4, immigration authorities detained
O'Hearn and scheduled his immediate deportation. Minister of
Government Larrea later overturned the action. More details
septel.)

BROWN

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