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Cablegate: Ecuador Econ Weekly: Alba and Mercosur, Bond Payment,

VZCZCXYZ0018
OO RUEHWEB

DE RUEHQT #1889 2321522
ZNR UUUUU ZZH
O 201522Z AUG 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7582
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6825
RUEHCV/AMEMBASSY CARACAS PRIORITY 2635
RUEHLP/AMEMBASSY LA PAZ AUG 0677
RUEHPE/AMEMBASSY LIMA PRIORITY 1849
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2680
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 001889

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR MMALLOY AND MEWENS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD ENRG EC
SUBJECT: ECUADOR ECON WEEKLY: ALBA AND MERCOSUR, BOND PAYMENT,
ELECTRICITY SUBSIDIES, 2008 BUDGET.

REFTEL: QUITO 1047

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

Ecuador Won't Join ALBA, Mercosur
---------------------------------

2. (SBU) During his visit to Ecuador August 9, Venezuelan President
Chavez extended another invitation for Ecuador to join ALBA, his
Bolivarian Alternative for the Americas (President Correa previously
declined to join the regional integration group, reftel). Correa
replied that Ecuador would join ALBA when Venezuela returned to the
Andean Community (CAN), implying that he prefers to focus on
regional integration through the CAN. In an August 16 visit to
Ecuador, President of Uruguay (and current President of Mercosur)
Vazquez told Correa that Mercosur members would welcome Ecuador into
the group "with open arms." Correa declared that he wanted to focus
on the CAN, and later merge both the CAN and Mercosur into UNASUR,
the Union of South American Nations (a yet-to-be launched regional
integration group, which plans to establish its secretariat in
Ecuador).

Ecuador Pays Interest on Global 2030 Bonds
------------------------------------------

3. (U) The Ministry of Economy paid $135 million in interest on its
Global 2030 bonds on time on August 15. This is the second and last
interest payment for the year. The $2.7 billion bonds have an
annual interest rate of 10%. In contrast to the widespread media
and investor focus on the February payment, the first major debt
payment due under the Correa administration, this payment was made
with little fanfare.

Lower Electricity Rates For Low-Usage Consumers
--------------------------------------------- --

4. (U) The GOE implemented a plan to subsidize low-usage
electricity consumers with lower electricity rates. Consumers from
the coast and the Amazon region with an electricity usage of up to
130 kilowatt hours (kwh)/month, and consumers from the Sierra region
with usage of up to 110 kwh/month are entitled to a 50 percent price
reduction (a price of 4c/kwh versus the usual 8c/kwh). According to
the GOE, the subsidy will benefit approximately 1.8 million
subscribers in the country, and will have an estimated annual cost
of $56 million. No details were provided on how the benefit will be
financed.

2008 Budget
-----------

5. (U) The Ministry of Economy unveiled some of the parameters of
the preliminary 2008 budget that it will present to Congress
September 1. The notional budget would be $10.5 billion, surpassing
2007's $9.8 billion budget, although it could change before it is
submitted. The Ministry assumes the price of oil will remain at
$35/barrel (any revenue over the budget price goes to a petroleum
reserve fund), oil production will increase due to increased
investment, and oil exports will reach 185 million barrels (an
increase of 2 million barrels over 2007). It also projects that
debt service (interest and amortization) will fall to $1.9 billion
(from $2.8 billion in 2007), as Finance Minister Ortiz plans to
substitute short-term domestic Treasury certificates with long-term
internal debt bonds. The GOE plans to issue bonds for $480 million
in October 2007.

BROWN

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