Cablegate: Das Mcmullen's Meetings with U.S. And Ecuadorian Business

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PP RUEHWEB

DE RUEHQT #2539/01 3251957
ZNR UUUUU ZZH
P 211957Z NOV 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC PRIORITY 8089
INFO RUEHBO/AMEMBASSY BOGOTA 7116
RUEHCV/AMEMBASSY CARACAS 2771
RUEHLP/AMEMBASSY LA PAZ NOV LIMA 2150
RUEHGL/AMCONSUL GUAYAQUIL 3057

UNCLAS QUITO 002539

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV ETRD ELAB EPET PGOV EC
SUBJECT: DAS McMullen's Meetings with U.S. and Ecuadorian Business
Representatives

Ref. Quito 2491

1. (SBU) Summary. WHA DAS Chris McMullen met, separately, with
representatives of the U.S. and Guayaquil
business communities. With the notable exception of City Oriente,
which is facing the prospect of having its
petroleum contract cancelled, the U.S. business representatives were
guardedly optimistic. They are concerned about
business uncertainty and possible measures that could be implemented by
the upcoming Constituent Assembly. However,
they reported that their businesses are doing reasonably well, and
that they can work
with some members of the government.
In contrast, the Guayaquil business representatives were more
pessimistic, concerned that the Constituent Assembly
will
be anti-business and predicting economic deterioration in 2009. End
summary.

U.S. Business Community Guardedly Upbeat...

2. (SBU) In Quito, DAS McMullen met with members of the U.S. business
community on November 13. Robert Moss, AmCham President and owner of a
corporate software company, opened the discussion by noting the
uncertainty generated by
President Correa's economic policies and possible changes in the
upcoming Constituent Assembly.
When the discussion returned to him a second time, Moss took a more
upbeat approach, emphasizing that many on Correa's economic team are
relatively capable and pragmatic. He noted his hope that after the
Correa administration implements a number of economic changes, the
economic environment will become more stable and predictable.

3. (SBU) Moss joined in with another member of the group in agreeing
that economic decision-making is significantly
\better in Ecuador than in Venezuela, saying that GOE officials are
much more practical and reasonable than
Venezuelan economic officials, whom Moss called mere opportunists,
looking out for their own interests.

4. (SBU) Jeff Sheedy, who owns textile, construction, and steel
companies, said that his companies are doing well.
He is now able to sell to the GOE, which he had not previously been
able to do because of widespread corruption.
He said demand for steel is strong because of increased
government-financed construction projects. He allowed that new private
sector construction projects are slowing because of uncertainty and
difficulty obtaining financing,
but added that there are still a number of ongoing construction
projects.

5. (SBU) Sheedy said his principal concern is that the Constituent
Assembly will likely tighten labor rules,
including the ability to hire temporary workers. He acknowledged that
some employers have abused temporary worker provisions, but complained
that the government, rather than prosecuting the violators, would
likely scrap temporary
worker provisions altogether. He said that he would join a group of
business representatives meeting the following day
with a Constituent Assembly delegate from Correa's PAIS movement to
urge at least some flexibility in hiring temporary workers for seasonal
surges.

6. (SBU) In response to a question, Sheedy said that large Ecuadorian
business chambers have lost their credibility
and do not have access to the Correa administration. However, he said,
the GOE sees industry-specific associations as natural interlocutors
and those associations find a ready audience with the GOE.

7. (SBU) Dean Rule, local manager for Hill's Floral, a U.S. flower
company with operations in Ecuador, focused on the benefits of the
Andean Trade Preferences Act, arguing that ATPA should be extended
because it is doing what it was
intended to do: creating jobs to diminish the attraction of
narcotrafficking. He said that he had recently
returned from a
region in Colombia where employees in the flower industry make more
than those working in coca production.

8. (SBU) Jeff Cadena, General Manager for General Motors Ecuador,
said
that GM has the largest share of the Ecuadorian automotive market.
Indeed, GM has a larger market share in Ecuador than any other
country,
and therefore Ecuador is an important market for GM even though the
economy is relatively small. He said that GM's sales have grown over
the

past year, although in recent months sales have slowed because
consumers have had difficulty obtaining financing as the
banking sector tightened its loan criteria because of growing
financial
sector uncertainty.

...Except for City Oriente's Possible Contract Cancellation

9. (SBU) Kyle Ford, manager of City Oriente, a small petroleum
operator, reviewed in a matter-of-fact way the likelihood that the
government could initiate caducity, or contract cancellation, because
of City Oriente's decision not to pay 50 percent of extraordinary
revenues as required under a 2006 law (more details in reftel).
Ford said that he is generally an optimist, but that he thought it
would be difficult for
City Oriente to avoid caducity, and therefore he is now focusing on
City Oriente's arbitration case against the GOE.
(Note: On November 19, the tribunal ruled in favor of City Oriente's
petition and issued a decision
on provisional measures prohibiting the GOE from implementing
caducity
or other actions that could affect the status
quo.)

Guayaquil-based Economic Analyst Predicts 2009 Downturn

10. (SBU) McMullen met with members of the Guayaquil business
community on November 15. According to Walter Spurrier, editor of
Weekly Analysis and Guayaquil-based economic analyst, Correa's
"Marxist" economic policies will likely lead to economic deterioration
in 2009. While high oil prices and a weak dollar will keep Ecuador's
economy afloat for the next year, Spurrier believes that declining oil
production and economic instability following an eventual shift away
from the dollar could mean trouble in the long term. "Given the
political instability, foreign oil companies will not
put good money after bad," he said. "Production will continue to
drop." Spurrier added that "de-dollarization of the economy has to be
high on Correa's list given his nationalistic leanings."

Constituent Assembly Unlikely to be Business Friendly
11. (SBU) Representatives of Guayaquil's politically influential
Chambers of Commerce and Industry expressed
concern about the perceived "anti-business" leanings of the
Constituent Assembly. According to Chamber of Industry
President Miguel Pena, the Constituent Assembly is much less receptive
to the business community's
input than Congress was. "Correa will try to push legislation through
the Assembly to bypass Congress,
which was much more pro-business because so many representatives had
their own companies," he explained.
Pena opined that the Assembly will likely raise taxes to pay for
Correa's
expensive social programs. He, like Spurrier, worried that the Correa
administration was scaring off foreign investors. "His penchant for
making seemingly capricious decisions is driving away foreign
investment in
industrial sectors that need imported equipment," Pena said.

12. (SBU) Comment. The economic and business environment in Ecuador
remains uncertain, which alone can hamper business investment, as the
Correa administration mixes tough rhetoric with a combination of
pragmatic and unhelpful business decisions. So the mixed messages
from
the U.S. and Ecuadorian business communities are understandable.
The Guayaquil business community for the most part has viewed the
Correa administration from a highly
negative perspective and has largely been excluded by the government.
Conversely, the U.S. business community has tried to work with the
Correa administration when possible, hence itQs more nuanced message
to
DAS McMullen.

13. (U) DAS McMullen cleared this message.

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