Cablegate: Shooting the Messenger: Correa Blasts Central Bank For

VZCZCXYZ0013
PP RUEHWEB

DE RUEHQT #0505/01 1611513
ZNR UUUUU ZZH
P 091513Z JUN 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC PRIORITY 8992
INFO RUEHBO/AMEMBASSY BOGOTA 7591
RUEHBU/AMEMBASSY BUENOS AIRES 0767
RUEHCV/AMEMBASSY CARACAS 3060
RUEHLP/AMEMBASSY LA PAZ JUN LIMA 2639
RUEHGL/AMCONSUL GUAYAQUIL 3600

UNCLAS QUITO 000505

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EFIN EC
SUBJECT: Shooting the Messenger: Correa Blasts Central Bank for
Disappointing Economic Data

Ref. Quito 374

1. (U) Summary. President Correa harshly criticized the Central
Bank's calculation of economic growth and foreign direct investment,
adding that he was bringing an Argentine mission to review the data
and threatened to fire Central Bank staff if there are errors.
Finance Minister Ortiz subsequently clarified that the GOE would
work with experts from the Andean Development Corporation (CAF),
ECLAC, and Argentina to review Ecuador's economic data methodology.
End summary.

Correa Criticizes Central Bank Experts
--------------------------------------

2. (U) On June 1, in his Saturday radio address, President Correa
criticized the Central Bank for its economic data. He first
criticized the Central Bank for its foreign direct investment (FDI)
data, asking how there could have been a net outflow in the fourth
quarter of 2007. (Note: Per the Central Bank, there was a net
outflow of $295 million in that quarter, reducing total net FDI for
2007 to a disappointing $178 million - reftel.) He then criticized
its GDP calculations, noting that one sector (agriculture)
experienced a significant adjustment as the Central Bank updated its
data. (Note: He made no mention of overall growth rates.) He then
said that "we have hired an Argentine mission" to review the data,
and if the data "are not true" the Central Bank technicians "would
be fired."

3. (SBU) Correa's announcement sparked concern among Ecuadorian
analysts that the GOE would alter politically inconvenient economic
data. There was already concern prior to Correa's blast, since the
Central Bank is over two months late in releasing 2007 fourth
quarter GDP data, and attributed the delay to recalculation of base
year data. The reference to an Argentine mission only heightened
the concern, since the Government of Argentina is believed to be
manipulating its inflation data.

4. (U) That same week Central Bank FDI data, which had previously
been available on its website, were removed from the website,
although net FDI flows were still published in balance of payment
data that remained on the website.

Finance Minister Milder, Announces Revised Growth Calculations
-----------------------------------------

5. (U) On June 4, Finance Minister Ortiz announced that Ecuador
would bring three sets of experts to help the GOE review its
economic data. According to Ortiz, the Andean Development
Corporation (CAF) would assist the Ministry of Finance develop its
own data analysis capacity, the Economic Commission for Latin
America and Caribbean (ECLAC) was invited by the Central Bank, and
an unnamed Argentine technician would participate in the process.

6. (U) Ortiz also announced the revised Central Bank GDP growth
estimate for 2007, 1.9%, and its forecast for 2008 (3.1%). These
are down from the Central Bank's previous estimates, which had been
2.65% for 2007 and 4.25% for 2008. The revised 2007 growth estimate
is comparable to the IMF's calculation of 1.8%. (As of June 6, the
updated GDP data had not been posted on the Central Bank's
website.)

Inflation Data on the Sidelines
-------------------------------

7. (U) Also on June 4, Byron Villacis, the head of the National
Institute for Statistics and Census (INEC), which calculates the
inflation rate, said that there were no immediate plans to change
the inflation methodology. But he added that the current
methodology heavily weighs goods purchased by the upper and middle
class. He said that the next survey to establish the consumer
basket, which probably would take place in 2009, would reflect the
"reality of consumption in Ecuador, but with a technical and
transparent process."

8. (U) On June 5, INEC released the latest inflation data, which
climbed to 9.29% on an annual basis, up from 8.18% the month
before.

Comment
-------

9. (SBU) Correa's harsh criticism of the Central Bank in large
measure appears to be a political ploy to undermine the credibility
of disappointing economic data before the release of the GDP
statistics. It's possible that the GOE may fiddle with the economic

data, which post will monitor, but drawing on CAF and ECLAC
assistance suggests that the GOE may take a more pragmatic approach
than Correa's initial rhetoric would imply.

JEWELL

© Scoop Media