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Cablegate: Mixed Ecuadoran Reactions to Usg Concerns Over Planned Deals

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SENSITIVE
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E.O. 12958: DECL: 2034/10/08
TAGS: ECON EFIN EC IR PREL MNUC PARM KNNP
SUBJECT: Mixed Ecuadoran reactions to USG concerns over planned deals
with Iran's Export Developmen...



id: 229033
date: 10/8/2009 22:56
refid: 09QUITO875
origin: Embassy Quito
classification: CONFIDENTIAL//NOFORN
destination: 09QUITO863|09QUITO869|09STATE98748
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DE RUEHQT #0875/01 2812256
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FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0173
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
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C O N F I D E N T I A L QUITO 000875

SENSITIVE
SIPDIS
NOFORN

E.O. 12958: DECL: 2034/10/08
TAGS: ECON EFIN EC IR PREL MNUC PARM KNNP
SUBJECT: Mixed Ecuadoran reactions to USG concerns over planned deals
with Iran's Export Development Bank

REF: STATE 98748; JOHNSTON/LANDBERG EMAIL 10/01/09; QUITO 863
QUITO 869

CLASSIFIED BY: Heather M. Hodges, Ambassador, U.S. Department of
State, EXEC; REASON: 1.4(B), (D)

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Summary

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1. (C) Embassy delivered Ref A demarche on Ecuador's dealings with
the Export Development Bank of Iran (EDBI), a USG-designated
entity, to the Central Bank (CBE), Ministry of Foreign Affairs
(MFA), Superintendent of Banks, and Financial Intelligence Unit.
The CBE's General Manager expressed concern over the possible
repercussions of doing business with EDBI, and asked to continue
discussions directly with the U.S. Treasury. The MFA's
Multilateral Affairs Director General repeated the traditional GoE
line that Ecuador respects UNSC resolutions with regards to nuclear
disarmament and non-proliferation, but rejects "the
extraterritorial application of another states' laws to Ecuador"
and intends to "strengthen its purely civilian relations with
Iran." End Summary.

2. (C) Econoffs delivered Ref A demarche in coordination with
Treasury and State's September 29 demarche in Washington to
Ecuador's Ambassador to the U.S., Luis Gallegos. Following
Gallegos' warning that if Post did not communicate the demarche
correctly it could precipitate a negative reaction from the GOE and
mean the end of the U.S.-Ecuador bilateral dialogue (Ref B),
Econoffs took great care to highlight that the U.S. is not
threatening the GoE, but rather providing information and looking
for Ecuadoran support. The demarche was taken seriously by
Embassy's interlocutors working in the financial sector, but less
so by the MFA's lead on Iran issues. (Comment: it is unclear
whether GoE officials who understand that the risks outweigh the
benefits will be able to influence internal deliberations on this
highly political topic.)

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In the Hot Seat: CBE Worried About Exposure to Iran

--------------------------------------------- ------

3. (C) During a late evening meeting September 29, CBE General
Manager Karina Saenz (STRICTLY PROTECT) expressed serious concern
about the Central Bank's exposure under E.O. 13382 after hearing
Econoffs' explanations of the possible repercussions of doing
business with EDBI, a USG-designated entity. She said the CBE is
in effect serving as the GoE's financial agent in the arrangement
where EDBI will provide an approximately US$150 million credit to
Ecuador. She said the CBE itself would not benefit financially
from this deal, and noted wryly that even Venezuela's Central Bank
is extremely careful about doing business directly with Iran.

4. (C) Saenz understood immediately that the CBE's involvement in
this arrangement risks its operations in U.S. markets, would impact
its relationships with international financial institutions, and
could undermine the integrity of Ecuador's financial system,
potentially affecting foreign private financial institutions'
decisions to operate here. Further complicating the situation, she
noted, is that the CBE maintains its international reserve holdings
in U.S. banks and owns U.S. licensed Pacific National Bank in
Florida via its ownership of its parent company, Ecuador's Banco


Pacifico. This relationship makes the CBE directly responsible to
U.S. bank regulators, she commented.

5. (C) Saenz promised to raise the issue with the CBE's Board of
Directors. She also asked for additional information and for the
Embassy's help in arranging direct contact with Treasury officials.
(Embassy helped arrange an October 3 bilateral with Treasury
officials on the margins of the IMF/World Bank meetings in
Istanbul.) She recommended the Embassy address the issue with
Coordinating Minister for Economic Policy Diego Borja, since
"Ecuador's dealings with EDBI are more geopolitical than
financial." She couched the EDBI issue in terms of "President
Correa's effort to diversify GoE foreign relations," which includes
strengthening ties with countries like Iran, Russia, and China.
EconCouns explained that the Embassy was first delivering USG
concerns to sub-ministerial officials who have the technical
background to understand the ramifications of E.O. 13382 and who
can explain them to higher-level decision makers.

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MFA: "We Are Strengthening Relations with Iran"

--------------------------------------------- --

6. (C) The reaction of MFA Multilateral Affairs Director General
Lourdes Puma was markedly different, albeit expected and entirely
consistent with Puma's past responses to Iran demarches (see Refs C
and D). In an emotional response, Puma, recently nominated as
Ecuador's Ambassador to Malaysia, stated that Ecuador fully
intended to strengthen relations with Iran, but that these
relations were of a purely civilian nature. She insisted that the
GoE fully adheres to UNSC resolutions and completely supports
global non-proliferation and universal disarmament efforts.

7. (C) Puma added that Ecuador would never collaborate with any
Iranian effort to circumvent UNSC resolutions with the goal of
developing WMDs (even though "Ecuador did not vote for the
resolutions"). However, she argued that Ecuador does not accept
the argument that Iran was a "terrorist country." She also stated
that Ecuador possessed no proof that EDBI was in any way involved
with WMDs. She said that UNSC resolutions were clear that the GoE
could not provide assistance to Iranian entities. However, she
argued that the arrangement with EDBI did not violate these
resolutions, because EDBI was helping Ecuador, not the other way
around. The EDBI credit is purely commercial and "we will only
take their money to fund projects" in Ecuador.

8. (C) Puma said Ecuador does not accept other states' interference
in Ecuador's sovereign decisions to develop peaceful, commercial
relationships with whichever other countries it so chooses. She
also said the GoE rejects the "extraterritorial application" of
another country's laws in Ecuador. At the end of the conversation,
Puma emphasized that this was not a personal issue between Ecuador
and the U.S. and that countries can have different "visions of the
world" and that "maintaining dialogue is what is important." She
highlighted Ecuador's commitment to supporting efforts to end
terrorism, noting that a GoE priority is to pass counter-terrorism
finance legislation.

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Financial Regulators Duck Responsibility


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9. (C) Embassy also delivered a stripped down version of Ref A
points (excising sensitive details of EDBI's activities) on October
5 to Banking Superintendent Gloria Sabando and the new head of
Ecuador's Financial Intelligence Unit, Victor Hugo Briones. Both
Sabando and Briones were quick to point out that the CBE was the
entity that is managing financial dealings with EDBI. Each clearly
understood the implications of Ecuador doing business with a
U.S.-designated entity, but both clarified that their institutions
had no exposure to EBDI and no policy role on the issue of EDBI's
entry into Ecuador. While both had heard that the GoE was
discussing the terms of a line of credit with EDBI, neither was
aware of its interest in opening a branch in Ecuador. Briones
repeatedly emphasized his non-involvement, but noted that EDBI was
offering the money at an attractive interest rate (near zero), and
GoE officials would thus have to weigh whether the benefits they
get from Iran outweigh what they could potentially lose from the
U.S.

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Comment

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10. (C) Even though this issue was not within their direct purview,
Embassy raised it with financial regulators (FIU and
Superintendent) because they are in close contact with the GoE's
key legal and regulatory entities. The idea is to get Ecuadoran
officials thinking about what the country is risking for the sake
of a $150 million loan and better relations with a distant country
with which it has little in common and almost no chance of building
a significant commercial relationship. We are still seeking a
meeting with the Ministry of Finance, after which we will assess
whether it makes sense to raise to a higher level and/or pursue
direct communication with Washington agencies (via DVC or a
high-level Treasury visit). The Finance Ministry straddles both
the financial and political spheres, so its reaction should be
useful to understanding whether financial or political
considerations will win out within the GoE.
HODGES

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

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