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Cablegate: Fiscal Transparency in Ecuador

VZCZCXYZ0000
RR RUEHWEB

DE RUEHQT #0100/01 0271957
ZNR UUUUU ZZH
R 271956Z JAN 10
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 0698
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHCV/AMEMBASSY CARACAS
RUEHLP/AMEMBASSY LA PAZ
RUEHPE/AMEMBASSY LIMA
RUEHQT/AMEMBASSY QUITO

UNCLAS QUITO 000100

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: AID EAID ECON EFIN PREL EC
SUBJECT: Fiscal Transparency in Ecuador

REF: STATE 1923

1. (U) Post provides the following information on the transparency
of the government of Ecuador's budget, keyed to questions in
reftel.

2. (SBU) Is the central government expected to receive funding
under the FY 2010 SFOAA?

Yes. In 2009, overall USG assistance to Ecuador amounted to over
$40 million. Approximately half of this assistance went to support
projects with GoE entities (particularly law enforcement and
military, and also including support for refugees and economic
development). A significant percentage - also roughly 50% -- of
USG assistance in 2009 supported non-GoE programs (e.g., USAID
funds support civil society, the private sector and local
governments). Many if not most of the USG assistance programs in
Ecuador will continue in 2010.

3. (SBU) Is the host country's annual national budget publicly
available?

Ecuador's new Constitution requires that the central government
submit the budget proposal for the next year to Ecuador's National
Assembly 60 days before the end of the current calendar year. The
National Assembly then has 30 days to review and vote on the budget
proposal. The budget enters into force immediately upon approval
of the National Assembly.

Ecuador's Constitution provides that the information related to the
formulation, approval and execution of the Ecuador's annual
national budget must be public. The approved budgets are available
in print and on the Ministry of Finance website:
http://www.mef.gov.ec/PRESUPUESTO_2010-2013/P RESUPUESTO%202009-2013
.htm.

4. (SBU) Are incomes and expenditures included in the
publicly-available budget?

Yes. All revenue and expenditure figures are included in the
publicly available budget. Revenues and expenditure figures are
disclosed in detail by sector (e.g., defense, education), entity
(e.g., Ministries and other public institutions), and state
function (e.g., executive, judicial, legislative). The budget also
provides details on provincial expenditures.

5. (SBU) What is post's assessment of the extent to which the
publicly-available budget accurately reflects actual government
incomes and expenditures?

Local economic analysts have criticized the assumptions used to
formulate the government's 2010 budget. Some of these assumptions,
for example, real GDP growth of almost 7% in 2010, are considered
overly optimistic. These assumptions impact the estimates for both
revenues and expenditures. If growth levels are more in line with
private estimates (1.5-2.5%), the probability is that tax
collection receipts will come in significantly lower than the
budget estimates, and this will also affect how much the GoE will
be able to spend in 2010. Nonetheless, the GoE's assumptions and
figures are available for public review and discussion.

In addition, the GoE delayed submitting the 2009 budget to the
National Assembly for approval, which made it difficult to assess

whether the government budgets for both 2009 and 2010 were credible
and complete. No public report about the budget execution in 2009
has been disclosed yet. This issue is discussed in greater detail
in para 6 below.

6. (SBU) Have there been any events since the 2009 review that may
have affected fiscal transparency (e.g., a coup)?

Ecuador was not reviewed in 2009. The GoE delayed submitting the
budget proposal for 2009 to the National Assembly until November 6,
2009. The GoE's justification for the delay was that President
Correa was inaugurated for his second term on August 10, 2009, and
Ecuador's new Constitution, approved September 2008, established
that a new administration must submit a new budget to the National
Assembly (itself inaugurated July 31, 2009) during its first ninety
days in office.

The budget proposal for 2010 was submitted almost simultaneously
with the 2009 budget (in early November 2009), which was well
within the constitutionally established timeframe.

7. (SBU) Since last year's review, what efforts has the host
government undertaken to improve fiscal transparency? What
progress has been made, pursuant to the 2009 demarches on the
subject (reftels)?

Senior Ministry of Finance officials told econoffs in December 2009
that the Finance Ministry was undertaking several projects aimed at
improving the formulation, execution, and ex-post evaluation of
central government budgets. At the GoE's request, a PEFA (Public
Expenditure and Financial Accountability) exercise is being
conducted by a group of foreign consultants. These consultants are
applying the PEFA methodology developed by the World Bank,
International Monetary Fund, and the European Commission. The
Ministry of Finance plans to disclose publicly the results of this
evaluation. (The PEFA website indicates that an evaluation has
commenced and a draft report is expected to be available during
2010.)
HODGES

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