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Cablegate: Ecuador Economic News February 1 - February 8, 2010

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RR RUEHWEB

DE RUEHQT #0154/01 0392250
ZNR UUUUU ZZH
R 082248Z FEB 10
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 0941
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHCV/AMEMBASSY CARACAS
RUEHGL/AMCONSUL GUAYAQUIL
RUEHLP/AMEMBASSY LA PAZ
RUEHPE/AMEMBASSY LIMA
RUEHQT/AMEMBASSY QUITO

UNCLAS QUITO 000154

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EINV EFIN SENV EC
SUBJECT: Ecuador Economic News February 1 - February 8, 2010

REF: 10 QUITO 05

1. (U) The following is a periodic economic update for Ecuador that
reports notable developments that are not reported by individual
cables. This document is sensitive but unclassified. It should
not be disseminated outside of USG channels and should not be
posted on the Internet.

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Highlights

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--Ecuador's Central Bank Postpones Release of Third Quarter Results

--Banks Healthy and Liquid, but Profits Decrease in 2009

--Drought Affects Water Supply, Food Prices

--Rich Biodiversity in Yasuni National Forest

--Guayaquil Ethanol Pilot Program Begins

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Ecuador's Central Bank Postpones Release of Third Quarter Results

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2. (SBU) The Central Bank (BCE), which normally publishes third
quarter results in late December each year, has announced it will
not release third quarter 2009 results for the foreseeable future.
The BCE maintains that the delay is due to re-calculation of GDP
figures in accordance with a request from President Correa. In his
October 2, 2009 weekly radio address, Correa said IMF-imposed
methodologies for calculating national accounts skew GDP results.
In particular, he has commented about the need to calculate in a
different way the contribution to GDP of Ecuador's petroleum
refining sector. In the past, the refined petroleum sector has
been recorded in GDP calculations with a negative value-added due
to the substantial subsidies the government provides for purchase
of diesel, gasoline and natural gas. Several analysts have
suggested the BCE is delaying release of the figures because third
quarter results show poor economic performance during the period.
They have voiced concern that the delay would allow the BCE to
alter the figures to the point that they would not be reliable, and
claim that uncertainty over government reporting of economic
statistics is deterring investment. The BCE has stated that
Ecuador's GDP grew by 0.98% in 2009, while the IMF has estimated a
1.0% contraction, and the Economic Commission of Latin America and
the Caribbean (CEPAL) has estimated a contraction of 0.4%.

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Banks Healthy and Liquid, but Profits Decrease in 2009

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3. (SBU) Profits for Ecuador's banking sector, which is comprised
of 25 banks, 24 of which are private, declined from $283 million in
2008 to $217.6 million in 2009. Although banking deposits grew by
8.3% over the same period, loan rates declined, increasing
liquidity in the sector. In 2009, limits on fees and lending rates
imposed by the GoE further limited bank earnings. Profits declined
at 16 banks, remained stable at one, and increased at only seven
banks: Guayaquil, Procredit, Unibanco, Capital, Solidario,
Comercial Manabi, Litoral and Delbank. Bank representatives have
told Emboffs that while the banks have sought to increase their
loan portfolios in 2009, they simply couldn't find a sufficient

number of customers. Private companies have confirmed this,
stating that they are investing retained earnings and paying down
debt, but holding off on large investments that would require
taking on credit. The BCE recently announced a further 2.62%
reduction in interest lending rates effective January 29, 2010,
that will likely limit further profit margins. Despite declining
profits and recent reductions in lending rate ceilings, several
analysts continue to describe the banking sector as healthy, noting
that productivity gains have mitigated the effects of decreased
interest revenues and fees.

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Drought Affects Water Supply, Food Prices

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4. (SBU) Ecuador's worst drought in five years has caused food
supply problems in the country's northern province of Pichincha,
which includes Quito. The rainy season, which usually lasts from
October through May, has yet to arrive in force. Pichincha
recorded less than 0.2 inches of rainfall in January 2010, where
average January rainfall is three inches. Despite rumors of
potential water rationing in Quito, no restrictions have yet
occurred or been announced. Quito's water authority, La Empresa
Metropolitana de Alcantarillado y Agua Potable de Quito (EMAAP-Q),
announced on January 8, 2010, that it was sufficiently prepared for
the water shortage and that it would not need to resort to
restrictions. Other locations are not as fortunate, however, and
on February 6, president Correa announced a state of emergency for
the central Ecuadorian provinces that have been affected by the
drought. Guayllabamba, a town of roughly 13,000 near Quito, has
shut off water access for two hours per day since January 18th.

5. (SBU) The drought has caused difficulty in agricultural areas.
Low harvests throughout Pichincha province have caused prices on
several locally grown products for domestic consumption to increase
significantly over the last 30 days. Between December 2009 and
January 2010, the price of beans and potatoes jumped 25% and 27%
respectively, while naranjilla (an orange variant) and avocado
prices increased 50% and pea prices increased 70%.

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Unparalleled Biodiversity in Yasuni National Forest

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6. (SBU) A team of researchers from several U.S. and Ecuadorian
universities recently concluded that the Yasuni National Forest - a
protected reserve near the northeastern rim of Ecuador covering
some 3,800 square miles, comparable to the size of Hawaii's largest
island - contains the highest level of biodiversity in South
America and possibly the world. Every 2.5 acres contains roughly
655 tree species and an incredible 100,000 insect species.
Scientists have also counted 596 bird species, and 150 amphibian
species in Yasuni. These record breaking numbers exceed the
biodiversity of the United States and Canada combined. Unlike the
eastern Amazon, climate change models predict that Yasuni will
remain wet and hot, providing a stable environment for its rich
biodiversity.

7. (SBU) The park is also home to the Huaorani indigenous people,
population roughly 4,000, and an oil reserve estimated at 850
million barrels. Given that the National Forest is a valuable
resource for oil and environmental interests alike, the GOE has
mooted compensation from the international community at $350
million per year in return for protecting the
Ishpingo-Tambococha-Tiputini (ITT) oil block portion of the forest
from exploitation. The future of this deal is uncertain since the
GOE has so far failed to attract sufficient donors (reftel).

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Guayaquil Ethanol Pilot Program Begins

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8. (SBU) On January 12, 2009, the GOE kicked off Ecopais, a program
that adds a 5% share of ethanol to gasoline sold in Guayaquil. The
coastal city is Ecuador's largest city, and is being used as a
pilot to eventually bring a gasoline-ethanol blend to the entire
country. Ethanol for the program is derived exclusively from
domestic sugarcane and is mixed with gasoline at a
recently-completed state-owned fuel terminal just north of
Guayaquil. Based on the city's 5,830 barrel per day demand for
gasoline, domestic producers are expected to provide 46,345 liters
of ethanol per day.

9. (SBU) Officials from the Ministry of Non-Renewable Natural
Resources hope the plan will generate employment in rural areas,
reduce greenhouse and toxic emissions, and diversify Ecuador's
energy supply. The Ministry estimates that the plan will allow
Ecuador to import 320,000 fewer barrels of gasoline per year and
save $32 million. The Ministry has not provided estimates on the
cost of the ethanol program.
HODGES

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