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FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0732
INFO RUEHBO/AMEMBASSY BOGOTA 8300
RUEHBR/AMEMBASSY BRASILIA 4242
RUEHCV/AMEMBASSY CARACAS 3668
RUEHLP/AMEMBASSY LA PAZ AUG LIMA 3350
RUEHGL/AMCONSUL GUAYAQUIL 4541

UNCLAS QUITO 000707

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PREL MASS MOPS SNAR PTER EAID MARR OVIP EC CO
SUBJECT: SCENESETTER FOR INAUGURATION DELEGATION

¶1. (SBU) Embassy Quito warmly welcomes the delegation headed
by Senator Bob Graham for the inauguration of President
Correa on August 10, held on the 200th anniversary of
Ecuador's first call for independence. While we do not agree
with the Correa government on every issue, we have enjoyed
strong cooperation in some areas and seek to continue a
productive partnership.

¶2. (SBU) The "Grito de Independencia" on August 10, 1809, was
not the date that Ecuador actually gained independence.
Although a group of Quito citizens overthrew the president of
the Royal Audience of Quito (a Spanish colonial
administrative unit) on that date and established an
autonomous government, Spanish troops reasserted control a
few months later and killed those involved in the rebellion.
Ecuador won its independence from Spain as part of "Gran
Colombia" in 1822, and then became the Republic of Ecuador in
1830 when it split from Gran Colombia.

¶3. (SBU) The inauguration will take place in the National
Assembly building's main meeting room. Just to be aware, at
the front of that room is a modern mural by a famous
Ecuadorian painter, Mario Oswaldo Guayasamin, called "Ecuador
Frustration and Hope." This mural, which seeks to capture
the protagonists of Ecuadorian history, includes an anti-U.S.
piece that has a Darth Vader-like black figure with CIA
written underneath. When former Secretary of State George
Schulz visited the Assembly in 1988, he expressed
considerable displeasure at the depiction. Because of that
incident, many Ecuadorians believe high-level U.S. officials
are reluctant to attend events in the Assembly. While this
is not true, you may have some media interest in visible
reactions to the offensive mural.

¶4. (SBU) The presidents of Argentina, Bolivia, Brazil, Chile,
Cuba, Dominican Republic, El Salvador, Guyana, Honduras
(Zelaya), Paraguay, Peru, Nicaragua, Saharawi Arab Democratic
Republic (which which we do not have diplomatic relations),
Suriname, and Venezuela will attend the ceremony. Prince
Felipe of Asturias of Spain; the prime ministers of Antigua
and Barbuda, Saint Vincent and the Grenadines; and the vice
presidents of Algeria, Guatemala and Uruguay, as well as 17
foreign ministers, will also attend. Representatives from
international organizations will include the Organization of
American States (Insulza and his deputy) and the Andean
Development Corporation (Enrique Garcia). We understand that
Iran may be represented by its Commerce Minister.

U.S. Activities Related to the Bicentennial
-------------------------------------------

¶5. (SBU) The Embassy has identified two emblematic documents
in a local archive that will be restored with Embassy funding
as part of the USG contribution to the bicentennial
celebrations: a handwritten copy of the Ecuadorian national
anthem from the 1860s, and one of the earliest maps of
Ecuador produced by renowned Ecuadorian scholar and scientist
Pedro Vicente Maldonado in 1750. In June 2009, the Embassy
sponsored the visit of a jazz quartet from New York for a
series of concerts in three cities, which was also linked to
the cultural celebrations for the bicentennial. In February
2009, the Embassy and the Municipality of Quito jointly
re-dedicated the Plaza Abraham Lincoln directly in front of
the Ambassador's residence. During the public ceremony on
Lincoln's birthday, the Ambassador's remarks linked the
bicentennial of Lincoln's birth to the Ecuadorian
bicentennial in 2009.

Domestic Political Developments
-------------------------------

¶6. (SBU) Ecuador has been a fragile democracy caught in
cycles of political instability, reflecting popular
disillusionment with traditional power structures and weak
institutions. Rafael Correa was elected to his first term in
2006 by successfully presenting himself as the "change"
candidate. He is the first president since the 1979 return
to democracy to enjoy sustained popularity in all regions of
the country and among a broad array of class and demographic
groups.

¶7. (SBU) A core element of Correa's political program was
convoking a Constituent Assembly to draft a new constitution,
Ecuador's 20th. Nearly 64% of voters approved the
constitution in a September 28, 2008 referendum. Proponents
believe it will give the citizens a real voice in government
decisions and expand guarantees of rights. Critics fear that
it will centralize power in the Executive and result in
drastically increased government spending.

¶8. (SBU) Elections were held in April 2009, two years into
Correa's term, as required under the new constitution.
Correa was re-elected in the first round, taking 52 percent
of the vote, compared to 28 percent for former president
Lucio Gutierrez, his nearest rival. Correa's Proud and
Sovereign Fatherland (PAIS) movement also won the largest
legislative block in the new National Assembly, although not
a majority. PAIS did not fare as well in local elections,
winning only 72 of 221 mayoral offices and eight of 23
prefect positions.

Economic Outlook and Policies
-----------------------------

¶9. (SBU) Ecuador's economic performance has been solid since
it adopted the dollar as its currency in 2000, following a
major banking crisis and recession in 1999. Growth has been
supported by the stability brought by dollarization, high oil
prices, strong domestic consumer demand, increased
non-traditional exports, and growing remittances from abroad.
Per capita income increased from $1,296 in 2000 to $3,670 in
2008, and the poverty rate fell from 51% in 2000 to 42.6% in
¶2007. Real economic growth declined in 2007 to 2.5% (after a
six-year average of 5.18%), due in part to declining oil
production, but also uncertainty about the direction of
economic policy under the Correa Administration.

¶10. (SBU) Growth has been modest in 2008 (5.3%) and early
¶2009. By the end of 2008, the global financial crisis and
economic downturn led to falling remittances and oil revenues
for Ecuador. In January 2009, claiming a balance of payments
crisis, the government invoked the WTO balance of payments
safeguard provision to increase tariffs beyond WTO bindings
and impose quotas on consumer goods. The government also
announced that it was cutting or restricting public sector
spending, and was reducing subsidies in a number of areas.

¶11. (SBU) President Correa entered office looking to make a
number of changes to the economic system in Ecuador and
address a number of unmet social needs. His government has
increased income transfers to the poor and increased spending
on health education and basic infrastructure, although given
weak government institutions, it has been slow in
implementing some of these programs. The overall direction
of economic policy under the Correa Administration is
difficult to define, in part because there are often
differences between Correa's public discourse - which can be
populist - and his policy decisions - which are often more
pragmatic. The Correa Administration is strengthening
government regulation over certain sectors and increasing the
government's revenue from sectors such as petroleum and
mining, but the government appears intent on maintaining an
important role for the private sector even in these strategic
sectors.

¶12. (SBU) The new constitution envisions a strong role for
the state in the economy, although a number of important
provisions, such as identifying strategic sectors and
including a social dimension to the definition of property,
have parallels in the previous constitution. Many of the
economic provisions in the new constitution will have to be
further clarified by implementing legislation.

Economic Ties with the U.S.
---------------------------

¶13. (SBU) The United States is Ecuador's most important
trading partner, accounting for 37% ($409 million) of its
exports and 26% ($286 million)of its imports in 2008. The
Andean Trade Preferences Act (ATPA), which Congress extended
until December 2009, has helped promote a number of new,
labor-intensive export industries in Ecuador, such as flowers
and processed vegetables. The Government of Ecuador
estimates that ATPA supports 350,000 jobs in Ecuador. U.S.
companies and individuals have invested in a wide range of
Ecuadorian industries. Investors in regulated sectors such
as petroleum and electricity have a number of investment
disputes, while those in more lightly regulated sectors have
had relatively few disputes. The United States and Ecuador
have a bilateral investment treaty, and several U.S.
investors have filed for international arbitration with the
World Bank's International Center for the Settlement of
Investment Disputes (ICSID) under the treaty. On July 12,
2009 President Correa issued a decree in which Ecuador
formally withdrew from ICSID. This decision does not affect
arbitration cases that ICSID already has under consideration.

Ecuador Foreign Policy
----------------------

¶14. (SBU) President Correa controls Ecuador's foreign policy
decision-making. His main foreign policy strategies are to
establish and maintain constructive relations with a wide
variety of countries and to promote Latin American
integration. His goal is to strengthen South American
institutions and expand the number of Ecuador's political and
commercial partners (which also reduces its dependence on the
United States), while protecting the country's national
sovereignty.

¶15. (SBU) The regional organizations where Ecuador is most
active are the nascent Union of South American Nations
(UNASUR) and the Venezuelan-led Bolivarian Alternative for
the Americas (ALBA). Ecuador will assume the presidency of
UNASUR the morning of the same day of Correa's inauguration,
August 10. There has been friction between Ecuador and other
members of the Andean Community (CAN), but it remains a
member of that grouping. Ecuador also supports the Bank of
the South and the new council of South American defense
ministers. In addition, it participates in Rio Group
meetings.

¶16. (SBU) In the region, the Correa administration enjoys
good relations with Brazil, Peru, Argentina and Chile, in
addition to Venezuela and Cuba. Correa has made a number of
visits to Europe, particularly Spain and Italy (which have
large numbers of Ecuadorian immigrants), Belgium (where he
once studied and the birthplace of his wife), and France. In
addition, President Correa has demonstrated an interest in
strengthening bilateral relations with China, Iran, and
Russia. He traveled to China in November 2007 and Iran in
December 2008, and plans to visit Russia in October 2009.

¶17. (SBU) President Correa remains unwilling at this point
to reestablish diplomatic relations with Colombia, despite
ongoing mediation efforts by the Organization of American
States. The GOE set five conditions that Colombia must meet
before resuming diplomatic relations, including ending what
it considers a Colombian information campaign against Ecuador
and handing over the information found on the computers at
the site of the attack on March 1, 2008. Also, since July
13, Ecuador has applied a foreign exchange safeguard measure
to Colombian imports, as a measure to "protect Ecuadorian
products from Colombia's currency devaluation." Despite the
break in relations and Ecuador's protectionist measures,
commercial ties remain strong and consular operations
continue in both countries.

U.S.- Ecuador Relations
-----------------------

¶18. (SBU) The U.S. is cooperating with Ecuador in a number
of areas where we share interests, including poverty
reduction, counter-narcotics, and environmental protection.
The low point of our relationship under the Correa
administration was in February, when Correa expelled two U.S.
diplomats following the suspension of assistance to two
specialized police units as a result of disagreement over
implementation of long-standing procedures under which the
two countries jointly vet personnel to ensure their integrity
before sensitive information is shared with them. The U.S.
and Ecuador are currently moving ahead to conclude agreements
to formalize and re-initiate some areas of cooperation with
the Ecuadorian police.

¶19. (SBU) The U.S. launched a Bilateral Dialogue with
Ecuador in November 2008 during which we discussed
cooperation in human development and poverty reduction,
economic development, commerce and investment, and migratory
issues. When Foreign Minister Fander Falconi met with the
Secretary of State on June 12 in Washington, the two agreed
to continue the Dialogue. Preparations have begun for the
second plenary session, likely to occur in late October. The
GOE recently proposed adding a security pillar to the
Dialogue agenda. Our objectives for the Dialogue include
emphasizing publicly and privately the breadth of our
cooperation, advancing current areas and exploring new areas
of cooperation. We do not consider it a negotiating forum.

Security
--------

¶20. (SBU) Ecuador's greatest security challenge remains the
presence of Colombian illegal armed groups, principally
elements of the Revolutionary Armed Forces of Colombia
(FARC), in its northern border region. The FARC is believed
to use Ecuadorian territory for rest, recuperation, resupply,
and training. The Correa Administration, while maintaining
the country's traditional neutrality with respect to the
Colombian conflict, has opposed armed encroachments across
its borders. While there have been some notable successes in
this effort, insufficient resources and the challenging
border region terrain have made it difficult to thwart
cross-border incursions.

¶21. (U) USG efforts in the area aim to prevent spillover of
drug cultivation and trafficking and illegal armed group
activity into Ecuador. They include development assistance
to improve the quality of life and spur licit economic
growth; counter-narcotics aid to curb smuggling of precursor
chemicals, cocaine, and heroin; and military-to-military
assistance to strengthen Ecuador's ability to secure its
northern border and control its territorial waters.

Refugee Issues
--------------

¶22. (U) The UN High Commissioner for Refugees (UNHCR)
estimates there are at least 180,000 persons of concern in
the northern provinces of Ecuador who have fled Colombia due
to violence or threat of violence. In 2009, the State
Department provided over $1 million in funding for refugees
in Ecuador to UNHCR, and another $1.5 million to the
International Organization for Migration (IOM), the World
Food Program, and a handful of NGOs. UNHCR carries out
direct assistance projects to foster development, while IOM
focuses on emergency assistance and local capacity building.
Since April 2009, the GOE has been implementing its Enhanced
Registration Program, a process by which it hopes to register
50,000 Colombian refugees by the end of 2009.

¶23. (SBU) The GOE's June 20, 2008 announcement that it would
drop the tourist visa requirement for all nationalities has
encouraged an inflow of migrants, adding to the current
presence of small immigrant populations from countries such
as China, Cuba, Afghanistan, Pakistan, and Iran. The new 90
day visa waiver has also created numerous humanitarian
problems, including an increase in human smuggling,
counterfeiting of travel documents, forced labor and
corruption. DHS has already documented an increase of
migrants wishing to use Ecuador as a stopping point on the
way to the United States.

Counter-Narcotics Cooperation and Military Support
--------------------------------------------- -----

¶24. (SBU) Ecuadorian leaders have identified narcotics
traffickers and other criminal organizations as threats to
national sovereignty, and are focusing the police, military,
judiciary and others on disrupting and dismantling these
organizations. Since 2001 the Embassy's Narcotics Affairs
Section has provided almost $94 million of State Department
funds to enhance the capacity of the anti-narcotics police
throughout Ecuador, assist the military in providing security
for citizens and protecting Ecuador's sovereignty on the
northern and maritime borders, and improve the criminal
justice system. The Military Group has also provided an
additional $20 million to the Ecuadorian military to enhance
its operational capacity in the northern border region.

¶25. (SBU) The Manta Forward Operating Location (FOL) was an
important asset in our regional counter-narcotics efforts.
President Correa campaigned on a platform that the FOL
violated Ecuador's sovereignty. On July 29, 2008, the GOE
sent a diplomatic note notifying the U.S. that it would not
extend the agreement when it expired on November 11, 2009.
The United States flew the last counter-narcotics flight on
July 17, 2009 and will turn over the facility on September
18, 2009.

Development Programs
--------------------

¶26. (U) The U.S. has supported Ecuador's development since
1942, working especially through USAID in education, health
and family planning, environment, agriculture,
micro-enterprise, and economic growth. USAID's 2009 funding
is $26 million. Current programs focus on cooperation with
national and local governments to improve stability and
livelihoods, democratic governance, economic growth and
environmental management.

¶27. (U) USAID's Peace and Security program along the northern
and southern borders aims to increase employment and income,
strengthen local governments, and improve the production and
marketing of local business clusters. In FY 2008, USAID
financed the construction of 39 infrastructure projects
including roads, bridges, irrigation canals, and water and
sanitation systems, benefiting 36,364 people along the
northern border. USAID also created 2,754 new full-time
equivalent, legitimate jobs in the northern border region;
farmers' income increased on average 22 percent, from $983 to
$1,200; and 2,000 new hectares of legal crops were planted.

¶28. (U) USAID's broader poverty reduction program promotes
trade and competitiveness and private sector competitiveness.
USAID created new supply and value-chains where small
producers and businesses have now become specialized
suppliers for larger firms with local and international
markets. In FY 2008, USAID invested $704,279 and the
Ecuadorian private sector contributed $784,564 to create 10
value chain activities. These clusters are in
agro-industrial export sectors such as dairy products, hearts
of palm, Panama hats, and jewelry. As a result of this
effort, revenues increased for 1,865 small and medium firms.

¶29. (U) Under democracy and governance, USAID has supported
56 local governments to implement participatory planning
processes and improve their municipal management practices.
More than 1,000 citizens and local officials in 16 cities
received training in areas such as financial management,
citizen participation, and budgeting. One result of this
assistance was that in just three months the municipalities
reduced delinquent taxes by 4 percent and in two
municipalities a two-month "lightning plan" helped
municipalities recover approximately 10 percent of back
taxes.

¶30. (U) Ecuador is one of the most biologically diverse
countries in the world, so USAID's environmental programs
focus on management of the National System of Protected
Areas, indigenous territories, watersheds, and coastal
lowlands and mangroves. The program seeks to create economic
benefits for communities in and around protected areas,
providing the means and motivation for better conservation.

HODGES