US embassy cable - 04QUITO2941

C O N F I D E N T I A L QUITO 002941 
 
SIPDIS 
 
STATE FOR WHA/AND, TREASURY FOR SIGNORELI 
 
E.O. 12958: DECL: 11/08/2009 
TAGS: EFIN, ECON, PGOV, EC, President, Democracy 
SUBJECT: MINISTER OF FINANCE CONFIDENT OF STABILITY 
 
 
Classified By: ADCM FRED KETCHEM, REASONS 1.4 (B,D) 
 
1.  (C) Summary:  Minister of Finance Yepez believes the 
Gutierrez regime can make it through the current crisis, but 
remains handicapped by bad advisors at the top.  The GOE is 
maintaining its responsible fiscal policy and continues to 
work on plans to eliminate the gas subsidy.  End Summary. 
 
2.  (C) Ambassador had breakfast with Minister of Finance and 
Economy Mauricio Yepez on November 5 to discuss the political 
and economic situation of Ecuador.  In response to 
Ambassador's question, Yepez said that he was concerned about 
the political situation, but expected Gutierrez could survive 
the current attempt at impeachment. 
 
Bad Advice 
---------- 
 
3.  (C) Unfortunately, Yepez said, some of Gutierrez's 
advisors, in particular Secretary of the Presidency Xavier 
Ledesma and Presidential Advisor Oscar Ayerve, were so bad 
that they could jeopardize the president's position.  At 
present Raul Baca, Minister of Government and a sensible 
advisor to the president, had little access.  (Embassy 
sources report on November 8 that Baca has resigned. 
Reported reasons for the resignation are various and 
conflicting.)  For his part, Yepez said, he was avoiding the 
cabinet meetings in order to see the President afterwards in 
small meetings where he was better able to influence him. 
 
Fiscal Continuity 
----------------- 
 
4.  (C) Up to this point, the political situation had not 
affected the budget in significant ways, Yepez said.  He was 
looking at funding completion of some municipal 
infrastructure projects, especially in Quito, as a way of 
strengthening the President's position in Congress, 
particularly among members of the Democratic Left (ID) party 
which controls the city government and supports impeachment. 
These were projects which would be funded eventually and the 
money would come from re-prioritizing all the infrastructure 
projects, so the effect on the budget would be nil.  He was 
working with the armed forces on a restructuring package 
which might include a pay raise.  Overall, though, the 
restructuring package would be budget-neutral, streamlining 
military spending and moving funding from unnecessary and 
antiquated efforts to more useful purposes. 
 
5.  (C) Yepez said he was drafting a letter to Treasury 
Secretary Snow to follow up on their meeting in September. 
 
SIPDIS 
He intended to lay out an idea Snow had reacted favorably to 
in their meeting.  The idea was to create a new financial 
instrument under the multilateral development banks to smooth 
out the debt payments developing countries owed to the banks. 
 
6.  (C) Ambassador asked whether Yepez thought his proposal 
to Gutierrez on increasing the price of cooking gas could go 
forward given the current political situation.  Yepez said he 
thought so.  He had good relations with the indigenous and 
was working with them on the idea.  All or most of the 
initial fiscal benefit from eliminating the subsidy would be 
given back to the indigenous and poor through direct payments 
or projects.  He thought they would go for it. 
 
7.  (C) Comment:   Yepez is one of the adults in the 
Gutierrez administration.  His continuation of the 
responsible fiscal policies of his predecessor is one of the 
few real accomplishments of the Gutierrez government.  This 
meeting was another demonstration that he is keeping to that 
line.  Eliminating the gas subsidy would be a huge step 
forward, but would demonstrate a political ability far beyond 
that which the GOE has so far demonstrated. 
KENNEY