US embassy cable - 05QUITO882

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 000882 
 
SIPDIS 
 
E.O. 12958: DECL: 04/19/2015 
TAGS: PGOV, PREL, ASEC, KCRM, ELAB, EC 
SUBJECT: ECUADOR: FATE OF USG INTERESTS 
 
 
Classified By: Ambassador Kristie A. Kenney.  Reasons 1.4 (b&d) 
 
1.  (C) Summary:  It is too early to know how a Palacio 
government would handle key issues on the USG agenda, but 
based on Palacio's history and early public statements, it 
appears very likely that FTA negotiations would be set back, 
and that Ecuador might well withdraw from the negotiations, 
while the status of the Cooperative Security Location in 
Manta would likely be unaffected.  Effects on other ongoing 
CN and CT cooperation are not known. Palacio's avowed concern 
for sovereignty could imply stronger GOE objections to U.S. 
CN efforts in disputed waters.  Mil-mil relations are not 
likely to suffer unless the military leadership is changed. 
Money-laundering legislation and labor reforms are unlikely 
to prosper unless the composition of Congress is changed. 
Prospects for action to combat TIP could improve under 
Palacio.  End Summary. 
 
2.  (C) Key factors affecting this judgment include: 
 
-- Palacio's interest in contrasting his government with his 
predecessor's.  Palacio broke with Gutierrez long ago, 
calling for a return to the populist principles they ran for 
office on. 
 
-- FTA:  Rafael Correa, newly-named minister of Economy, is a 
strong critic of the FTA negotiations. Since being sworn in, 
Palacio has repeatedly cited intellectual property concerns 
with the agreement, and criticized the GOE negotiating team. 
Naming of an activist member of the Democratic Left (ID), 
Oswaldo Molestina, as minister of trade may well mean that 
the FTA has been sacrificed to the ID, which generally 
opposes the agreement. 
 
-- Occidental Expropriation:  We are emphasizing in all 
meeting with figures in the new government the importance of 
not making a misstep on the still-pending decision whether to 
expropriate (declare "caducidad" all of Occidental 
Petroleum's assets (a value of perhaps $2 billion) in 
country.  This decision is pending and will depend on the 
President of Petroecuador and the Minister of Energy, both 
still to be appointed, and, of course, on the President. 
 
-- Macro Economic Policy:  Nomination of Rafael Correa as 
Minister of Finance and Economy is a strong signal that the 
tight fiscal policy of the Gutierrez administration is over. 
Correa has already declared on television that he will end 
the FEIREP, moving oil revenues back into the budget for 
regular expenditure and that one of the key problems of the 
country is that public sector wages are too low.  He said 
that Ecuador does not need foreign investment, it needs "real 
investment."  EconCouns debated Correa on the benefits of an 
FTA to Ecuador several months ago before a crowd of students. 
 Correa's exposition was critical not only of the FTA with 
the U.S., but of trade liberalization in general (except with 
the European Union), of the IMF, and of any orthodox economic 
reform.  He suggested, as no one else we have ever met with, 
that reports of corruption and theft in Petroecuador are 
exaggerated. 
 
-- Manta:  In his initial comments to the press after being 
sworn in, Palacio was asked what his position on the CSL in 
Manta.  He responded that Ecuador's international commitments 
must be followed to the letter, but no more. 
 
-- CN:  Palacio has not yet ratified the interim commander of 
the national police, making forecasting on this issue 
difficult.  Palacio emphasized his government's commitment to 
safeguard national sovereignty.  The sovereignty issue has 
raised its head in the context of USG efforts to intercept 
boats carrying illicit cargoes of drugs or migrants.  Even if 
Palacio can be convinced to tighten efforts to combat 
money-laundering, unless the composition of Congress is 
changed, reform legislation is likely to remain blocked. 
 
-- CT:  There is no current information regarding Palacio's 
views on CT issues.  While President Gutierrez was 
forward-leaning in providing assistance against the FARC, it 
remains to be seen what Palacio's views are on this topic. 
Palacio's Minister of Government is a strong opponent of Plan 
Colombia. 
 
-- Mil-Mil:  The naming of Gen. (ret.) Solon Espinoza as 
Defense Minister is not surprising since Ecuador has always 
named a retired flag officer as MOD, rather than a civilian. 
DATT spoke with CHOD and Army CDR and both expect changes in 
leadership before week's end.  Changes in leadership could 
affect good mil-mil relations. 
 
-- Labor Reform:  The PSC and ID are likely to take opposite 
sides on any debate of labor reform (the former pro-business 
and the latter favoring workers), making it unlikely Palacio 
would take this on. 
 
-- TIP:  This issue is non-contentious, and simply awaits a 
return to normalcy in Congress (never assured, 
unfortunately).  With Congress cowed by street protests, 
prospects for dealing with non-controversial issues may 
actually increase. 
KENNEY