US embassy cable - 05QUITO1257

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 001257 
 
SIPDIS 
 
DEPT PASS TO USTR BENNETT HARMAN 
 
E.O. 12958: DECL: 06/01/2015 
TAGS: ECON, PGOV, ETRD, EPET, EFIN, EC 
SUBJECT: PRESIDENT PALACIO ON IMF, FTA AND HEALTHCARE 
 
REF: QUITO 1181 
 
Classified By: Ambassador Kristie A. Kenney, Reason 1.4 (b)(d) 
 
1. (C) Summary.  In a May 31 meeting with the Ambassador, 
President Palacio, a heart surgeon, discussed his ambitious 
national health care plan.  He also told the Ambassador to 
pay little attention to the exuberance of youth displayed by 
Palacio's Minister of Economy and Finance Rafael Correa.  In 
a public show of support for the FTA, Palacio said he planned 
to bring his entire cabinet to the FTA talks next week in 
Guayaquil.  Palacio's economic team leaves much to be 
desired.  Septel will address the political issues addressed 
during the meeting.  End Summary. 
 
Healthcare a Priority 
--------------------- 
 
2. (C) President Palacio spoke at length with the Ambassador 
about Palacio's pet project, a national healthcare system. 
Palacio, a U.S. trained heart surgeon, has been pushing for 
such a program since he became Vice President in January 
2003, but was largely ignored by then president Lucio 
Gutierrez.  Palacio sees this as his opportunity, and perhaps 
his legacy for the country.  Though, it was unclear where the 
expertise would come from to implement such a program, 
Palacio said his recent proposed changes to Ecuador's oil 
stabilization fund (FEIREP), allocating 15% of the fund's 
revenues to health matters, would give the program a jump 
start. 
 
Ignore Economy and Finance Minister's Exuberance 
--------------------------------------------- --- 
 
3. (C) Palacio said he was pleased with his cabinet, but 
volunteered that his Minister of Economy and Finance Rafael 
Correa suffered from the exuberance of youth and was not as 
careful as he should be with his public statements.  However, 
Palacio assured the Ambassador that his administration was 
dedicated to strict fiscal discipline.  Though, he added, 
social investment was also important. 
 
4. (C) The Ambassador noted that press statements attributed 
to Correa indicated that he was not taking such a hard line 
on fiscal discipline and that Correa appeared confrontational 
with those who did not share his views. She also alluded to 
Correa's unfounded allegations that the Gutierrez government 
(of which Palacio was Vice President) had a "secret" pact 
with the International Monetary Fund. Palacio responded that 
Correa simply needed to tone down his rhetoric and that 
Palacio had full confidence in him. 
 
Trade Issues 
------------ 
 
5. (C) To contrast the styles of the ministers, the 
Ambassador mentioned that the Embassy had been working with 
Minister of Trade Oswaldo Molestina to resolve pending trade 
disputes with U.S. companies.  She noted specifically though 
that the Oxy case remain unresolved.  In response, Palacio 
said he was pleased that Molestina was working with us.  He 
added that he would show his report for free trade by having 
his entire cabinet come to Guayaquil for next week's 10th 
round of the U.S.-Andean FTA negotiations. 
 
Comment 
------- 
 
6. (C) We are not convinced that Minister Correa's only 
problem is the tone of his rhetoric (see reftel).  Nor are we 
convinced of Palacio's commitment to an FTA.  His past public 
statements cast doubt on that commitment.  Also, prior to 
becoming Vice President, Palacio had little government 
experience and gained none when he was isolated from the rest 
of the Gutierrez administration. 
 
7. (C) Palacio's failure to appreciate the sensitivities of 
the Ecuadorian financial picture and how it can be affected 
by the "exuberant" comments of its populist Minister of 
Economy are another indication of the steep learning curve 
Palacio has.  With one presidential candidate (Alvaro Noboa) 
already starting his campaign, Palacio will have little time 
to be schooled. 
 
8. (C) Thus far, Palacio has not proven to be too adept in 
the selection of his economic team.  The proposals of his 
Minister of Economy and Finance have created considerable 
uncertainty in the financial sector.  Minister of Energy 
Fausto Cordovez has no experience in the sector and refused 
or was unable for eight years to pay is delinquent debts, 
until last week.  Robert Pinzon a Palacio confidant and now 
President of state-oil company PetroEcuador also has 
considerable outstanding debts and the lowest credit rating 
one can have in the country, spent time in jail for fraud. 
The most promising economic team member, Minister of Trade 
Oswaldo Molestina, cannot seem to decide who will lead his 
FTA negotiation team.  The one bright spot in the Gutierrez 
administration was its economic record.  The new Palacio 
administration might soon blot that bright spot out. 
Kenney