US embassy cable - 05QUITO1322

UNCLAS SECTION 01 OF 04 QUITO 001322 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV, SNAR, PTER, ECON, ETRD, EC, CO 
SUBJECT: DROPPING DOLLAR RAISES PROSPECTS IN TULCAN 
 
 
1.  SUMMARY:  Tulcan, capital of Ecuador's Carchi province, 
bestrides the Panamerican Highway four hours from Quito and 
four miles from Colombia.  Like frontier towns worldwide, 
Carchi's capital enjoys its share of money changers, truck 
stops, and customs checkpoints, most visitors clocking in for 
hours, not days.  Yet the nearby redoubt of Colombia's 
illegal armed groups makes this border burg different from 
most.  Ecuadorian security forces are omnipresent, for one; 
Embassy monies and expertise have stood up counter-narcotics 
checkpoints along Carchi highways, and Tulcan hosts a large 
and growing Army battalion responsible for border security in 
the highlands.  Local leaders claim the deployments have 
spawned dropping crime rates, but overcoming Tulcan's 
reputation and attracting tourism and investment remains 
difficult.  All agreed the municipal economy had rebounded 
from the battering that 2001's dollarization had brought. 
The dropping dollar, not fundamental improvements in the 
business climate, underpinned Tulcan's gains, however.  A 
public health officials claimed Carchenses' physical 
condition surpassed national norms, yet the provincial bishop 
lamented residents' spiritual health.  Last, attitudes 
towards Colombians had improved, owing perhaps to an expected 
refugee surge that never materialized.  END SUMMARY. 
 
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Location Good and Bad 
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2.  Shrouded often in mist and drizzle, Tulcan, population 
52,000, is Ecuador's highest provincial capital (9700 feet). 
Unlike frontier peers in neighboring Sucumbios and Esmeraldas 
provinces, the city enjoys excellent road links to Ecuador's 
most populous areas via its privileged location along the 
Panamerican Highway 150 miles north of Quito.  Agricultural 
production thrives in surrounding Carchi province, owing to 
ever-present rains and rich volcanic soils; its potatoes are 
the nation's finest.  Small land plots, high fertilizer 
prices, and significant pesticide use make Carchi crops 
expensive, however, especially compared to similar production 
in neighboring Narino.  Despite the aforementioned road net 
and closeness to Quito, Tulcan has proven unable to attract 
industry, instead living off border commerce and government 
spending.  As such, its economic health depends greatly on 
notoriously volatile exchange rates. 
 
3.  Five miles north lies Ipiales, Colombia, in appearances a 
slightly-bigger Tulcan brother.  When the Colombian peso 
strengthens, Ipiales-area consumers historically flock south 
in search of bargains, benefiting Carchi merchants.  When it 
weakens, however, the flow reverses.  Ecuador's repeated 
devaluations in the 1990s proved a boon to Tulcan, and retail 
businesses expanded to serve Colombian customers.  The GoE 
decision to ditch the sucre and dollarize the economy 
therefore hit the city hard.  Prices skyrocketed overnight, 
Colombian border-crossers canceled travel, and Tulcan's 
economy contracted.  Embassy officers visiting in September 
2002 saw shuttered shops and few shoppers, a general malaise 
in the air. 
 
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Economic Indicators Improving, Grudgingly 
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4.  Emboffs traveled to Tulcan May 30-June 2 to gauge the 
province's economic pulse and security situation.  Provincial 
and municipal leaders described a region in recuperation, 
albeit gradual.  Mayor Pedro Velasco, a second-term United 
Left (ID) politician, claimed consumption was rising and 
businesses returning to Tulcan.  Reasons were two:  the 
Colombian peso, trading at 2900 per dollar in 2003, had 
strengthened 20 percent since.  Colombian shoppers from 
Ipiales and even Pasto were bringing business to 
suddenly-cheaper Tulcan, and northern investors were plowing 
money into Ecuador.  The second was psychological; Carchenses 
finally had accepted dollarization, and instead of pining for 
a return to devaluations, had committed to compete. 
Nevertheless, currency-neutral production costs, especially 
in agriculture, remained lower in Narino than Carchi, and 
Velasco worried a rising dollar could erase recent gains. 
Further, too many city residents continued to depend on 
contraband for their livelihoods; cracking down on illegal 
border crossers spelled economic doom for Tulcan's 
marginalized, however. 
 
5.  Second-term Prefect Rene Yandun (ID), a former Army 
general, sounded even less sanguine over Carchi's chances. 
Internal migration, mostly to Quito and Santo Domingo de los 
Colorados, was robbing the province of its economic 
wherewithal.  Carchi's population, estimated at 200,000 in 
1995, had dropped 25 percent in ten years, hollowing out its 
workforce, especially in agriculture.  Prosperity lay not in 
working the land, however, but in attracting industry and 
tourism.  On the latter, Yandun argued that Carchi's 
volcanoes, vistas, and indigenous culture were the equal of 
any Ecuadorian province's.  Yet rumors of widescale Colombian 
narcoterrorist incursions poisoned the tourism environment; 
such fear caused southbound travelers to bypass Tulcan for 
Imbabura capital Ibarra, while Colombia-bound visitors 
overnighted in Ipiales or Pasto. 
 
6.  April's administration change brought new governors to 
the provinces; President Palacio's Carchi representative, 
Bolivar Chamorro, was but one month in office upon meeting 
with Poloff.  The one-time educator displayed world-class 
braggadocio in exclaiming that friction between the 
governor's, prefect's, and mayor's offices had ended upon his 
assumption of power.  Such animosity had hampered economic 
development in the province, Chamorro explained.  The 
governor touched on the same problems Yandun and Velasco had, 
adding one of his own:  Carchi's poor education system. 
Primary and secondary school quality was horrific, and the 
province lacked a full-time university.  Attracting one was a 
primary goal. 
 
7.  Public health issues are not a brake to provincial 
economic development.  Dr. Ruth Velasco, a 13-year Ministry 
of Health official in Tulcan, claimed Carchenses' physical 
condition exceeded national norms.  Outbreaks of malaria and 
dengue, constant worries along Ecuador's coast and in 
lower-elevation parts of the sierra, were no worry in 
9,700-ft Carchi.  Nor was tuberculosis, troublesome in high 
sierra indigenous communities.  Velasco lauded MoH 
initiatives to vaccinate the entire provincial population and 
educate prospective mothers in effective prenatal care, which 
had earned the ministry significant goodwill. 
 
8.  Carchi's preeminent Catholic priest questioned his 
flock's spiritual health, however.  Bishop Luis Sanchez, a 
Loja native, had called Tulcan home for three years.  Church 
attendance by confirmed Catholics had averaged 12 percent 
during his tenure, a disappointing figure.  "Sects" saw 
fertile ground in Carchi, Sanchez lamented, referring to 
evangelical, Protestant groups such as the Seventh Day 
Adventists and Mormons.  In response, the twenty-odd parishes 
within his diocese were expanding outreach activities, 
although the challenge looked difficult.  Roman Catholic 
pastoral activities too were suffering.  External funding -- 
mainly, a grant from the German church he had dedicated to 
women's issues -- had evaporated, and the bishop had been 
unable to identify alternatives.  Sanchez hoped to continue 
assisting Carchi's resident Colombian refugee population, but 
natives' protests over expending limited funds on foreigners 
limited his actions. 
 
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Carchi Growing More Secure? 
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9.  Post's Narcotics Affairs Section (NAS) directs large 
chunks of USG counter-narcotics (CN) assistance to Ecuador's 
northern border.  After reconnoitering the construction site 
of a NAS-funded CN checkpoint along the Carchi-Imbabura 
frontier, Emboffs met with Carchi CN police commander 
Patricio Guerra and later visited his troops and facilities. 
Guerra, a rising police star, revealed plans for a two-week, 
round-the-clock CN operation targeting provincial highways. 
As nationwide drug interdictions had dropped 60 percent from 
year-earlier totals, he was pushing his men (and women) hard 
for results.  Guerra called cooperation with his Colombian 
counterpart top-notch, but claimed Ecuadorian police-military 
coordination was still lacking -- Carchi-based armed forces 
still misunderstood their CN role, he lamented. 
 
10.  Numerous clandestine frontier crossings compromised 
police efforts to disrupt southbound drug trafficking, Guerra 
asserted.  Traffickers even used trained, riderless mules and 
horses to ferry product, limiting their legal exposure.  That 
said, days before his team had interdicted smugglers carrying 
$15,000 in Colombian pesos (and during Emboffs visit, they 
apprehended a trafficker concealing five kilos of coca base 
beneath a crate of live chickens).  To improve CN forces' 
capabilities, Guerra presented Emboffs a reasonable, 
well-thought-out assistance request; topping the list was a 
heavy truck to allow squad-sized, far-ranging patrols. 
 
11.  The 39th Army battalion in Tulcan has responsibility for 
patrolling the highlands stretch of the Colombian border. 
NAS and the Embassy's MILGP donated five five-ton trucks and 
12 Humvees to the 39th in 2004, increasing the unit's ability 
to patrol frontier areas facing guerrilla and paramilitary 
threats from Colombia.  Battalion commander Colonel Ramon 
Enriquez informed NAS director that he had 400 troops in the 
field on a training exercise at the moment, and that 
additional communications equipment was his greatest need. 
The NAS Director inspected a USG-funded maintenance hangar 
project on his base, and discussed methods to improve fuel 
supply and inventory control. 
 
12.  Civic leaders also weighed in on security matters in 
Tulcan and surrounding Carchi province.  All agreed the 
region, while not exactly Bern, was not Baghdad either -- 
sensationalist media outlets in Quito and Guayaquil needed to 
get the facts right.  Yet problems remained that threatened 
the nascent economic recovery.  Mayor Velasco, after noting 
police would not crack down on "contrabandistas," 
acknowledged that drug traffickers often utilized the same 
illegal border crossings.  He refuted rumors claiming the 
FARC utilized Tulcan for resupply and R&R, however, arguing 
the Colombian rebels preferred smaller hamlets east and west. 
 Concurring with Colonel Guerra on police-military 
coordination problems, Velasco asserted the armed forces, 
greater funding and shinier toys had spawned police 
jealousies. 
 
13.  Yandun praised a recent Ecuadorian military decision to 
deploy 450 additional soldiers to the Tulcan battalion. 
NAS-provided CN police support also earned his gratitude. 
Carchi residents continued to feel threatened, however, by 
the closeness of Colombian irregulars and "copycat" 
Ecuadorian criminal gangs plaguing rural regions.  Yandun 
claimed that kidnapping rings' activities had forced large 
landowners to flee, selling their properties at a loss and 
driving down land prices.  Bishop Sanchez agreed the 
kidnappings were continuing, albeit at a lower rate than 
three years before; he had demurred, however, when asked 
recently to broker a ransom and release. 
 
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Colombians Still Coming 
----------------------- 
 
14.  Gerardo Dorado runs the GoC's consulate in Tulcan. 
While Plan Patriota had not spurred significant refugee 
movements as many had expected, Colombians continued to head 
south for economic reasons.  Dorado claimed that Carchi 
employers preferred harder-working, cheaper Narino laborers. 
Most were illegal, however, and subject to exploitation. 
Regularization duties therefore consumed much of his days. 
 
15.  Three years ago, Dorado's predecessor claimed Ecuadorian 
border officials regularly mistreated southbound travelers at 
the Rumichaca International Bridge.  The situation had 
improved somewhat, the Consul revealed, but GoE personnel 
continued to hassle Colombians and not honor Andean freedom 
of movement stipulations.  His countryman also received 
stiffer sentences for drug offenses than Ecuadorians -- some 
250 inhabited the Tulcan prison, each serving minimum 
eight-year terms. 
 
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COMMENT: 
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16.  Our primary desire in visiting Tulcan lay in gauging the 
security situation, measuring Carchi's economic recovery, and 
ground-truthing the value of USG CN assistance.  But we had 
bigger-picture reasons as well.  Claims that Ecuador has 
adopted a more independent, less servile foreign policy 
litter Quito airwaves and front pages.  In his Cabinet 
appointments, President Palacio named gringo-bashers and 
sovereignty protectors, with Ecuador's "involvement" in Plan 
Colombia proving a convenient target for their rantings.  We 
therefore endeavored to learn whether demands for a return to 
isolationist old-think vis-a-vis Colombia had translated into 
a troop pullback or more tepid force posture.  Thankfully, it 
has not; if anything, front-line Ecuadorian police and 
military appear more energized than ever.  If we had one 
hundred Colonel Guerras, for example, we'd be writing a 
requiem on the demise of Ecuador's drug problem.  Sometime 
USG-detractor Mayor Velasco put it best.  "Sometimes good 
does come from bad," he remarked, referring to greater Quito 
attention to frontier problems, owing to worries of Colombian 
spillover.  Our intention is to ensure the Government of 
Ecuador remains focused on its northern border.  END COMMENT. 
 
Kenney